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Slow Start for Health Accounts

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SAN FRANCISCO -- Employers have been slow to warm up to a new option for paying medical expenses called the health savings account, the centerpiece of President Bush's health care policy.

HSAs are like 401(k) plans for health coverage, allowing people to set aside pretax dollars for medical expenses. Employers typically offer HSA accounts twinned with health insurance policies that have low monthly premiums and high deductibles.

"We are offering it to many clients. Everybody's interested in it because of the elections ... but it's not taking off," said John Cross, a San Francisco broker who specializes in health insurance for small to midsize employer groups. He estimates that about 2 percent of clients have bought the policies, which become effective on Jan. 1.

HSAs join what has become an ever-growing alphabet soup of health insurance savings vehicles, collectively known as medical savings accounts, that include FSAs (flexible spending accounts) and HRAs (health reimbursement accounts).

HSAs were created last year when Congress passed reforms to Medicare that added prescription drug benefits. The Bush administration has embraced them because they represent a conservative, market-based approach to curbing fast-rising health care costs.

Although employers aren't immediately rushing into HSAs, health analysts expect the accounts will become popular with business because of their potential to trim benefit costs.

In recent years, employers have found it increasingly difficult to afford the level of coverage they offered in the 1990s. Companies have been shifting a growing portion of their insurance costs onto employees in the form of higher co-payments and bigger worker contributions for premiums. Meanwhile, employers are turning to plans with fewer benefits.

HSA proponents hope these new accounts will lower health care costs by forcing individuals to spend more of their own money, prompting them to make more cost-effective decisions.

Critics contend HSAs could be good for the wealthy and healthy, but a bad deal for those with ongoing medical expenses.

Much of the appeal of HSAs is the comparatively low premiums. While plan prices vary according to the amount of the deductible and the out-of-pocket maximum for the policy, they cost as much as 30 to 50 percent less than traditional policies.

Employers can decide whether to contribute money toward their workers' accounts. Some might do so to entice employees to select those plans.

As part of Bush's campaign promise to make HSAs more attractive to employers, the president offered small businesses a tax credit to encourage them to contribute to the accounts.

"What companies can do is contribute toward the deductible, and workers can put their money in the bank and pay expenses," said Robert Goldberg, director of the conservative Center for Medical Progress at the Manhattan Institute in New York.

Goldberg said salaries could increase because companies with HSAs would be able to divert money away from health insurance.

Goldberg considers HSAs to be a form of universal coverage because they are attached to the individual rather than the employer. "When you lose your job, you don't lose your auto insurance or your home insurance," he said. "There's no reason to lose your health insurance." Both HSA supporters and opponents expect that, despite the slow start, the accounts will eventually play a key role in the health insurance marketplace. For one thing, insurers are tripping over themselves to come up with HSA-compatible plans.

Blue Shield and Blue Cross already offer such policies in California.

Health Net will offer an HSA product after Jan. 1, and PacifiCare of California is planning to introduce its HSA plan in the first quarter of 2005.

Kaiser Permanente last week announced plans to offer its own high-deductible health policy linked to an HSA in several parts of the country, beginning in January. It will extend that option to California in 2006.

There are many reasons why employers are slow to adopt HSAs.

Unfamiliarity with the plans is at the top of the list.

"It's not a lightning rod yet. They're going to grow over time.

They're hard to understand," said Michael Chee, spokesman for Blue Cross of California. Chee said 401(k) plans followed a similar learning curve when they were introduced.

HSAs differ from flexible spending accounts, which also allow people to use pretax dollars for medical expenses, because HSAs must be used in conjunction with high-deductible insurance policies that meet specifications set by law. Unlike an FSA, which is a use-it-or-lose-it account, HSA money rolls over year after year.

And, unlike a health reimbursement account, which is tied to a high-deductible policy and controlled by the employer, HSAs are owned by the individual and can be taken from job to job.

For this reason, some employers might prefer HRAs because they have control over the money and can use the benefit to attract and retain employees.

Critics say that while HSAs might help those who want the federal tax shelter or who would otherwise not have coverage, they could prove costly for those with low incomes or chronic conditions.

Instead of accumulating a stash of money year after year, people with high medical expenses could wind up burning through their deductibles and paying large out-of-pocket costs.

"The concept of putting money into a medical savings account, or HSA, is one that is attractive to people who have the money to put into them," said Ira Loss, senior health policy analyst for Washington Analysis, an independent research business consulting firm based in Washington.

In addition, HSA naysayers believe that younger, healthier workers will be drawn to these cheaper plans. Those with higher medical expenses will stay in traditional plans, driving up those plans' cost.

Loss said HSAs are clearly better than nothing if an employer's alternative is not to offer any coverage. But they are a far cry from a comprehensive policy. "My instinct tells me these are plans designed for the healthy and the wealthy," he said.

While most employers are not diving into HSAs right away, many of them are considering at least some form of medical savings account in the near future as a way to control costs.

Fifty percent of large companies with 5,000 or more employees described themselves as somewhat or very likely to offer a high-deductible health care plan with a savings account component in the next two years, according to a survey conducted in the spring by the Kaiser Family Foundation and the Health Research and Educational Trust. That same survey found that 26 percent of firms with fewer than 200 employers expressed the same interest.

Some companies have already decided to test the HSA waters. The majority of those doing so are offering the accounts alongside their regular menu of insurance options.

The California Dental Association, which has nearly 200 employees and represents nearly 70 percent of the state's licensed dentists, is offering HSAs to its employees and members effective Jan. 1. The association will also offer its standard policies.

"The premiums are cheaper, and we want to get people thinking about how they're using the system," said Cindy Schneider, chief financial officer for 1201 Financial Insurance Services, a subsidiary of the dentists group.

"We actually want to shift people's thinking," she said. "If it doesn't cost them anything, they're probably more likely not to question the services." The association, which is based in Sacramento, would be lucky if 10 percent of its employees agree to participate in the coming year, Schneider said. The association will cover half the deductible, which comes to $2,500 for an individual and $5,000 for a family.

Schneider said she doesn't expect that HSAs will cause the group's health benefit expenses to drop anytime soon, but she remains hopeful.

"As it catches on and more employees are participating in it, our expectation is we will experience a savings," she said.

Editor Notes: NONE

c.2004 San Francisco Chronicle

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