There is good news
in the world of health insurance. While premiums for traditional
insurance continue to rise, premiums for one kind of insurance are
decreasing. That option, the Health Savings Account, gives
consumers real choice, offering a variety of plans to fit a wide
range of needs and budgets.
HSAs were created
as part of the Medicare Modernization Act of 2003 and offer
consumers new, more affordable options in health insurance. HSAs
allow their owners to save money tax-free, and their employers to
contribute to those savings tax-free, when they purchase a
qualified high-deductible health insurance plan. These savings, in
turn, can be used to cover out-of-pocket health care expenses.
Qualified high-deductible plans must have deductibles between
$1,000 and $2,650 for individuals and between $2,000 and $5,250 for
families, bringing maximum total out-of-pocket expenses (including
deductibles, co-pays, and co-insurance) to $5,100 for individuals
and $10,200 for families.
for employer-sponsored health insurance have been rising steadily
since 1996. They rose 11.2 percent in 2004, a slight decrease from
2003's 13.9 percent increase but still significantly above
While the data available on HSAs is limited, as they have been
available for less than 2 years, the early results are
According to sales
data from ehealthinsurance.com, the average premium for an
individual HSA-qualified high-deductible plan dropped 19 percent in
the first 6 months of 2005 relative to the 2004 price, from $137.94
to $111.57 per month.
Total savings from this drop, on average, amount to $316.44 per
Those aged 45 to
64 and purchasing HSAs saw the most dramatic price reductions, with
average monthly premiums falling from $225.05 in 2004 to $187.07 in
the first six months of 2005. That works out to annual average
savings of $455.76.
One of the most
appealing aspects of high-deductible health plans is that
purchasers can choose what level of deductible they wish to carry,
balancing the chance of higher-than-expected health care expenses
against savings from lower premiums. The data show that consumers
are taking full advantage of this choice. Among the HSA-eligible
high-deductible plans sold by ehealthinsurance.com in the first
half of 2005, 14.9 percent cost less than $50 or less, 47.7 percent
cost $51 to $100 per month, and 30.1 percent cost $101 to $200 per
contrast sharply with premiums for other types of health insurance.
A survey of employer-provided health insurance premiums shows these
plans to be significantly more expensive than HSA-coupled
high-deductible plans. In 2004, the average monthly premium for an
individual with employer provided traditional, HMO, PPO, and POS
insurance plans totaled $308 per month-almost $200 more than the
latest average premium for HSA-coupled plans.
HSA plans are also
less expensive than traditional insurance purchased in the
individual market. People enter the individual market for many
reasons-it may be, for example, because they cannot get health
insurance through their workplace, do not think the insurance
offered by their employer meets their needs, or are self-employed.
According to a recent study, while traditional insurance in the
individual market, with an average premium of $3,368 per year,
costs less than employer-provided plans, it is still more expensive
than HSA-eligible plans. The good news in this data is consumers
have more options than they may realize in the individual
difference between HSA plans and traditional plans holds steady as
individuals age. For those between 45 and 64 and purchasing an
HSA-eligible plan, annual premiums ($2,244, on average) are roughly
3 times what an individual between 18 and 24 would pay ($786).
For those between 45 and 64 and purchasing a traditional plan,
annual premiums ($3,470) are roughly 3 times what an individual
between 18 and 24 would pay ($1,170).
in the costs of traditional insurance plans versus HSA-eligible
plans add up to real consumer choice. HSA-eligible plans are less
expensive than traditional plans, but the consumer can decide
whether lower premiums are worth higher out-of-pocket costs. Some
consumers may decide that the ability to save for out-of-pocket
costs tax-free and roll over unspent monies from year to year is
the right choice for them-with HSAs, they have that
high-deductible health insurance plans come with higher
out-of-pocket costs than traditional insurance, and this is why
their premiums are significantly lower than traditional health
insurance premiums. With HSAs, consumers can choose the level of
maximum out-of-pocket expense that they find comfortable and can
afford. Meanwhile, individuals and their employers can set aside
money in an HSA, tax-free, to cover some or all of these
out-of-pocket costs. Of the plans sold by ehealthinsurance.com to
individuals in the first half of 2005, 51.1 percent limited
out-of-pocket expenses to $5,100 (the maximum allowed by law), 32
percent limited out-of-pocket expenses to between $2,500 and
$5,099, and 16.8 percent limited out-of-pocket expenses to between
$1,000 (the minimum to qualify for an HSA by law) and $2,499.
was also evident among family plans. Nearly one-third of family
plans sold, 31.6 percent, came with out-of-pocket maximums of
$10,000 or more ($10,200 is the maximum allowed by law), while 41.6
percent limited out-of-pocket expenses to between $5,000 and
$9,999, and 19 percent to between $2,500 and $4,999.
HSAs and the
plans costing significantly less than traditional insurance plans,
many uninsured individuals are getting into HSAs. Just under half
of ehealthinsurance.com's HSA customers in the first half of 2005
with incomes below $15,000 were uninsured for at least 6 months.
For those with incomes between $15,001 and $35,000, 43.4 percent
were previously uninsured.
higher-income individuals who were previously uninsured purchased
HSA-eligible health plans. Over 20 percent of
ehealthinsurance.com's customers earning over $100,000 had been
uninsured for at least the previous 6 months.
The evidence that
Health Savings Accounts can make health insurance more affordable,
give consumers greater choice and flexibility, and thereby reduce
the number of uninsured is mounting. While the critics have been
mostly wrong in their predictions-for example, that HSAs would
serve only the healthy, wealthy, and young-HSA proponents have seen
the accounts' promise quickly fulfilled.
Accounts are not the silver bullet of health policy but a tool with
the potential to make a positive difference in Americans' lives.
Broader reform of the tax treatment of health insurance and health
care is essential to make markets work better while expanding
access and choice of insurance coverage options. Still, as more and
more people choose HSAs, premiums will become even more
competitive, perhaps even falling further as their market share
grows. While not a panacea, health savings accounts are a valuable
part of the continuing effort to bring affordable health insurance
to more Americans.
Derek Hunter is a
Research Associate in the Center for Health Policy Studies at The