Health savings accounts growing

Font Size:

By Ann McGlynn | Sunday, July 9, 2006 1:13 AM CDT | () comments

A fledgling way of paying for health care that has similarities to the old benefit standbys of the 401(k) and flexible spending accounts is beginning to catch on in the Quad-Cities and nationwide as employees and employers seek to gain control of health care spending.

Health savings accounts, established by the federal government in 2004, are tax-free accounts designed to help people save for qualified health expenses for themselves and their families.

At Quad-City-based RSM McGladrey Inc., for example, 452 of 6,869 employees are participating in the accounts, said Kathy Johnson, director of people operations and benefit design. The company began offering the benefit in 2004.

“It saves the employee and the company money,” Johnson said, adding that the cost of the required high-deductible health plan for employees enrolled in the savings accounts will increase by just 2 percent this year, compared to historic double-digit increases of other plans.

But there are other benefits, too, she said.

“I think that the main value in it is for people to take more responsibility over their health care decisions, which is really critical for the U.S. to continue as an independent medical system. The other thing that we find is we like our people to be very well aware of what they are spending on health care and what we are spending on health care.”

More than 3 million people nationwide are signed up for a health savings plan, according to recent testimony in front of the House Ways and Means Committee. Big-name companies such as Wal-Mart and Wendy’s are offering them to employees, as are smaller organizations such as Lutheran Social Services of Illinois.

Here is how they work:

Contributions are tax-deductible. Interest earned is tax-free. Withdrawals for qualified medical expenses are tax-free. Unused money and interest are carried over, without limit, from year to year. The account goes with the employee if he or she changes jobs or retires.

In order to have a health savings account, a person must participate in a health insurance plan that has a high deductible of at least $1,000 for individual coverage or $2,000 for family coverage.

Plans draw criticism

The accounts have critics, however.

The AFL-CIO, in a statement outlining its opposition, said the plans “will end up costing consumers more money and providing less health care.”

Steve Smith, spokesman for the union, said the country is in the middle of a health care crisis, and health savings accounts are a “drop in the bucket” and an inadequate solution.

Specifically, the plans “encourage employers to abandon health benefits,” require high out-of-pocket expenses, will discourage preventive care and will increase premiums for workers who remain in more comprehensive plans.

The union also is concerned that most uninsured Americans could not save large amounts of money to put into the accounts, that minorities who suffer disproportionately from chronic conditions will be less likely to benefit from the accounts, it could increase the number of Americans without health insurance and would undermine employer-sponsored group insurance.

For Lutheran Social Services of Illinois, the accounts have prevented a health insurance “death spiral,” said Larry Lutey, but they are not without problems.

“We moved to HSAs because we had to. We remain there because we choose to,” he offered as testimony to the Ways and Means Committee.

One of the benefits of the plan is an actual increase in pay for employees, he said, raises that are not then absorbed by health insurance increases. But, “some have found it difficult to manage, difficult to understand, difficult to access, and have chosen to leave the health plan for other alternatives,” he said.

The rate of growth of health insurance premiums did decline for a second straight year in 2005, slowing to 9.2 percent compared to 11.2 percent in 2004 and 13.9 percent in 2003, according to a report from The Kaiser Family Foundation.

Overall inflation increased 3.5 percent in 2005. Wages increased 2.7 percent.

The study also showed an increase in the percentage of organizations offering the high-deductible health plans to at least some employees. They are the plans required for workers who wish to participate in a health savings account.

Smaller companies were the first to offer the accounts, said Jerry Ripperger, director of consumer health for Principal Financial Group, which offers group health insurance to several companies. Larger companies, like his own, are beginning to launch them, too.

Ripperger will be signing up for Principal’s.

“I don’t see a lot of drawbacks,” to the health savings accounts, he said. “The current system is based on OPM — other people’s money. Our hope is that people will get more engaged in their health.

“We don’t have a health care crisis, we have a health crisis,” he said.

Ripperger encourages all employers, but especially those considering health savings accounts, to implement wellness programs that provide screening and health information to workers.

“They keep talking about the magic pill. It’s simple: diet and exercise.”

Ann McGlynn can be contacted at (563) 383-2336 or amcglynn@qctimes.com.