Medicare, insurers seek expansion of HSAs

August 1, 2006

Supporters of consumer-directed healthcare options want Congress to increase tax breaks and coverage limits to broaden the appeal of health savings accounts (HSAs) linked to high-deductible health plans. Health insurers and employers back legislation that would expand tax credits and higher HSA contribution limits plus increase flexibility in the use of HSA funds.

Supporters of consumer-directed healthcare options want Congress to increase tax breaks and coverage limits to broaden the appeal of health savings accounts (HSAs) linked to high-deductible health plans. Health insurers and employers back legislation that would expand tax credits and higher HSA contribution limits plus increase flexibility in the use of HSA funds.

Despite current limitations, more than 3 million individuals have signed up for some type of high-deductible health plan, and the number is rising as more employers regard HSAs as an important option for providing affordable health insurance.

In addition, the Centers for Medicare and Medicaid Services (CMS) is encouraging HSAs with a new demonstration project that allows Medicare Advantage (MA) plans to offer HSA-like medical savings accounts (MSAs).

CMS will pay for a high-deductible plan plus fund an account established for the beneficiary to pay for allowable health services (unused funds in the account can be rolled over to the next year). Unlike the existing MSA option that no one uses, demonstration MSAs would have flexibility to limit enrollees' out-of-pocket costs, to provide coverage for preventive services and to increase payments for sicker patients.

MA plans also have leeway to offer demonstration MSAs only to the employer group market, but these plans must cover a whole state or region. Medicare MSA plans cannot offer Part D prescription drug benefits, but can design a stand-alone drug coverage plan as a complement.

MINIMAL SAVINGS

Critics contend, however, that HSAs fail to boost consumer cost-sharing in a way to make individuals more prudent purchasers of healthcare services and ultimately reduce healthcare spending. According to an analysis by professors Dahlia Remler and Sherry Glied published by Health Affairs, HSAs rely on high deductibles (around $2,500 a year) to influence spending and have little effect on the large number of low spenders who never reach the deductible limit, or on the very small number of high spenders who exceed the deductible fairly quickly.

The debate is intensifying as policymakers weigh options for revising tax benefits linked to these plans, which were expanded by the Medicare Modernization Act of 2003.

Some skeptics fear that HSAs will undermine the current employer-based health benefit system. Even employers are divided: about one-fourth fear that such plans discourage individuals from seeking needed care, according to a survey by Aon consulting, while half do believe that consumer-driven health plans will make individuals more efficient purchasers of care.

At a June hearing of the House Ways & Means Committee, Jeffrey Cava, executive vice president at Wendy's International, refuted the charge that high-deductible plans discourage preventive care, noting that 75% of his employees received annual physicals during the first year the company made HSAs available.