Health savings accounts are, happily, highly infectious

Karen Kerrigan

is president of the Small Business and Entrepreneurship Council (

» READ MORE: www.sbsc.org

)

In most American homes, the rising cost of good health care - like the rising costs of gasoline and home heating - remains a perpetual kitchen-table discussion. It is especially front and center now as we are in the annual "open enrollment season," when employees decide which of their company's health plans they will choose for the coming year.

This year, two underlying trends are catching the attention of consumers and industry alike, and it appears they will continue to shape the health-coverage market.

The Kaiser Family Foundation reports that the share of companies with fewer than 200 workers that offer health benefits is down to 59 percent and falling. Two out of every five of these workers are now without coverage and have to find health insurance for themselves - and their families - some other way, and their numbers are expected to grow.

As more Americans search for alternative, affordable ways to find coverage for health care, they are increasingly being drawn to Health Savings Accounts. The Treasury Department forecasts that, by 2010, 25 million to 30 million Americans will be covered by HSAs.

How it works: With an HSA (in conjunction with a high-deductible health insurance policy), money is placed into a tax-deferred health account. That money can be withdrawn without any tax penalty as long as it is used for medical purposes - including vision and dental care. As the money in the HSA grows, it builds financial resources a patient can use for routine or future medical care. Any money left in the account at the end of the year rolls over to the next year. The leftover funds are the individual's to keep, and more money is added in the new year.

HSAs are a smart option for the self-employed, owners of small businesses, and employees and people whose companies are dropping health benefits.

Initially a boutique health-coverage product, HSAs are now being offered by virtually all of the top insurance companies, such as Aetna Inc., Cigna Corp., and Blue Cross and Blue Shield. The company that pioneered the HSA concept, UnitedHealth Group Inc.'s Golden Rule Insurance Co., reports that more than 40 percent of its customer base is now covered by HSAs.

Both consumers and employers are driving this trend in the market. The share of all companies - not just those with fewer than 200 workers - now offering HSA plans is up to 40 percent. The 75,000 people who work for Eastman Kodak Co. will be offered three health plans this open enrollment season, including a plan in which they would not have to pay any premiums but have a higher deductible – and that plan will include a Health Savings Account.

Small and self-employed businesses - where the overwhelming majority of American jobs are being created - continue to turn to HSAs as a cost-effective way to cover workers. Tom Terrill, a suburban Chicago insurance broker, recently told the Chicago Tribune that small businesses are turning to HSAs in greater numbers in the Chicago area because "data is mounting to demonstrate their merits."

Government is part of the trend as well. In their new contract with Orange County, Calif., the county's 1,600 sheriff's deputies have a provision that phases in HSAs as a substitute for what the county traditionally grants to retirees.

Even some labor unions are proposing HSAs be put in their next contract. In Tiverton, R.I., the teachers union proposed moving from traditional health insurance to a high-deductible plan that would include a Health Savings Account. The city and the union eventually agreed on a contract without HSAs, but the union's proposal is noteworthy. Past congressional debates over HSAs once featured organized labor's opposition; the Tiverton teachers union is an affiliate of the National Education Association, proof that minds and hearts change over time.

The growing popularity is rooted in the product's middle name: savings. A consumer will typically save up to 50 percent on an HSA plan premium over traditional health plans.

Further, an HSA policyholder has more control over his or her health-care budget; you make the decision when to spend and when to save. And the money you don't spend accumulates year after year earning interest - reserves that can help meet the increased health costs of later life and retirement.

Some of the working population is lucky enough to have a traditional health-insurance plan that works for them, but for the rapidly growing number of people who are swiftly losing their benefits, HSAs are not only a cost-effective alternative, but one that allows them a lot of freedom.

The market is changing. Employers, self-employed people, workers, consumers and governments are adjusting. But in this cost-conscious environment, it is virtually certain these trends will continue and many consumers can still benefit from what have been positive changes in health coverage options.