GETTING PERSONAL: HSAs' Role Could Diminish Under Democrats

NEW YORK --Consumer-directed health plans - which pair high-deductible health plans with tax-advantaged health savings accounts - were the cornerstone of the Bush administration's policy for addressing runaway medical costs.

While it's thought to be unlikely that President-elect Barack Obama will phase out HSAs, their attractiveness to consumers may diminish if the his health-care reforms create more comprehensive coverage alternatives that are affordable, according to health-care policy experts. Obama has indicated that he is cool to the accounts.

Congressional Democrats, who resisted the introduction of HSAs and now wield more power in the Senate, may also seek to weigh in on what one opponent recently described as an "effective tax shelter" for the wealthy.

"The prospects for HSAs have dimmed," since the elections, says Tom Billet, a senior health benefits advisor with consulting firm Watson Wyatt.

HSAs enable enrollees to pay for current health-care expenses, such as co-pays and deductibles, and save for future medical expenses, such as Medicare premiums, on a tax-free basis. In 2008, the maximum annual contributions are $2,900 for individuals and $5,800 for families.

Unlike the more widely known and used flexible-spending accounts, savings not needed to pay of out-of-pocket medical expenses can accumulate in HSA for years, attracting the attention of firms seeking to manage these accounts. More than 2,000 banks, credit unions and brokerage firms offer these accounts.

   HSAs Will Survive Next Wave Of Reforms 

Obama's plan seeks to build on the employer-sponsored model by requiring businesses to provide coverage or pay into a government-organized insurance marketplace in which a range of private insurance options would compete with a new federal public plan.

Kathryn Bakich, senior vice president and national director of health care compliance at The Segal Company, an employee-benefits consulting firm, said she sees little chance of HSAs being eliminated by Obama's planned health-care reforms.

More than 6 million people are enrolled in HSA-qualified health plans. And a growing number of them are employees of small businesses, the group most likely to shed coverage in recent years due to its cost.

"Obama has said he wants people with employer coverage to keep it so I don't see him eliminating these accounts," says Bakich.

Paul Verberne vice president and associate counsel for HSA Bank, of Sheboygan, Wisc., predicts the deepening economic slump will help HSAs gain further traction as more employers turn to high-deductible health plans, which cost less.

   Facing A Fuzzy Future 

The long-term outlook for HSAs is fuzzier though. "In general, Obama doesn't support HSAs, at least not in the longer term," says Frank McArdle, a principal with Hewitt Associates in Washington, D.C., who is an expert on health-care policy.

McArdle points to a response Obama gave about HSAs in a questionnaire of presidential candidates conducted by the American Academy of Family Physicians this time last year. "In the long run, it's going to take more than health savings accounts to provide the kind of comprehensive health coverage Americans need and deserve," Obama said.

Much will depend on how Obama's plan for health-care reform pans out, experts say.

Under Obama's health plan, medium and large employers would be required either to provide a health benefit or pay a fee.

Some industry players say the so-called "play or pay" mandate could lead more employers to offer HSAs-qualified plans as a money-saving option. However, that will depend on the criteria the plans will need to meet to be considered "meaningful coverage," according to Bakich. (Obama's camp has yet to define what this means).

Massachusetts, which requires its residents to have health insurance, recently imposed a ceiling on plan deductibles. Under the rules, from 2010, deductibles in HSA-qualified plans must not exceed $2,000 for an individual or $4,000 for a family to be considered creditable coverage. One way employers have attempted to reduce their exposure to escalating healthcare costs is to offer plans with even higher deductibles, in order to push down premiums.

   Congressional Challenges Loom 

Congress could potentially pose a bigger threat to HSAs, as they are unpopular with Democrats. High-deductible health plans have lower premiums than more traditional plans, but enrollees must pay more out-of-pocket if they need care before their insurance kicks in. Such arrangements tend to favor the young and healthy, those who receive contributions to their HSAs or those who can afford to cover out-of-pocket medical expenses while fully funding their HSAs.

Democrats resisted the introduction of HSAs, which were created by the 2003 Medicare Prescription Drug Improvement and Modernization Act, describing them as an "unnecessary $16 billion subsidy" for the wealthy - a criticism they renewed this spring after a report by Congressional investigators revealed that the adjusted gross income for enrollees in HSAs was about $139,000, compared to $57,000 for all other tax filers.

Dennis Triplett, president of UMB Healthcare Services, a division of UMB Financial Corp. (UMBF), which offers HSAs, says that argument would be harder to make now as more recent industry data shows the accounts are held by many middle-income Americans. Of more concern to industry stakeholders would be an attempt by Democrats to resurrect a bill, which was blocked by Republicans in the Senate earlier this year, that would require third-party oversight of distributions from HSAs managed by custodians and trustees, which they argue would put an unnecessary cost burden on the industry.

"We don't expect the accounts to be summarily dispensed [with]," says HSA Bank's Verberne. "What we are worried about are efforts to chip away at the utility of HSAs."

(Victoria E. Knight is a Getting Personal columnist who writes about the financial implications of health-care issues. She can be reached at 201-938-2438 or by email at victoria.knight@dowjones.com.)

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