This story began in November, when Humberto got a form letter telling him that, if he made no changes in his retiree health insurance plan, the monthly premium for family coverage would jump from $705 to $866 a month. Or, for a premium of $708, he could choose a policy doubling the annual deductible from $500 to $1,000 and the annual out-of-pocket maximum from $3,000 to $6,000 for each of us. The policy would cover only 70 percent of “usual and customary” expenses after the deductible, down from 80 percent. Considering it the lesser of two evils, we opted for this lower-premium, higher-deductible policy.

But in our ongoing search for alternatives, we came across a little-known option Humberto’s old employer did not offer — a high-deductible policy paired with a tax-favored health savings account, or “HSA.” Humberto’s high-deductible policy, we eventually found out, does not meet the government-set eligibility criteria for a companion health savings account (maximum out-of-pocket expenses cannot be more than $5,100 per person). But when Humberto first called the insurance company and his ex-employer’s benefits department to inquire, nobody had a clue what HSAs were.

It isn’t as if they are new. Congress voted to create HSAs as part of the Medicare prescription drug legislation passed in 2003. Yet, they still seem to be a mystery. “I am unable to open an HSA,” a frustrated reader told us in an e-mail. “Nobody seems to know what I am talking about.”

Here is the lowdown. Health savings accounts have two components: a lower-cost, high-deductible insurance policy that covers large medical expenses, and the savings account. Contributions to the account, which are tax-deductible, are limited to $2,650 for an individual plan or $5,250 for a family plan for 2005, but no more than the deductible (people 55 and older can contribute an additional $600 this year). The money in the account grows tax-deferred and can be withdrawn tax-free to pay for the deductible and other medical expenses the policy does not cover, including vision and dental care. Money not spent can be carried from year to year. After you enroll in Medicare you can no longer contribute but can still make tax-free withdrawals for medical expenses.

Once you are 65, you can spend the money on anything you want without penalties, but paying regular tax if the money is not used for medical expenses (before 65, there is also a 10 percent penalty). With these accounts, consumers bear more of the cost of routine expenses, such as doctor visits, while the insurance policy covers “the really big medical expenses, the ones that can wipe them out financially,” said Mike Corne, a vice president of Indianapolis-based Golden Rule Insurance Co., among the first to offer HSAs in 2004. Critics worry that, faced with high deductibles, consumers may skip needed care.

Proponents argue people spending their own money are more likely to comparison-shop and keep a lid on costs. “The question for consumers is, do you want to continue to send hundreds of dollars to the insurance companies [in premiums], or do you want to keep the money yourself” to spend on your care, said Dan Perrin, executive director of the not-for-profit HSA Coalition in Washington, D.C. The coalition, which lobbied for the creation of health savings accounts, maintains the Web site, the best we’ve found to understand HSAs and find plan providers. As of last September, according to a survey by the trade group America‘s Health Insurance Plans, 438,000 Americans were covered by insurance policies accompanied by HSAs. Since then, the number of companies offering qualified policies has nearly tripled, said Karen Ignagni, AHIP president and CEO. Because most employers decide on benefit plans well in advance, HSAs came too late for many to adopt them for 2004, Ignagni said. More are expected to offer them in the future, she said. (Humberto’s former employer may consider them for 2006, a human resources executive at the company told him.)

Meanwhile, much of the growth in HSAs has come from individual policies. “We see a lot of self-employed individuals, and people 50 to 64” who retired early and are not yet eligible for Medicare, said Ellen Laden, a Golden Rule spokeswoman. On average, she said, premiums for HSA-qualified policies are half those of traditional policies. A study released this month by eHealthCare, a California-based company that sells policies from 140 insurers, foundthat 89 percent of purchasers of HSA-eligible policies are paying $200 or less per person per month in premiums.


LITTLE-KNOWN HSAS COULD CUT HEALTH INSURANCE TAB Sun-Sentinel (Fort Lauderdale, FL) February 27, 2005 Sunday Broward Metro Edition

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