MEDICAL EXPENSES; Evaluating health savings accounts (Newsday)

Michael and Robin Pasternack are among the lucky ones.

Robin, a New York City public school teacher, has health insurance as part of her union contract that also covers their two young children. Michael carries his own health insurance through his position as in-house counsel for St. Mary’s Hospital for Children in Bayside.

Michael Pasternack, 36, still worries about the rising cost of health insurance, and is always looking for a better alternative.

The newest concept in medical coverage, called Health Savings Accounts, is one such possibility for some families. Introduced as part of last year’s Medicare reform, the program allows employees under 65 to put away money tax-free for medical expenses. The catch is that these accounts are linked to high-deductible health insurance plans.

For the Pasternacks, who live in Plainview, that’s probably not the answer.

“I’m not sure there’s a need for that,” Pasternack said. “We’re much more comfortable with having the full, basically guaranteed coverage, so we don’t have to worry.”

As open enrollment season begins, many employers and employees alike are evaluating Health Savings Accounts for the first time. And some, like Pasternack, have expressed misgivings. Critics worry that the accounts will benefit only those who are young, childless or very healthy, or those with higher incomes, and they say the plan moves more of the cost burden from employer to employee.

Employees who open a Health Savings Account can withdraw funds for health care expenses tax-free, and the accounts earn interest, also tax-free. These consumers are required to participate in health insurance with at least a $1,000 deductible for individuals and $2,000 for families. These insurance programs typically cover hospital stays and other major procedures. Health Savings Account holders can contribute anything up to the cost of the deductible, with a cap of $2,600 for individuals and $5,150 for families, annually. Employers are also able to contribute to the accounts, although some said they may choose not to.

Unlike the flexible spending accounts that many employees use for co-payments and other uncovered health expenses, Health Savings Accounts can roll over indefinitely, and they stay with the employees even if they leave their jobs or retire.

Advocates argue that the accounts could work for everyone, saying many would save money with the combination of a high deductible plan and tax-free account. I think that we are sitting on an enormous explosion of companies and individuals moving very rapidly to this,” said Dan Perrin, the executive director of the HSA Coalition, a Washington advocacy group.

Pros and cons

While the deductibles on these plans are far higher, the premiums are sometimes half that of traditional plans, allowing those who do not use up their deductibles to save money. The average employee’s annual premium for family coverage in 2003 was $2,412, according to the Kaiser Family Foundation.

Others pointed to a Health Savings Account as a potential tax shelter and a medical retirement account of sorts. That’s because consumers could put pre-tax dollars into the account and then save it for after retirement, though funds used for non-medical needs are taxable.

“If somebody has maxed out their 401(k) contributions, this is a great tax vehicle,” noted health care consultant Steve Putterman, with Mercer Human Resources Consulting in Manhattan.

Critics, however, say the accounts are geared only to the most healthy and most wealthy employees. They’re a terrible idea,” said Public Citizen’s research director Sidney Wolf. “They run in the exact opposite direction that our health care system should be going … You wind up discriminating against people who don’t have the means.”

Consumers who are older or sick might not benefit as much either.”If you’re sicker or older, a set amount of money won’t go as far as if you’re young and healthy,” said Kathleen Stoll, director of health policy for Families USA.

As a result, there could be a problem with averse selection, leading premiums of traditional plans to rise if their participants tend to be older and sicker, while the young and healthy migrate to the new offerings.

Some experts also worry about the potential for a gap between the amount of money an employee puts in his or her Health Savings Account and the amount of the insurance plan’s deductible. For now, employers are showing interest, but being cautious before offering an HSA program, according to Aetna market vice president Carol Ingher. Although Ingher sees the interest itself as success, it may be a while before the program’s true impact is felt.

“I don’t see it as revolutionary,” Kaiser Family Foundation vice president Gary Claxton said. “It’s a change, and it’ll get people a little more involved, but I don’t know that, in and of itself, this is really going to address the issues.”

 Newsday (New York) August 26, 2004 Thursday

 Copyright 2004 Newsday, Inc.

Newsday (New York)

August 26, 2004 Thursday
NASSAU AND SUFFOLK EDITION