In his State of the Union address in January, President Bush focused on eliminating tax preferences for employer-sponsored health care in favor of a flat deductible—$15,000 for family coverage and $7,000 for individual coverage.
Tucked into his 2008 budget is a proposal to make it easier for health plans to qualify for HSAs if the plan has a 50 percent co-insurance (meaning employees are responsible for paying half of the cost of a medical procedure) or a minimum out-of-pocket requirement that equals the current minimum exposure of a high-deductible plan (which is $1,100 for individuals and $2,200 for families in 2007).
In legislation that went into effect in January the Bush administration countered a criticism that health savings accounts favored the rich over the poor. The new law allows employers to contribute more money to employees with low incomes than they do to employees with high incomes. This discrepancy would otherwise have been discriminatory, but the new law amends that risk and is intended to make it easier for people to pay for the deductible.
The proposals in the president’s budget look to build on the concept of giving employers the discretion to help those disproportionately hit financially by a high deductible. The proposal seeks to allow employers to contribute more money to the HSAs of people with chronic illnesses.
Saying they favor the rich over the poor, Democrats have largely attacked health savings accounts on principal, and have instead focused on addressing the issue of the 47 million Americans who do not have health insurance.
Other provisions in the law governing HSAs that went into effect in January are aimed at applying the lessons learned in the three years since the accounts were first launched.
“It has become a bit clearer how these plans are supposed to work,” says Chris Calvert, vice president and senior health consultant at Sibson Consulting.
For example, employees can transfer unused funds from flexible spending arrangements and health reimbursement arrangements into health savings accounts. This has prompted employers like
“It kind of loosens the use-it-or-lose-it rule” that once governed flexible spending accounts, Calvert says.
Critics said limits on contributions to HSAs do not allow people to save an adequate amount of money for retirement. This year the federal government raised the maximum amount that can be contributed to health savings accounts to $2,850 for individuals (up $150) and to $5,650 for families (up $200).
Still, the maximums are not enough to pay for estimated retiree health costs, says Jay Savan, a consultant and actuary with Towers Perrin in
Savan estimates that people will need $600,000 in 20 years if they retire at age 65 and health care costs continue to grow at more than twice the rate of inflation. Saving the maximum of $2,850 a year and earning 7 percent interest returns about $155,000 after 20 years. Fidelity Investments on March 27 estimated that 65-year-old retirees will need $215,000 to pay for health care, a 7.5 percent increase over the 2006 estimate of $200,000. That cost, calculated annually since 2002, assumes retirees do not have retiree health benefits from their employer and are paying for health care expenses associated with Medicare premiums, co-pays and co-insurance.
“If you max out your HSA and if you never touch that money and save it for 25 years, the money you amass is a shadow of what you’ll need to cover your care expenses,” he says. “And that is a dirty little secret nobody wants to talk about.”