Not Everyone Sees Health Savings Accounts as a Panacea

November 18, 2004
Health savings accounts are a favorite of pro-business politicians--and perhaps for good reason--but not all employers are rushing to adopt them.

With a health savings account, an employee can save money tax-free for health-care expenses, and can roll over for next year what they don’t spend.

The Arizona Republic reports that "the accounts have gotten a wait-and-see reaction among Arizona employers, meaning most employees aren't likely to soon see them as an option." The Blade--the largest newspaper in Toledo, Ohio--reports that "hundreds of Toledo-area companies have learned through seminars about the accounts included in the Medicare drug act signed into law this year. But so far, only a few dozen, mostly smaller, firms have opted for them."

"Employers are adopting them in small numbers," says Bill Sharon, senior vice president at Aon Consulting. He estimates that about 5 percent of Fortune 1,000 companies are offering high-deductible plans with health savings accounts. Of that 5 percent, he estimates that only 5 percent to 10 percent of employees in those companies--mainly the healthy and the wealthy--will choose such plans.

"It takes a while for employers to evaluate anything that comes down the pike that’s new," he says. "Employers aren’t going to just jump on it right away. Some of them are going to want to see that these things have some shelf life, some sustaining power." Sharon notes that HMOs, now ubiquitous, took several years to catch on.

Overly optimistic
"This idea that health savings accounts are going to transform the health-care environment is perhaps a bit overly optimistic," says Alwyn Cassil, spokeswoman for the Center for Studying Health System Change, a research organization mainly funded by the Robert Wood Johnson Foundation.

Health insurance, Cassil says, is increasingly out of reach for lower-wage workers, and health savings accounts do little to solve that problem. Also, she says, the high-deductible insurance plans that must be in place in order to have a health savings account are unattractive to many employees because the plan deductible (in 2004 it was $2,000 for a family) is so high.

What’s more, the accounts aren’t appealing to the small percentage of the population that generates most of the health-care spending. "The health savings account, quite frankly, is attractive to healthy people," she says. "But 10 percent of the population accounts for 70 percent of health expenditures. These plans don’t really do much of anything to address that."

Greg Scandlen of the Galen Institute, a research organization that promotes free-market policies, is more optimistic about health savings accounts. Scandlen says that where adoption rates are low, it’s partly due to government-created barriers. In some states, for example, heavy regulations make it difficult for employers to set up high-deductible plans with health savings accounts, and it is unlikely that insurers will want to offer new products. In New York and New Jersey, Scandlen notes, a lot of insurance companies have bailed out of the insurance market altogether.

Sharon agrees in part, saying that many companies like to stick with their current benefits vendors, and that not all vendors are ready to offer high-deductible plans with health savings accounts. However, Sharon says, most will be ready by 2006.

Consumerism debate
Edward Kaplan, the Segal Co.’s national health practice leader, says that the growth of health savings accounts has been "what we expected."

Still, he says, government or business leaders who see the accounts as the nation’s health-care elixir may be disappointed. "The biggest barrier of all (to employers adopting health savings accounts) is that many employers ultimately want solutions that dramatically reduce their health-care costs," Kaplan says. "These accounts are one potential solution, but they may not get employers to where they want to go. They’re a pretty big change for employees, and it’s potentially not going to save a ton of money."

Kaplan believes that employees generally use the health system less when they have to pay more for care. Health savings accounts and other methods of shifting costs to employees, he says, can be successful if they reduce discretionary spending, but not if they cause employees to skip out on important treatments. The question, he says, boils down to this: "Can you really be a consumer of health-care treatments? In a coma, you can’t be. If it’s for toe fungus, there is some degree of validity to the notion that behavior can be impacted by plan design."

Ultimately, employee decision-making will affect the success of health savings accounts. So will the design of high-deductible plans. According to New York newspaper the Rochester Democrat and Chronicle, some Xerox employees are upset about what is and what isn’t considered "preventative care" under Xerox’s new health-plan options, which are aimed at reducing costs and promoting consumerism. Stand-alone blood pressure screenings—those that are not part of a larger doctor’s visit--weren't considered preventative.

The Democrat and Chronicle also reports that one plan participant, a melanoma survivor, will "now have to pay the full cost for his twice-a-year skin tests--maybe $70 to $100--instead of just a $15 or $20 copayment. The employee "doesn't understand why his new health plan won't consider such checkups as preventative, while hearing checkups are included."

More information on health care is available online. Workforce Management is also preparing additional information on health savings accounts; contact Todd Raphael for more information.