Federal health care initiative aims to expand health savings accounts

Plan includes ‘portable’ coverage and new deductions.

Issue: March 2006

A federal health care reform proposal includes provisions for expanded health savings accounts and other proposals that President Bush said would make health care more available and affordable to the uninsured and small businesses.

The health savings account (HSA) plan calls for making premiums for HSA-compatible insurance policies tax-deductible for those who purchase high-deductible health plans (HDHPs) outside their jobs.

Bush also proposed letting Americans with HSAs, and their employers, make HSA contributions to cover all out-of-pocket costs, not just deductibles as the current law allows, according to a White House news release.

Bush further proposed “portable” HSA insurance policies for workers to take with them when changing jobs, moving, becoming self-employed or leaving the work force. Premiums and employer contributions would be tax-deductible.

Bush discussed the health care initiative during his State of the Union address.

Dan Perrin, publisher of The HSA Insider (hsainsider.com), a Washington-based newsletter, praised the HSA proposal. “I’m pretty happy about what they want to so,” Perrin told Orthopedics Today. “They’re going to revise the tax credit for the uninsured so that it works for those with an HSA. The contribution amount is going to equal the out-of-pocket maximum. You’re going to be allowed to pay your premium with your HSA.”

Virginia Gov. Tim Kaine, who gave the Democratic response to Bush’s address, blamed high costs for hurting small businesses and leaving high numbers of Americans uninsured. Republican health care reforms should “focus on making the system serve consumers better,” Kaine said.

Senators Edward Kennedy (D-Mass.) and Tom Daschle (D-N.D.) have argued that HSAs are for healthy consumers and siphon resources away from low-income Americans. Daschle has criticized health care as “cost-shifting” to consumers.

Eligibility for an account

Under the current HSA law adopted in 2003, anyone with an HDHP who is not covered by low-deductible insurance, enrolled in Medicare or Medicaid, or claimed as a dependent on another person’s tax return, may open an HSA. The current maximum HSA contributions are $2700 for individuals and $5450 for families.

Bush also asked for legislation allowing small businesses to create Association Health Plans (AHPs), in which companies would combine their resources to purchase health coverage with lower premiums and better coverage.

Fewer companies offered health coverage with no employee premium contributions in 2003 than in 1998, according to an Agency for Healthcare Research and Quality study. The results showed that 34.8% of workers were eligible to receive free single coverage in 1998. The proportion fell to 28.4% in 2003.

The study focused on private sector employees with single or family coverage. The overall decrease in eligible workers was mostly among large companies (more than 50 workers).

The results showed how employers are trying to cut their health care costs, said the study's lead author Beth Crimmel.

The proportion of workers in large firms eligible for single coverage with no premium contribution fell from 28.1% in 1998 to 22.2% in 2003. Among small firms, the number of employees eligible for free single coverage fell only slightly, from 55.9% to 53.1%.

More trends

The number of workers in large companies who were eligible for family coverage with no premium contributions fell from 14% in 1998 to 10.4% in 2003. However, among small companies, those eligible for family coverage stayed fairly constant, 29.9% vs. 29.3%, researchers said.

Overall actual enrollment in free single plans fell from 35% in 1998 to 27.3% in 2003. Among small companies, 59.1% of employees were enrolled in single plans in 1998 and 55.9% were enrolled in 2003. Among large companies, 26.1% of employees were enrolled in single plans in 1998 and 18.6% were enrolled in 2003, researchers found.

Actual enrollment in family plans dropped from 18.7% to 14.2%. Family plan enrollment in small companies rose from 37.7% to 39.6%. Family plan enrollment in large firms fell from 14.6% to 9.2%.

An annual Kaiser Family Foundation/Health Research and Educational Trust survey showed more recent trends. The study tracked the proportion of workers contributing to their premiums.

Nearly 80% of workers with single coverage and more than 90% of those with family coverage contributed toward premiums in 2005. Forty-one percent of small firms (three to 199 workers) and 12% of large firms (200 or more workers) contributed 100% of single coverage premiums in 2005. Eighteen percent of small firms and 5% of large firms contributed 100% toward family premiums.

The Kaiser/HRET survey showed trends from 1988 to 2005. For example, in 1988 workers paid an average 11% of premiums for single coverage. That proportion peaked at 21% in 1996 and leveled off at 16% in 2003 to 2005. Workers paid an average of 29% of premiums for family coverage in 1988. That proportion remained fairly constant and averaged 26% in 2005, the survey found. However, those percentages do not take into account other fees paid by workers, including deductibles and co-payments.

For more information:
Crimmel BL, et al. (Agency for Healthcare Research and Quality): Trends in Employer-Sponsored Health Insurance Plans that Required No Employee Contribution to the Premium Cost, 1998-2003. Statistical Brief #108. Available at meps.ahrq.gov/papers/st108/stat108.pdf.
Kaiser Family Foundation and Health Research and Educational Trust: Employer Health Benefits 2005 Annual Survey. Available at kff.org/insurance/7315.