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If HSAs are a great idea, why aren’t more people using them?

Health savings accounts (HSAs), which combine a tax-free savings account for medical expenses with a high-deductible health insurance plan, have significant tax advantages in addition to their potential to help reduce healthcare costs because participants have a greater motive for careful spending since it is their money at stake.

HSA’s serve as a solid alternative for many employer groups as this plan design concept allows employers to slow down the rate of healthcare inflation each plan year, says Wally Davis, sales manager with Health Link/Acclaim in Tupelo, which is owned by North Mississippi Health Services Inc.

“By shifting the burden of responsibility to manage their own healthcare costs, each employee enrolled in an HSA becomes more aware of their own true cost of health insurance,” Davis said.

But despite their promise, HSAs haven’t gain widespread acceptance yet. Davis said in his area of the state, it seems that most companies offering a HSA have been larger employer sponsored health plans providing an HSA plan design as an option.

“We have seen a few larger companies implement HSA’s as their plan design of choice and at the same time, we have seen some small employer groups implement HSA’s,” Davis said. “For the most part, however, most employer groups in our service area have not embraced this concept yet. In a couple of situations in our area, it is due to the fact that there is not enough incentive from a pricing or cost standpoint. The savings between the standard plan offered by employers and the HSA plan does not offer enough dollar savings to employees in order to encourage participation.”

Changes may need to be made if HSAs are to live up to their promise. Davis said it appears that additional incentives for both the employer and the employee are needed to really get this concept moving forward.

“The overall idea is good, but as in most purchase decisions, the final thought process comes back to the actual cost,” Davis said.

J. Randall Mascagni, CFP, president of Mascagni & Company Inc., Clinton, has not seen a single client move to a HSA, yet. He thinks more people should consider an HSA, but that may take Congress making some changes to the HSA plans.

“The deductibles are too large for most businesses and their employees,” Mascagni said. “Also, some of the major insurers don’t offer HSAs. The medical networks of HSA providers many times are somewhat small and restrictive. Up until now, HSAs mainly benefit a one-person business or a group that has employees who are paid a sizeable salary where they can afford the deductibles and out-of-pocket health costs.”

In addition to lower premiums with the high deductible, Mascagni said the main advantage of the HSA plan is tax savings and tax-free growth of a pool of money that can be used to help pay for medical costs later in life
“Many people aren’t saving for future healthcare costs, and their medical bills could deplete their retirement savings,” he said.

Mascagni said HSAs could help reign in healthcare cost increases in the U.S. But only if there is much wider usage, and that will take time.v
One reason HSA may not be gaining more acceptance is that most people like to get something out of the spending for their healthcare premium. With such high deductibles (for 2006, the minimum deductible for high-deductible health policies is $1,050 for individuals and $2,100 for families), unless there is a serious illness, policy holders don’t receive any benefits from their health insurance plan.

Another consideration is concern that people might put off getting healthcare because the cost diminishes the amount in their savings account. That could lead to more serious and expensive illnesses later on.

Lack of advertising could be another reason why HSAs haven’t really taken off.

For 2006, individuals can contribute a maximum of $2,700 into an HSA. Families can contribute up to $5,450. Funds can only be used for medical expenses until the age of 65, when the money can be withdrawn for any purpose.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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