Health Savings Accounts: Early Enrollee Experiences with Accounts
and Eligible Health Plans (26-SEP-06, GAO-06-1133T).		 
                                                                 
Health savings accounts (HSA) and the high-deductible health	 
insurance plans that are eligible to be coupled with them are a  
new type of consumer-directed health plan attracting interest	 
among employers and consumers. HSA-eligible plans constitute a	 
small but growing share of the private insurance market, and the 
novel structure of the plans has raised questions about how they 
could affect enrollees' health care purchasing decisions and	 
costs. This statement is based on GAO's August 2006 report	 
entitled "Consumer-Directed Health Plans: Early Enrollee	 
Experiences with Health Savings Accounts and Eligible Health	 
Plans" (GAO-06-798). In this report, GAO reviewed (1) the	 
financial features of HSA-eligible plans in comparison with those
of traditional plans, such as preferred provider organizations	 
(PPO); (2) the characteristics of HSA-eligible plan enrollees in 
comparison with those of traditional plan enrollees or others;	 
(3) HSA funding and use; and (4) enrollees' experiences with	 
HSA-eligible plans.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-1133T					        
    ACCNO:   A61425						        
  TITLE:     Health Savings Accounts: Early Enrollee Experiences with 
Accounts and Eligible Health Plans				 
     DATE:   09/26/2006 
  SUBJECT:   Comparative analysis				 
	     Employee medical benefits				 
	     Health care costs					 
	     Health care programs				 
	     Health insurance					 
	     Medical savings accounts				 
	     Federal Employees Health Benefits			 
	     Program						 
                                                                 

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GAO-06-1133T

     

     * Background
     * Financial Features of HSA-Eligible Plans Differed From Those
     * HSA-Eligible Plan Enrollees Had Higher Incomes than Comparis
     * Just Over Half of Enrollees and Most Employers Contributed t
     * Focus Group Participants Were Generally Satisfied with HSA-E
     * Concluding Observations
     * Contacts and Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Testimony

Before the Subcommittee on Health Care, Committee on Finance, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 2:30 p.m. EDT

Tuesday, September 26, 2006

HEALTH SAVINGS ACCOUNTS

Early Enrollee Experiences with Accounts and Eligible Health Plans

Statement of John E. Dicken

Director, Health Care

GAO-06-1133T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the findings from our August 2006
report entitled Consumer-Directed Health Plans: Early Enrollee Experiences
with Health Savings Accounts and Eligible Health Plans.1 In this report,
we examined enrollees' experiences with health savings accounts (HSA) and
the high-deductible health insurance plans that are eligible to be coupled
with them. Since tax-advantaged HSAs were made available in 2004,2 this
new type of consumer-directed health plan has been attracting interest
among employers and enrollees. HSA-eligible plans now constitute a small
but growing share of the private health insurance market. The number of
enrollees and dependents covered by an HSA-eligible plan increased from
about 438,000 in September 2004 to about 3 million in January 2006.3 Both
employers and plan enrollees may contribute to tax-advantaged HSAs, and
enrollees can use the accounts to pay for their health care expenses. The
high-deductible health plans typically have lower premiums than other
types of health plans because high-deductible health plan enrollees bear a
greater share of the initial costs of care.4

The novel structure of HSA-eligible plans has raised questions regarding
how the plans and HSAs will affect enrollees' health care purchasing
decisions and costs. Proponents of HSA-eligible plans believe that the
high deductibles will encourage enrollees to become more astute health
care consumers and thus restrain health care spending increases. However,
some critics contend that the plans may attract a disproportionate share
of wealthier enrollees who seek to use the HSA as a tax-advantaged savings
vehicle, or healthier or younger individuals who use fewer health care
services. If this occurred, premiums for traditional health insurance
plans, such as preferred provider organizations (PPO),5 could rise faster
than they otherwise would because of the disproportionate share of
enrollees with higher health care expenses remaining in those plans.

1 GAO-06-798 (Washington, D.C.: Aug. 9, 2006).

2Tax advantages for HSAs were authorized by the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 for individuals covered
by high-deductible health insurance plans that meet certain criteria. Pub.
L. No. 108-173, S: 1201, 117 Stat. 2066, 2469.

3In 2004 and 2005, more than half of these enrollees and dependents were
covered by an HSA-eligible plan purchased from an insurance carrier in the
individual insurance market, rather than obtained from an employer.
However, preliminary data for 2006 suggest that the number of HSA-eligible
plan enrollees in the group market, which includes health plans offered by
employers to employees, is growing faster than in the individual market.

4Most employers subsidize a share of employees' health coverage purchased
in the group market, whereas individuals purchasing coverage in the
individual market typically pay the full cost.

My remarks today will focus on (1) the financial features of HSA-eligible
plans in comparison with those of traditional plans, (2) the
characteristics of HSA-eligible plan enrollees in comparison with those of
traditional plan enrollees or others, (3) HSA funding and use, and (4)
enrollees' experiences with HSA-eligible plans. These remarks are based on
information contained in our August 2006 report.

In conducting our work, we analyzed data regarding HSA-eligible and
traditional plans and enrollees from two national employer health benefits
surveys; three selected large employers; and eHealthInsurance, a large,
national broker of individual and small business health insurance.6 To
illustrate the potential health care costs faced by HSA-eligible and
traditional plan enrollees, we estimated the total annual costs incurred
by enrollees of the three employers' 2005 HSA-eligible and PPO plans,
considering different levels of health care utilization. We compared
Internal Revenue Service (IRS) data for tax filers reporting HSA
contributions with corresponding data for all tax filers under 65 years
old. We also conducted focus groups with employees of the three employers.
A detailed explanation of our scope and methodology is included in the
report's appendix I. This report is the most recent of several related
reports GAO has issued within the last year.7 The work done for these
reports was performed from November 2004 through July 2006 in accordance
with generally accepted government auditing standards.

5PPO plans generally allow enrollees to select their own health care
providers and reimburse either the provider or the enrollee for the cost
of covered services. Enrollees' costs are generally lower if they obtain
care from the plan's network of preferred providers. For the purposes of
this report, unless noted otherwise, traditional plans refers to PPO
plans.

6Data we report on traditional plans offered through eHealthInsurance
include both PPO plans and other major medical plans that do not meet the
federal criteria for HSA-eligible plans.

7See GAO, Federal Employees Health Benefits Program: Early Experience with
a Consumer-Directed Health Plan, GAO-06-143 (Washington, D.C.: Nov. 21,
2005); Federal Employees Health Benefits Program: First-Year Experience
with High-Deductible Health Plans and Health Savings Accounts, GAO-06-271
(Washington, D.C.: Jan. 31, 2006); and Consumer-Directed Health Plans:
Small but Growing Enrollment Fueled by Rising Cost of Health Care
Coverage, GAO-06-514 (Washington, D.C.: Apr. 28, 2006).

In summary, we found that HSA-eligible plans had lower premiums, higher
deductibles, and higher out-of-pocket spending limits than did traditional
plans in 2005, but both plan types covered similar services, including
preventive services. Our illustration of enrollees' potential health care
costs for the three employers' 2005 health plans we reviewed showed that
HSA-eligible plan enrollees would incur higher annual costs than PPO plan
enrollees for extensive amounts of health care, but would incur lower
annual costs than PPO enrollees for low to moderate use of health care.
HSA-eligible plan enrollees generally had higher incomes than comparison
groups, but data on age differences were inconclusive. Just over half of
all HSA-eligible plan enrollees and most employers contributed to HSAs.
About 45 percent of tax filers reporting 2004 HSA contributions also
reported that they withdrew funds in 2004, and 90 percent of withdrawn
funds were used for qualified medical expenses. HSA-eligible plan
enrollees who participated in our focus groups generally reported positive
experiences, but most would not recommend the plans to all consumers. Most
participants said they would recommend the plans to healthy consumers, but
not to those who use maintenance medications, have a chronic condition,
have children, or may not have the funds to meet the high deductible.

                                   Background

Consumer-directed health plans generally include three components: a
health plan with a high deductible, a savings account-such as an HSA-to
pay for health care expenses, and enrollee decision-support tools.

           o  An insurance plan with a high-deductible. HSA-eligible plans
           are required to meet certain statutory criteria. The plans must
           have a minimum deductible amount-$1,050 for single coverage and
           $2,100 for family coverage in 2006-and a maximum limit on enrollee
           out-of-pocket spending8-$5,250 for single coverage and $10,500 for
           family coverage in 2006.9 Preventive care services may be exempted
           from the deductible requirement, but coverage of most other
           services, including prescription drugs, is subject to the
           deductible.10 After meeting the deductible, the HSA-eligible plan
           pays for most of the cost of covered services until the enrollee
           meets the out-of-pocket spending limit, at which point the plan
           pays 100 percent of the cost of covered services.

           o  A savings account to pay for health care expenses. There are
           several types of savings accounts that may be associated with
           consumer-directed health plans, with HSAs being among the most
           prominent. An HSA is a tax-advantaged savings account established
           for paying qualified medical expenses.11 Individuals are eligible
           to open an HSA if they are enrolled in an HSA-eligible plan and
           have no other health coverage, with limited exceptions.12 HSAs are
           owned by the account holder, and the accounts are
           portable-individuals may keep their accounts if they switch jobs
           or enroll in a non-HSA-eligible health plan. Both employers and
           individuals may contribute to HSAs, and individuals may claim a
           deduction on their federal income taxes for their HSA
           contributions. HSA balances can earn interest; roll over from year
           to year; and be invested in a variety of financial instruments,
           such as mutual funds. HSA-eligible plan enrollees who choose to
           pay for medical expenses from their HSA may access their account
           funds by check, by debit card, or by authorizing insurance
           carriers to allow providers to directly debit their account funds.
           HSAs are subject to annual contribution limits. In 2006,
           contributions were limited to 100 percent of the deductible, but
           not more than $2,700 for single coverage or $5,450 for family
           coverage.13 Contributions, earned interest, and withdrawals for
           qualified medical expenses are not subject to federal income
           taxation.14 A financial institution, such as a bank or insurance
           company, typically administers the account.
           o  Decision-support tools. HSA-eligible plans typically provide
           enrollee decision-support tools that include, to some extent,
           information on the cost of health care services and the quality of
           health care providers. Experts suggest that reliable information
           about the cost of particular health care services and the quality
           of specific health care providers would help enrollees become more
           actively engaged in making health care purchasing decisions. These
           tools may be provided by health insurance carriers to all health
           insurance plan enrollees, but are likely to be more important to
           enrollees of HSA-eligible plans who have a greater financial
           incentive to make informed decisions about the quality and costs
           of health care providers and services.

           Financial Features of HSA-Eligible Plans Differed From Those of
			  Traditional Plans, but Covered Services Were Similar
			  
			  HSA-eligible plans had lower premiums, higher deductibles, and
           higher out-of-pocket spending limits than traditional plans in
           2005. Specifically, data from national employer health benefits
           surveys regarding plans offered in the group market indicate:

           o  Premiums for HSA-eligible plans averaged 35 percent less than
           employers' traditional plan premiums for single coverage and 29
           percent less for family coverage in 2005.15

           o  Annual deductibles for HSA-eligible plans averaged $1,901 for
           single coverage and $4,070 for family coverage in 2005-nearly six
           times greater than those of employers' traditional plans.16

           o  The median annual out-of-pocket spending limit for HSA-eligible
           plans offered by large employers was $3,500 for single coverage in
           2005, which was higher than the median out-of-pocket spending
           limit of $1,960 reported for traditional plans.17

           The HSA-eligible and traditional plans we reviewed covered the
           same broad categories of services, including preventive services,
           and also used similar provider networks in 2005.

           Our illustration of enrollees' potential health care
           costs-including premiums, deductibles, and other out-of-pocket
           costs for covered services-for the three employers' 2005 health
           plans we reviewed showed that HSA-eligible plan enrollees would
           incur higher annual costs than PPO enrollees for extensive use of
           health care, but would incur lower annual costs than PPO enrollees
           for low to moderate use of health care.18 Specifically, we
           estimated that in the event of an illness or injury resulting in a
           hospitalization costing $20,000, the total costs incurred by the
           three employers' HSA-eligible plan enrollees would be 47 to 83
           percent higher than those faced by the employers' PPO enrollees.
           In contrast, we estimated that the total costs paid by
           HSA-eligible plan enrollees who used low to moderate amounts of
           health care, visiting the doctor for illnesses or injuries six
           times in one year, would be 48 to 58 percent lower than the costs
           paid by the PPO enrollees.19 If HSA-eligible plan enrollees used
           tax-advantaged funds that they, or someone other than their
           employer, contributed to their HSA, their costs could have been
           lower than our estimates.

           HSA-Eligible Plan Enrollees Had Higher Incomes than Comparison
			  Groups, but Data on Age Differences Were Inconclusive
			  
			  HSA-eligible plan enrollees generally had higher incomes than
           comparison groups. The average adjusted gross income of the
           estimated 108,000 tax filers reporting HSA contributions in 2004
           was about $133,000,20 compared with $51,000 for all tax filers
           under age 65, according to IRS data. Moreover, 51 percent of tax
           filers reporting HSA contributions had an adjusted gross income of
           $75,000 or more, compared with 18 percent of all tax filers under
           age 65.21 (See fig. 1.)

           Figure 1: Adjusted Gross Income of Tax Filers Reporting HSA
           Contributions and All Tax Filers, 2004

           Notes: Data are based on a sample of 2004 tax returns processed by
           IRS. For the all tax filers category, we excluded those 65 years
           and older because they are generally enrolled in Medicare and are
           ineligible to contribute to an HSA.

           We also found similar income differences between HSA-eligible plan
           and traditional plan enrollees when we examined other data sources
           from the group and individual markets. Among Federal Employees
           Health Benefits Program (FEHBP) enrollees actively employed by the
           federal government, 43 percent of HSA-eligible plan enrollees
           earned federal incomes of $75,000 or more, compared with 23
           percent for all enrollees in 2005. Additionally, two of the three
           employers we reviewed and eHealthInsurance reported that
           HSA-eligible plan enrollees had higher incomes than did
           traditional plan enrollees in 2005.

           The data sources we examined did not conclusively indicate whether
           HSA-eligible plan enrollees were older or younger than comparison
           groups. IRS data suggest that the average age of tax filers who
           reported HSA contributions was about 9 years higher than the
           average age of all tax filers under age 65 in 2004.22 Similarly,
           eHealthInsurance reported that in the individual market the
           average age of its HSA-eligible plan enrollees was 5 years higher
           than that of its traditional plan enrollees in 2005. In contrast,
           data from FEHBP and the three employers we reviewed indicate that
           the average age of HSA-eligible plan enrollees, excluding
           retirees, was 2 to 6 years lower than that of comparison groups of
           enrollees.

           Just Over Half of Enrollees and Most Employers Contributed to HSAs,
			  and These Funds Were Used to Pay for Medical Care and to Accumulate
			  Savings
			  
			  Just over half of HSA-eligible plan enrollees and most employers
           contributed to HSAs. About 55 percent of HSA-eligible plan
           enrollees reported HSA contributions in 2004, according to our
           analysis of data obtained from IRS and a publicly available
           survey. HSA-eligible plan enrollees from the employers we reviewed
           were more likely to contribute to an HSA when their employer also
           offered account contributions. Among tax filers who claimed a
           deduction for an HSA in 2004, the average deduction was about
           $2,100 and the average amount deducted increased with income.
           About two-thirds of employers offering HSA-eligible plans
           contributed to their employees' HSAs in 2005, according to two
           national employer health benefits surveys.23 In 2004, the average
           employer HSA contribution reported to IRS was about $1,064.

           Account holders used HSA funds to pay for medical care and to
           accumulate savings. About 45 percent of tax filers reporting an
           HSA contribution in 2004-made by themselves, their employers, or
           others on their behalf-also reported withdrawing funds in 2004.
           The average annual amount withdrawn by these tax filers was about
           $1,910. About 90 percent of these withdrawn funds were used to pay
           for expenses identified under the Internal Revenue Code as
           eligible medical expenses. IRS data show that about 40 percent of
           all funds contributed to HSAs in 2004 were withdrawn from the
           accounts by the end of the year. In addition to using HSAs for
           medical and other expenses, account holders appeared to use their
           HSA as a savings vehicle. About 55 percent of tax filers reporting
           HSA contributions in 2004 withdrew no money from their account in
           2004. We could not determine whether HSA-eligible plan enrollees
           accumulated balances because they did not need to use their
           accounts (that is, they paid for care from out-of-pocket sources
           or did not need health care during the year) or because they
           reduced their health care spending as a result of financial
           incentives associated with the HSA-eligible plan and HSA. However,
           many focus group participants reported using their HSA as a
           tax-advantaged savings vehicle, accumulating HSA funds for future
           use.

           Focus Group Participants Were Generally Satisfied with HSA-Eligible
			  Plans, but Would Not Recommend Them to All Consumers
			  
			  HSA-eligible plan enrollees who participated in our focus groups
           at the three employers we reviewed generally reported positive
           experiences with their plans. These focus group participants, who
           had voluntarily elected to enroll in HSA-eligible plans as one of
           several choices offered by their employers, cited the ability to
           accumulate savings, the tax advantages of having an HSA, and the
           ability to use an HSA debit card as positive aspects of HSAs.
           Participants reported few problems obtaining care, and when given
           a choice, many reported that they had reenrolled in the
           HSA-eligible plan.

           While focus group participants enrolled in HSA-eligible plans
           generally understood the key attributes of their plan, such as low
           premiums, high deductibles, and the mechanics of using the HSA,
           they were confused about certain other features. For example, many
           participants understood that certain preventive services were
           covered free of charge, but they also had trouble distinguishing
           between the preventive services and other services provided during
           a preventive office visit. Moreover, many participants were unsure
           what medical expenses qualified for payment using their HSA.

           Few participants researched the cost of hospital or physician
           services before obtaining care, although many participants
           researched the cost of prescription drugs. A few participants
           reported asking physicians about the cost of services, but others
           expressed discomfort with asking physicians about cost. For
           example, one participant said, "Americans don't negotiate. It's
           not polite to question the value of [a provider's] work."
           Participants of one focus group also reported not initially
           understanding the extent to which they needed to manage and take
           responsibility for their health care, including by asking
           questions about the cost of services and medications. Participants
           also reported that only limited information was available
           regarding key quality measures for hospitals and physicians, such
           as the volume of procedures performed and the outcomes of those
           procedures. The decision-support tools provided with
           consumer-directed health plans we previously reviewed were limited
           and did not provide sufficient information to allow enrollees to
           fully assess cost and quality trade-offs of health care purchasing
           decisions.24

           Most participants reported that they would not recommend
           HSA-eligible plans to all consumers. Some participants said they
           enrolled in the HSA-eligible plan specifically because they did
           not anticipate getting sick, and many said they considered
           themselves and their families as being fairly healthy. Most
           participants would recommend the plans to healthy consumers, but
           not to those who use maintenance medication, have a chronic
           condition, have children, or may not have the funds to meet the
           high deductible.

           Concluding Observations
			  
			  In closing, as more individuals face the choice of enrolling in
           HSA-eligible plans or other consumer-directed health plans, they
           will likely weigh the savings potential and financial risks
           associated with these plans in relation to their own health care
           needs and financial circumstances. Because healthier individuals
           who use little health care could incur lower costs under
           HSA-eligible plans than under traditional plans, when given a
           choice they may be more likely to select an HSA-eligible plan than
           will less healthy individuals who use greater amounts of health
           care. It will be important to monitor enrollment trends and assess
           their implications for the cost of health care coverage for all
           HSA-eligible and traditional plan enrollees.

           Few of the HSA-eligible plan enrollees who participated in our
           focus groups researched cost before obtaining health care
           services. This may be due in part to a reluctance of consumers to
           question health care providers about the cost of their services
           and the dearth of information provided by insurance carriers to
           their enrollees about the cost of health care services under their
           plans-a limitation that insurance carriers are beginning to
           address. According to proponents, an increase in such health care
           consumerism can help restrain health care spending increases under
           the plans. Such an increase will likely require time, education,
           and improved decision-support tools that provide enrollees with
           more information about the cost and quality of health care
           providers and services.

           Finally, while HSA-eligible plan enrollees we spoke with were
           generally satisfied with their plans, it is notable that these
           enrollees each had a choice of health plans and voluntarily
           selected the HSA-eligible plan. Their caution that HSA-eligible
           plans may not be appropriate for everyone suggests that
           satisfaction may be lower when employees are not given a choice or
           when employer contributions to premiums or accounts do not
           sufficiently offset the potentially greater costs faced by
           HSA-eligible plan enrollees.

           Mr. Chairman, this concludes my prepared remarks. I would be happy
           to answer any questions that you or other Members of the
           Subcommittee may have.

           Contacts and Acknowledgments
			  
			  For future contacts regarding this testimony, please contact John
           E. Dicken at (202) 512-7119 or at [email protected] . Contact points
           for our Offices of Congressional Relations and Public Affairs may
           be found on the last page of this testimony. Randy DiRosa,
           Assistant Director; Pamela N. Roberto; and Patricia Roy made key
           contributions to this statement.

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8An out-of-pocket spending limit represents the maximum amount an enrollee
is required to pay toward the cost of covered services. The out-of-pocket
spending limit includes deductibles and other payments, but does not
include premiums.

9These amounts are annually adjusted for cost-of-living increases. In
2005, the minimum deductible amount was $1,000 for single coverage and
$2,000 for family coverage, and the maximum limit on enrollee
out-of-pocket spending was $5,100 for single coverage and $10,200 for
family coverage.

10The IRS definition of preventive care includes periodic health
evaluations, including tests and diagnostic procedures ordered in
connection with routine examinations, routine prenatal and well-child
care, immunizations, tobacco cessation programs, obesity weight-loss
programs, and various screening services. Through 2006, IRS allows certain
plans to be treated as HSA eligible, where, in order to comply with state
requirements, the plans cover certain services (such as prescription
drugs) before enrollees meet the deductible. After 2006, no such
transitional relief will be available.

11Qualified medical expenses are identified under the Internal Revenue
Code.

12HSA-eligible plan enrollees are not required to open or contribute to an
HSA and can use non-HSA funds to pay for medical expenses.

13The annual contribution limit is adjusted annually for cost-of-living
increases. In 2005, contributions were allowed up to 100 percent of the
deductible, but not more than $2,650 for single or $5,250 for family
coverage.

14Withdrawals for nonqualified expenses are subject to income tax and, if
made before age 65, a tax penalty.

15See Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey (Menlo Park, Calif., and
Chicago, Ill.: 2005).

16Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey.

17See Mercer Human Resource Consulting, National Survey of
Employer-Sponsored Health Plans: 2005 Survey Report (New York, N.Y.:
2006).

18We assumed that enrollees had single coverage and used in-network
services. We also assumed that enrollees used the funds their employers
contributed to their HSA in 2005 and paid for the rest out of pocket. We
assumed that enrollees did not have HSA funds carried over from a prior
year, which, if used, could have lowered enrollees' out-of-pocket costs.
We considered only the costs associated with medical care provided by a
physician and did not consider any other costs that could be incurred by
an enrollee, such as prescription drug costs.

19We assumed that the negotiated rate for each doctor's visit was $80. We
developed this assumption based on our analysis of one insurance carrier's
negotiated rates for office visits for low to moderate problems in the
regions the three employers' plans were offered.

20To receive a deduction, tax filers must report HSA contributions to IRS.
Those reporting HSA contributions in 2004 represented about 0.1 percent of
the 115 million tax filers less than 65 years of age.

21All tax filers includes both insured and uninsured individuals. The
uninsured tend to have lower incomes than those with health insurance
coverage.

22All tax filers include both insured and uninsured individuals. The
uninsured tend to be younger than those with health insurance coverage.

23Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey; and Mercer Human Resource
Consulting, National Survey of Employer-Sponsored Health Plans: 2005
Survey Report.

24Representatives from insurance carriers told us that they were planning
to offer additional cost and quality data in the coming years. GAO-06-514
.

           (290576)

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Highlights of GAO-06-1133T , a testimony before the Subcommittee on Health
Care, Committee on Finance, U.S. Senate

September 26, 2006

HEALTH SAVINGS ACCOUNTS

Early Enrollee Experiences with Accounts and Eligible Health Plans

Health savings accounts (HSA) and the high-deductible health insurance
plans that are eligible to be coupled with them are a new type of
consumer-directed health plan attracting interest among employers and
consumers. HSA-eligible plans constitute a small but growing share of the
private insurance market, and the novel structure of the plans has raised
questions about how they could affect enrollees' health care purchasing
decisions and costs.

This statement is based on GAO's August 2006 report entitled
Consumer-Directed Health Plans: Early Enrollee Experiences with Health
Savings Accounts and Eligible Health Plans (GAO-06-798). In this report,
GAO reviewed (1) the financial features of HSA-eligible plans in
comparison with those of traditional plans, such as preferred provider
organizations (PPO); (2) the characteristics of HSA-eligible plan
enrollees in comparison with those of traditional plan enrollees or
others; (3) HSA funding and use; and (4) enrollees' experiences with
HSA-eligible plans.

HSA-eligible plans had lower premiums, higher deductibles, and higher
out-of-pocket spending limits than did traditional plans in 2005, but both
plan types covered similar services, including preventive services. For
the three employers' health plans GAO reviewed to illustrate enrollees'
potential health care costs, GAO estimated that HSA-eligible plan
enrollees would incur higher annual costs than PPO enrollees for extensive
use of health care, but would incur lower annual costs than PPO enrollees
for low to moderate use of health care.

HSA-eligible plan enrollees generally had higher incomes than comparison
groups, but data on age differences were inconclusive. In 2004, 51 percent
of tax filers reporting an HSA contribution had an adjusted gross income
of $75,000 or more, compared with 18 percent of all tax filers under 65
years old. Two of the three employers GAO reviewed, the Federal Employees
Health Benefits Program, and a national broker of health insurance also
reported that HSA-eligible plan enrollees had higher incomes than
traditional plan enrollees in 2005.

Just over half of all HSA-eligible plan enrollees and most employers
contributed to HSAs, and account holders used their HSA funds to pay for
medical care and accumulate savings. About 55 percent of HSA-eligible plan
enrollees reported HSA contributions to the Internal Revenue Service in
2004, and about two-thirds of employers offering HSA-eligible plans
contributed to their employees' HSAs. About 45 percent of tax filers
reporting 2004 HSA contributions also reported that they withdrew funds in
that year, and 90 percent of these funds were withdrawn for qualified
medical expenses. The other 55 percent of those reporting HSA
contributions did not withdraw any funds from their HSA in 2004.

HSA-eligible plan enrollees who participated in GAO's focus groups
generally reported positive experiences, but most would not recommend the
plans to all consumers. Few participants reported researching cost before
obtaining health care services, although many researched the cost of
prescription drugs. Most participants were satisfied with their
HSA-eligible plans and would recommend them to healthy consumers, but not
to those who use maintenance medication, have a chronic condition, have
children, or may not have the funds to meet the high deductible.
*** End of document. ***