Consumer-Directed Health Plans: Early Enrollee Experiences with  
Health Savings Accounts and Eligible Health Plans (09-AUG-06,	 
GAO-06-798).							 
                                                                 
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. Employers and plan enrollees may  
contribute to tax-advantaged HSAs, and enrollees can use the	 
accounts to pay for health care expenses. Because HSAs and	 
HSA-eligible plans are new, there is interest in the experiences 
of plan enrollees, as well as in comparing the plan features and 
enrollee characteristics with those of traditional plans, such as
preferred provider organization (PPO) plans. GAO reviewed (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, (3) HSA funding and use, and (4) enrollees'		 
experiences with HSA-eligible plans. GAO analyzed data regarding 
HSA-eligible and traditional plans and enrollees from national	 
employer health benefits surveys, three selected employers, and a
national broker of health insurance. GAO compared Internal	 
Revenue Service (IRS) data for tax filers reporting HSA 	 
contributions with corresponding data for all tax filers under 65
years old. GAO also conducted focus groups with employees of the 
three employers.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-798 					        
    ACCNO:   A58380						        
  TITLE:     Consumer-Directed Health Plans: Early Enrollee	      
Experiences with Health Savings Accounts and Eligible Health	 
Plans								 
     DATE:   08/09/2006 
  SUBJECT:   Comparative analysis				 
	     Employee medical benefits				 
	     Health care costs					 
	     Health care programs				 
	     Health insurance					 
	     Medical savings accounts				 
	     Tax deductions					 
	     Federal Employees Health Benefits			 
	     Program						 
                                                                 

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GAO-06-798

     

     * Results in Brief
     * Background
          * Private Health Insurance Markets
          * HSA-Eligible Plans and HSAs
     * Financial Features of HSA-Eligible Plans Differed from Those
          * HSA-Eligible Plans Had Lower Premiums, Higher Deductibles, a
               * Group Market
               * Individual Market
          * HSA-Eligible Plans Covered Similar Health Care Services and
          * Enrollee Costs Would Be Higher for HSA-Eligible Plans Than f
     * HSA-Eligible Plan Enrollees Had Higher Incomes Than Comparis
          * HSA-Eligible Plan Enrollees Had Higher Incomes Than Comparis
          * Data Sources Did Not Show Consistent Age Differences between
     * Just over Half of Enrollees and Most Employers Contributed t
          * Just over Half of Enrollees Opened and Contributed to HSAs
          * Most Employers Offering HSA-Eligible Plans Contributed to HS
          * HSA Account Holders Used HSA Funds to Pay for Medical Care a
     * Focus Group Participants Generally Understood and Were Satis
          * Focus Group Participants Generally Understood Key Attributes
          * Few Focus Group Participants Researched Cost before Obtainin
          * Focus Group Participants Were Generally Satisfied with HSA-E
          * Focus Group Participants Enrolled in Traditional Plans Cited
     * Concluding Observations
     * Agency Comments
     * Financial Features and Covered Services
     * Characteristics of HSA-Eligible Enrollees
     * HSA Funding and Use
     * Enrollee Experiences
     * GAO Contact
     * 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

Report to the Ranking Minority Member, Committee on Finance, U.S. Senate

United States Government Accountability Office

GAO

August 2006

CONSUMER-DIRECTED HEALTH PLANS

Early Enrollee Experiences with Health Savings Accounts and Eligible
Health Plans

GAO-06-798

Contents

Letter 1

Results in Brief 4
Background 6
Financial Features of HSA-Eligible Plans Differed from Those of
Traditional Plans, but Covered Services Were Similar 11
HSA-Eligible Plan Enrollees Had Higher Incomes Than Comparison Groups, but
Data on Age Differences Were Inconclusive 18
Just over Half of Enrollees and Most Employers Contributed to HSAs, and
Account Holders Used HSA Funds to Pay for Medical Care and to Accumulate
Savings 22
Focus Group Participants Generally Understood and Were Satisfied with
HSA-Eligible Plans, but Would Not Recommend These Plans to All Consumers
26
Concluding Observations 30
Agency Comments 31
Appendix I Scope and Methodology 32
Appendix II GAO Contact and Staff Acknowledgments 38
Related GAO Products 39

Tables

Table 1: Key Features of HSA-Eligible Plans and HSAs for 2006 10
Table 2: Financial Features of HSA-Eligible and Traditional Plans Offered
by Employers, 2005 14
Table 3: Financial Features of HSA-Eligible and Traditional Plans Offered
in the Individual Market through eHealthInsurance, 2005 16
Table 4: Average Age of HSA-Eligible Plan Enrollees and Comparison Groups
21

Figures

Figure 1: Adjusted Gross Income of Tax Filers Reporting HSA Contributions
and All Tax Filers, 2004 19
Figure 2: Average Deduction Claimed for HSA Contribution, 2004 24

Abbreviations

CDHP consumer-directed health plan FEHBP Federal Employees Health Benefits
Program FSA flexible spending arrangement HSA health savings account IRS
Internal Revenue Service PPO preferred provider organization SOI
Statistics of Income

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separately.

United States Government Accountability Office

Washington, DC 20548

August 9, 2006

The Honorable Max Baucus Ranking Minority Member Committee on Finance
United States Senate

Dear Senator Baucus:

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 (CDHP) attracting interest among employers
and consumers.1 Both employers and plan enrollees may contribute to
tax-advantaged HSAs, and enrollees can use the accounts to pay for their
health care expenses.2 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.

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
plans will encourage enrollees to become more astute health care consumers
and thus restrain health care spending increases. Proponents argue that
the high deductibles give enrollees an incentive to seek lower-cost health
care services and that the ability to carry over unspent HSA funds from
year to year gives enrollees an incentive to obtain services only when
necessary. However, some critics contend that the high deductibles
associated with HSA-eligible plans may discourage enrollees from obtaining
necessary health care services. Some critics are also concerned that the
plans may attract a disproportionate share of wealthier enrollees who seek
to use the HSA primarily as a tax-advantaged savings vehicle or healthier
or younger individuals who use fewer health care services. If these plans
do attract a larger share of individuals who are likely to use fewer
health care services, premiums for traditional health insurance plans,
such as preferred provider organization (PPO) plans,3 could rise faster
than they otherwise would because of the disproportionate share of
enrollees with higher health care expenses remaining in those plans.

1In addition to HSAs, other types of accounts associated with CDHPs
include health reimbursement arrangements, which differ from HSAs in that
they are owned by the employer, not the enrollee, and medical savings
accounts, which are enrollee owned and have lower allowable contributions
than HSAs. Since December 31, 2005, medical savings accounts can no longer
be opened.

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.

Because HSAs and HSA-eligible plans are a relatively new concept in health
insurance coverage, there is interest in the plan features and the
characteristics and experiences of early plan enrollees.4 For example,
there is interest in who is enrolling in HSA-eligible plans, and whether
they differ from enrollees in traditional health plans, such as PPO plans.
In response to your request, we examined the following questions:

           1. How do financial features, covered services, and enrollees'
           annual costs compare between HSA-eligible and traditional plans?
           2. How do the characteristics of enrollees compare between
           HSA-eligible and traditional plans?
           3. How are HSAs funded, and how are HSA account holders using
           their funds?
           4. What are enrollees' experiences with HSA-eligible plans?

To compare the financial features of HSA-eligible plans with those of
traditional plans, we summarized 2005 data from national employer health
benefits surveys. We also reviewed the financial features of plans offered
in 2005 by three large employers in the public, utility, and insurance
sectors, as well as those of plans sold for 2005 by eHealthInsurance, a
large, national broker of individual and small business health insurance.5
To compare the covered health care services and provider networks of
HSA-eligible plans with those of traditional plans, we reviewed plan
brochures provided by the three large employers and spoke with employer
and insurance carrier officials and industry experts. To illustrate the
potential health care costs faced by HSA-eligible and traditional plan
enrollees, we examined the total annual costs to enrollees of the three
employers' HSA-eligible and PPO plans in 2005. We compared the total costs
for enrollees who used extensive and low to moderate amounts of health
care.

3PPO 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.

4We have recently reported on the features of CDHPs and HSAs offered to
federal employees and others. See 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).

To compare the characteristics of HSA-eligible and traditional plan
enrollees, we analyzed demographic data provided by the Internal Revenue
Service (IRS) on adjusted gross income and age reported by tax filers who
reported an HSA contribution on their returns for 20046 and compared them
with the corresponding data for all tax filers under 65 years old.7,8 We
also compared 2005 income and age data for HSA-eligible and traditional
plan enrollees who purchased coverage from the three employers we reviewed
and from eHealthInsurance.9

To examine how HSAs are funded and used, we analyzed data on individual
and employer contributions and account withdrawals. To determine the share
of enrollees that opened HSAs, we analyzed survey data on HSA-eligible
plan enrollment and IRS data on HSA contributions. We also conducted
interviews with industry experts regarding the share of enrollees that
opened HSAs. To examine individuals' HSA contributions, we analyzed IRS
data on the average tax deduction for 2004 HSA contributions and reviewed
data provided by the three employers on the 2005 contributions of
employees enrolled in HSA-eligible plans. To examine employer HSA
contributions, we analyzed IRS data on the average employer contribution
in 2004 and summarized 2005 data reported by two national employer health
benefits surveys and the three large employers we reviewed. To determine
how account holders use HSA funds, we analyzed IRS data on reported HSA
withdrawals in 2004 and conducted a series of focus groups with employees
of the three large employers we reviewed regarding HSA-eligible plan
enrollees' use of accounts in 2005.

5Traditional plans offered through eHealthInsurance include both PPO plans
and other major medical plans that do not meet the federal criteria for
HSA-eligible plans.

6The first year that individuals could contribute to HSAs was 2004.

7The IRS data set we used is a random sample of 200,295 individual income
tax returns in 2004 from IRS's Statistics of Income (SOI) individual tax
return file. The findings from the IRS data that we report were estimates
derived from the SOI sample, which was weighted to represent an estimated
population of about 132 million tax returns. IRS uses the SOI file to
develop annual statistics on the population of individual taxpayers.

8Individuals 65 and older are generally enrolled in Medicare and are
ineligible to contribute to an HSA.

9Data from the three employers excluded retirees, and data from
eHealthInsurance excluded enrollees 65 or older.

To determine enrollees' experiences with HSA-eligible plans, we gathered
information from focus groups of employees of the three large employers
regarding enrollee education, plan comprehension, experience with
obtaining care, use of decision-support tools, and plan satisfaction in
2005. Unless otherwise noted, the participant experiences we report
reflect multiple focus groups.

Much of the data we present cannot be generalized to all HSA-eligible
plans and enrollees or HSA account holders. For example, the IRS data for
tax filers reporting an HSA contribution cannot be generalized to all
HSA-eligible plan enrollees because the sample is not designed to capture
individuals enrolled in a high-deductible health plan who did not have an
associated HSA. The results of the focus groups and the data obtained from
the three employers cannot be generalized to all HSA-eligible plan
enrollees or employers because they represent only the experiences of the
focus group participants and the benefit offerings of the three employers.
We reviewed all data for reasonableness and consistency and determined
that the data were sufficiently reliable for our purposes. We performed
our work from November 2004 through July 2006 in accordance with generally
accepted government auditing standards. Appendix I provides more detailed
information on our methodology and the characteristics and limitations of
the data we report.

                                Results in Brief

The financial features of HSA-eligible plans differed from those of
traditional plans, but both plan types covered similar health care
services. HSA-eligible plans had lower premiums, higher deductibles, and
higher out-of-pocket spending limits than traditional plans in 2005. For
example, a 2005 national employer health benefits survey reported
HSA-eligible plan premiums that were, on average, 35 percent less than
traditional plan premiums for single coverage and 29 percent less for
family coverage. The same survey found that employers' HSA-eligible plan
deductibles were, on average, nearly six times greater than those for
employers' traditional plans. The HSA-eligible plans offered by the three
employers we reviewed covered the same broad categories of health care
services as did traditional plans in 2005, including preventive,
diagnostic, maternity, surgical, and emergency services, and also used
similar provider networks. For the three employers' health plans we
reviewed to illustrate enrollees' potential health care costs-including
premiums, deductibles, and other out-of-pocket costs for covered
services-we estimated that HSA-eligible plan enrollees would incur higher
annual costs than PPO plan 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 to IRS had an adjusted gross
income of $75,000 or more, compared with 18 percent of all tax filers
under age 65. Two of the three employers we reviewed and eHealthInsurance
also reported that HSA-eligible plan enrollees had higher incomes than did
traditional plan enrollees in 2005. IRS data also 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. 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 several
employer groups indicate that the average age of HSA-eligible plan
enrollees, excluding retirees, was 2 to 6 years lower than that of other
groups of enrollees.

Just over half of HSA-eligible plan enrollees and about two-thirds of
employers contributed to HSAs, and account holders used HSA funds to pay
for medical care and to accumulate savings. 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.
Among tax filers who claimed a deduction for an HSA in 2004, the average
deduction was about $2,100, and the average amount increased with income.
About two-thirds of employers offering HSA-eligible plans contributed to
their employees' HSAs in 2005, according to national surveys. In 2004, the
average employer HSA contribution was about $1,064. About 45 percent of
tax filers reporting an HSA contribution in 2004-made by themselves,
others on their behalf, or their employers-also reported withdrawing funds
in 2004, and 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. Fifty-five percent of tax filers reporting HSA
contributions withdrew no money from their account in 2004.

HSA-eligible plan enrollees who participated in focus groups at the three
employers we reviewed generally reported positive experiences with their
plan, but most would not recommend these plans to all consumers. While
focus group participants enrolled in HSA-eligible plans 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 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. Most
participants reported satisfaction with their HSA-eligible plan, but said
they would not recommend these plans to everyone. Participants said they
would recommend HSA-eligible plans to healthy consumers, but not to people
who use maintenance medication, have a chronic condition, have children,
or may not have the funds to meet the high deductible.

We provided pertinent portions of a draft of this report to IRS and
eHealthInsurance and incorporated their technical comments as appropriate.

                                   Background

The majority of Americans receive their health coverage through the
private health insurance market. In 2004, as many as 177 million enrollees
and dependents-up to 84 percent-of the nearly 210 million individuals
under age 65 with health insurance coverage received coverage through the
private health insurance market.10 Since 2004, insurance carriers selling
coverage in this market have added HSA-eligible plans to their portfolio
of insurance products.

Private Health Insurance Markets

Private health plans are offered in two primary markets-the group and the
individual markets. The group market includes health plans offered by
employers to employees, either by purchasing the coverage from an
insurance carrier or by funding their own health plans, and health plans
offered by other groups, such as professional associations. About 159
million individuals and their dependents under age 65 received health
coverage through the group market in 2004.11 The individual market
includes health plans sold by insurance carriers to individuals who do not
receive coverage through an employer or other group. In this market,
health insurance brokers may link individuals with an insurance carrier,
and the enrollee pays a premium for coverage. About 17 million individuals
and their dependents under age 65 received health coverage through the
individual market in 2004.12 Most 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.

10Employee Benefit Research Institute, "Sources of Health Insurance and
Characteristics of the Uninsured: Analysis of the March 2005 Current
Population Survey," Issue Brief No. 287 (Washington, D.C.: November 2005).

HSA-Eligible Plans and HSAs

HSA-eligible plans constitute a small but growing share of the private
health insurance market. As we noted in our April 2006 report, the number
of enrollees and dependents covered by an HSA-eligible plan increased from
about 438,000 in September 2004 to about 1 million in March 2005 and to
about 3 million in January 2006.13 In 2004 and 2005, more than half of
these enrollees and dependents were covered by an HSA-eligible plan
purchased in the individual insurance market, rather than obtained from an
employer.14

HSA-eligible plans are required to meet certain statutory criteria. The
plans must have a minimum deductible amount of $1,050 for single coverage
and $2,100 for family coverage in 2006 and a maximum limit on enrollee
out-of-pocket spending15 of $5,250 for single coverage and $10,500 for
family coverage in 2006.16 Most HSA-eligible plan enrollees are covered by
plans that operate similarly to traditional plans. HSA-eligible plan
enrollees pay premiums to access covered services. As with traditional
plans, rates negotiated by insurance carriers provide incentives for
HSA-eligible plan enrollees to access in-network care. However,
HSA-eligible plan enrollees are subject to higher-than-average
deductibles. Preventive care services may be exempted from the deductible
requirement, but coverage of most other services, including prescription
drugs, is subject to the deductible.17 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. Insurance carriers offer
HSA-eligible plans to both employers in the group market and individuals
in the individual market.

11Employee Benefit Research Institute, "Sources of Health Insurance and
Characteristics of the Uninsured: Analysis of the March 2005 Current
Population Survey."

12Employee Benefit Research Institute, "Sources of Health Insurance and
Characteristics of the Uninsured: Analysis of the March 2005 Current
Population Survey."

13 GAO-06-514 .

14Preliminary data for 2006 suggest that the number of HSA-eligible plan
enrollees in the group market is growing faster than in the individual
market.

15An 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.

An HSA is a tax-advantaged savings account established for paying
qualified medical expenses.18 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.19 However, HSA-eligible plan enrollees
are not required to open or contribute to an HSA and can use non-HSA funds
to pay for medical expenses. 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 the insurance carriers to allow
the providers to directly debit their account funds. 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 regardless of whether they itemize deductions or claim the
standard deduction. 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 balances may also accumulate subject only to annual
limits on contributions. 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.20 Contributions, earned interest, and
withdrawals for qualified medical expenses are not federally taxed.
Withdrawals for nonqualified expenses are subject to income tax and, if
made before age 65, a tax penalty. A financial institution, such as a bank
or insurance company, typically administers the account. Table 1 describes
the key features of HSA-eligible plans and HSAs.

16These 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.

17The 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.

18Qualified medical expenses are identified under the Internal Revenue
Code.

19Limited coverage (including specific injury or accident, disability,
dental care, or vision care) in addition to the HSA-eligible plan is
permissible.

20The 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.

Table 1: Key Features of HSA-Eligible Plans and HSAs for 2006

Feature                  Description                                       
HSA-eligible plan features
Deductible requirementsa Minimum of $1,050 for single and $2,100 for       
                            family coverage; to be adjusted for               
                            cost-of-living increases in future years.b        
Maximum out-of-pocket    Maximum of $5,250 for single and $10,500 for      
limitsa                  family coverage; to be adjusted for inflation in  
                            future years.                                     
HSA features             
Ownership                Accounts are owned by the individual.             
Portability              Accounts are fully portable-individuals can       
                            retain their HSA balances if they change jobs or  
                            obtain other health coverage.                     
Who may contribute       Individuals, family members, employers, and other 
                            entities may contribute on behalf of the          
                            individual.                                       
Annual contribution      Contributions are allowed up to 100 percent of    
limits                   deductible, but not more than $2,700 for single   
                            or $5,450 for family coverage; however, account   
                            holders aged 55 or over and not enrolled in       
                            Medicare can contribute an additional $700.       
Unspent funds            Unspent funds may roll over from year to year     
                            without limit.                                    
Definition of qualified  Included are expenses intended to alleviate or    
medical expenses         prevent a physical or mental condition or         
                            illness, including vision and dental services,    
                            and premiums for long-term care insurance,        
                            certain continuation coverage, coverage while     
                            receiving unemployment benefits, and coverage     
                            after age 65 (except Medigapc).                   
Tax treatment            Withdrawals for qualified medical expenses and    
                            earned interest are exempt from federal income    
                            taxes; employer contributions are excluded from   
                            gross income, and employee contributions are      
                            deductible from federal income taxes.             
Nonmedical withdrawals   Nonmedical withdrawals are subject to income tax, 
                            and an additional 10 percent penalty is assessed  
                            if these withdrawals are made before age 65.      
History                  Tax advantages for HSAs were authorized in        
                            December 2003 and made available beginning        
                            January 1, 2004.                                  

Source: GAO analysis of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 and IRS guidance on HSAs.

aServices not covered by the insurance plan do not count toward the
deductible or out-of-pocket maximum.

bThrough 2006, IRS allows certain plans to be treated as HSA eligible,
where, in order to comply with state requirements, they cover certain
services (such as prescription drugs) prior to meeting the deductible.
After 2006, no such transitional relief will be available.

cMedigap is a private supplemental insurance available to Medicare
enrollees. It helps to pay for some of Medicare's deductibles, copayments,
and coinsurance amounts, as well as some benefits Medicare does not cover.

HSA-eligible plans typically provide, to some extent, information on the
cost of health care services and the quality of health care providers.
This information may help enrollees to become more actively engaged in
making health care purchasing decisions. Experts suggest that in order to
assess the price competitiveness of different providers or the cost of
different treatment options, enrollees need reliable, specific information
about the cost of services. Experts also suggest that in order to make
informed provider choices, enrollees need data on key quality measures to
assess the quality of different providers. These quality measures may
include the volume of procedures performed, the outcomes of those
procedures, and certain process indicators demonstrating whether providers
followed certain recommended treatment guidelines. Insurance carriers
offering HSA-eligible plans may also provide online access to health
accounts for enrollees to manage their health care spending.

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 and other CDHPs, who have a greater financial
incentive to make informed decisions about the quality and costs of health
care providers and services. However, insurance carriers have faced
challenges in obtaining or presenting quality and cost data. As we noted
in our April 2006 report, the decision-support tools provided with CDHPs
were limited and did not provide sufficient information to allow enrollees
to fully assess cost and quality trade-offs of health care purchasing
decisions.21

  Financial Features of HSA-Eligible Plans Differed from Those of Traditional
                    Plans, but Covered Services Were Similar

The financial features-premiums, deductibles, and out-of-pocket spending
limits-of HSA-eligible plans differed from those of traditional plans in
2005, but both plan types covered similar health care services.
HSA-eligible plans had lower premiums, higher deductibles, and higher
out-of-pocket spending limits than traditional plans in 2005. The
HSA-eligible plans we reviewed covered the same broad categories of
services as traditional plans and used similar provider networks in 2005.
Our illustration of enrollees' potential health care costs for the three
employers' health plans we reviewed showed that HSA-eligible plan
enrollees would incur higher annual costs than PPO plan enrollees for
extensive use of health care, but would incur lower annual costs than PPO
plan enrollees for low to moderate use of health care.

21 GAO-06-514 .

HSA-Eligible Plans Had Lower Premiums, Higher Deductibles, and Higher
Out-of-Pocket Spending Limits Than Traditional Plans

In the group market, HSA-eligible plans had lower premiums, higher
deductibles, and higher out-of-pocket spending limits than traditional
plans in 2005. Similarly, in the individual market, HSA-eligible plans had
lower premiums and higher deductibles than traditional plans in 2005.

  Group Market

In the group market, HSA-eligible plans had lower premiums, higher
deductibles, and higher out-of-pocket spending limits than traditional
plans in 2005. Premiums for HSA-eligible plans were lower than those for
traditional plans in 2005. According to a national employer health
benefits survey, monthly premiums for HSA-eligible plans averaged $225 for
single coverage and $659 for family coverage in 2005.22 These HSA-eligible
plan premiums were, on average, 35 percent less than surveyed employers'
traditional plan premiums for single coverage and 29 percent less than
surveyed employers' traditional plan premiums for family coverage. On
average, surveyed employers paid about the same share of the premiums for
their HSA-eligible plans as for their traditional plans. Monthly premiums
for the HSA-eligible plans offered by the three employers we reviewed
ranged from $231 to $319 for single coverage and from $612 to $995 for
family coverage in 2005.23 These HSA-eligible plan premiums were 13 to 27
percent less than the employers' traditional plan premiums for single
coverage and 18 to 23 percent less for family coverage. In contrast to
data from the national employer health benefits survey, data from the
three employers we reviewed showed that the employers paid a greater share
of the premium for their HSA-eligible plan enrollees than for their
traditional plan enrollees.

HSA-eligible plan deductibles were higher than traditional plan
deductibles in 2005.24 For example, one national employer health benefits
survey reported that 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 surveyed employers' traditional plans.25
Another national employer health benefits survey reported that the median
annual deductible for HSA-eligible plans offered by large employers was
$1,200 for single coverage in 2005, four times greater than those of
surveyed employers' traditional plans.26 Annual deductibles for the
HSA-eligible plans offered by the three employers we reviewed ranged from
$1,250 to $3,000 for single coverage and from $2,500 to $6,000 for family
coverage in 2005. In contrast, deductibles for two of the three employers'
traditional plans were zero and for the other employer were $350 for
single coverage and $700 for family coverage.

22See Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey (Menlo Park, Calif., and
Chicago, Ill.: 2005). In this survey, family coverage refers to coverage
of four individuals.

23For these employers, family coverage refers to coverage of three or more
individuals.

24Deductibles may vary depending on whether the enrollee seeks care from a
provider that is part of the insurance carrier's provider network. For the
purposes of this report, if the plans or data we reviewed reported
separate deductibles for services received from in-network and
out-of-network providers, we discuss only the deductibles for services
received from in-network providers.

Out-of-pocket spending limits for HSA-eligible plans were higher than
those of traditional plans in 2005.27 According to a national employer
health benefits survey, 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.28 Out-of-pocket spending
limits for HSA-eligible plans offered by the three employers we reviewed
ranged from $3,750 to $5,000 for single coverage and from $7,500 to
$10,000 for family coverage in 2005, in contrast to the limits among the
employers' traditional plans of $1,000 to $2,350 for single coverage and
$2,000 to $4,700 for family coverage.29 Table 2 summarizes the financial
features of HSA-eligible and traditional plans offered by employers in
2005.

25Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey.

26Mercer Human Resource Consulting, National Survey of Employer-Sponsored
Health Plans: 2005 Survey Report (New York, N.Y.: 2006).

27Out-of-pocket spending limits may vary depending on whether the enrollee
seeks care from a provider that is part of the insurance carrier's
provider network. For the purposes of this report, if the plans or data we
reviewed reported separate out-of-pocket spending limits for services
received from in-network and out-of-network providers, we discuss only the
limits for services received from in-network providers.

28Mercer Human Resource Consulting, National Survey of Employer-Sponsored
Health Plans: 2005 Survey Report.

29The employers' plans we reviewed may not be comparable because some
plans excluded certain covered services from the calculation of their
out-of-pocket spending limit.

Table 2: Financial Features of HSA-Eligible and Traditional Plans Offered
by Employers, 2005

                          Kaiser                                                                                       
                          Family                                                                                       
                        Foundation               Mercer                                                       Employer 
              Coverage   Surveya                 Surveyb               Employer 1    Employer 2                  3     
Feature       type     HSA-eligible Tradi-tional         HSA-eligible Tradi-tional  HSA-eligible Tradi-tional          HSA-eligible Tradi-tional  HSA-eligible Tradi-tional 
Monthly       Single           $225         $346                 N.A.        $339c          $231         $315                  $319         $365          $251         $318 
premium                                                                                                                                                        
Enrollee                        16%          15%                 N.A.         23%c            4%          30%                   18%          28%           2%d         25%e 
share of                                                                                                                                                       
premium                                                                                                                                                        
Employer                        84%          85%                 N.A.         77%c           96%          70%                   82%          72%          98%d         75%e 
share of                                                                                                                                                       
premium                                                                                                                                                        
              Familyf          $659         $924                 N.A.        $879c          $612         $798                  $995       $1,208          $758         $969 
Enrollee                        21%          25%                 N.A.         33%c           18%          37%                   13%          28%           2%d         24%e 
share of                                                                                                                                                       
premiumf                                                                                                                                                       
Employer                        79%          75%                 N.A.         67%c           82%          63%                   87%          72%          98%d         76%e 
share of                                                                                                                                                       
premiumf                                                                                                                                                       
Annual        Single         $1,901         $323              $1,200h        $300h        $3,000         $350                $1,800           $0        $1,250           $0 
deductibleg   Family         $4,070         $679                 N.A.        $750h        $6,000         $700                $3,600           $0        $2,500           $0 
Annual        Single        $2,551j         N.A.              $3,500h      $1,960h        $5,000       $2,350                $4,800       $1,000        $3,750       $1,000 
out-of-pocket                                                                                                                                                  
spending      Family        $4,661j         N.A.                 N.A.         N.A.       $10,000       $4,700                $9,600       $2,000        $7,500       $3,000 
limiti                                                                                                                                                         
Annual        Single           $553         N.A.                $100k         N.A.            $0         N.A.               $1,400l         N.A.          $100         N.A. 
employer                                                                                                                                                       
contribution  Family         $1,185         N.A.                 N.A.         N.A.            $0         N.A.               $2,300l         N.A.          $200         N.A. 
to HSA                                                                                                                                                         

Source: GAO analysis of data reported by Kaiser Family Foundation and
Health Research and Educational Trust, Employer Health Benefits: 2005
Annual Survey; Mercer Human Resource Consulting, National Survey of
Employer-Sponsored Health Plans: 2005 Survey Report; and the three
employers we reviewed.

Notes: N.A. indicates that the data were not available. Family coverage
refers to coverage of four individuals for the survey data and coverage of
three or more individuals for the three employers.

aData represent average values of surveyed employers.

bData represent average or median values, as noted, for large employers.

cData represent average values among surveyed employers that required
enrollee premium contributions.

dIf HSA-eligible plan enrollees participated in an employer-sponsored
wellness program, the employee share of the premium was 0 percent, and the
employer share was 100 percent.

eIf traditional plan enrollees participated in an employer-sponsored
wellness program, the employee share of the premium was 22 percent, and
the employer share was 78 percent.

fPremium data are reported for families where a covered spouse does not
have access to medical benefits through his or her employer.

gIf the plans or data we reviewed reported separate deductibles for
services received from in-network and out-of-network providers, we
reported only the deductibles for services received from in-network
providers.

hData represent median values among surveyed employers.

iAn 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. If the plans or data we reviewed reported separate
out-of-pocket spending limits for services received from in-network and
out-of-network providers, we reported only the limits for services
received from in-network providers.

jKaiser was unable to determine for all survey respondents whether the
annual out-of-pocket spending limits were inclusive or exclusive of the
deductible.

kData represent the median values among surveyed employers offering HSA
contributions.

lIf HSA-eligible plan enrollees participated in employer-sponsored
wellness programs, the employer contributed up to $250 in excess of the
base contribution amount listed.

  Individual Market

Premiums and deductibles for HSA-eligible plans sold in the individual
market by eHealthInsurance followed a pattern similar to that of plans
sold in the group market, with lower premiums and higher deductibles than
traditional plans.30 According to eHealthInsurance, the average monthly
premiums for HSA-eligible plans were $111 for single coverage and $277 for
family coverage in 2005.31 Premiums for traditional health plans were, on
average, 24 percent more for single coverage and 31 percent more for
family coverage.32 The average annual deductible for an HSA-eligible plan
was $3,190 for single coverage and $5,213 for family coverage in 2005,
compared with deductibles for traditional plans of $1,597 for single
coverage and $2,025 for family coverage. (See table 3.)

30Data on annual out-of-pocket spending limits were not available.

31Family coverage refers to coverage of three or more individuals.

32Traditional plans offered through eHealthInsurance include both PPO
plans and other major medical plans that do not meet the federal criteria
for HSA-eligible plans.

Table 3: Financial Features of HSA-Eligible and Traditional Plans Offered
in the Individual Market through eHealthInsurance, 2005

Feature            Coverage type  HSA-eligible Traditional 
Monthly premium    Single                 $111        $138 
                      Family            277               363
Annual deductiblea Single                3,190       1,597 
                      Family          5,213             2,025

Source: eHealthInsurance.

Notes: Data represent average values for HSA-eligible and traditional
plans. 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. Family coverage refers to coverage for three or
more individuals.

aReported for in-network services only.

HSA-Eligible Plans Covered Similar Health Care Services and Used Similar
Provider Networks as Traditional Plans

HSA-eligible plans offered in 2005 by the three employers we reviewed
covered health care services similar to those covered by the traditional
plans offered by the same employers. The HSA-eligible and traditional
plans offered by the same employer covered the same broad categories of
services, such as preventive, diagnostic, maternity, surgical, outpatient,
and emergency care, and typically covered the same services within these
categories.33 While each HSA-eligible plan defined preventive services
differently, each plan covered, and paid 100 percent of the cost of,
certain core services, including annual physical exams, routine
immunizations for children, routine mammograms, routine Pap tests, and
well-child care.34 These services were generally also covered by the
traditional plans offered by the employers.35

The provider networks used by HSA-eligible plans and traditional plans
were similar. Two of the three employers we reviewed used the same
insurance carrier and the same provider network for the HSA-eligible plan
and the traditional plan it offered to its employees in 2005. One employer
used different insurance carriers for its HSA-eligible and traditional
plan in 2005, and in this case, the HSA-eligible plan network was broader
than the traditional plan network. Other evidence suggests that the
provider networks used by CDHPs and traditional plans are similar. For
instance, industry experts told us that insurance carriers that offer both
CDHPs and traditional plans typically use the same provider networks for
both products. Insurance carriers we spoke with told us that they used the
same provider network for their CDHP and traditional plan products.
Additionally, as we noted in our November 2005 report, the provider
networks used throughout the country by a national CDHP in the Federal
Employees Health Benefits Program (FEHBP) were the same or comparable to
those used by the program's traditional plans.36

33The HSA-eligible and traditional plans we reviewed generally covered the
same categories of services for all plan enrollees and dependents. Both
plan types covered maternity services for only the primary enrollee and
spouse, and generally not for female dependents.

34One employer's HSA-eligible plan required a copayment (a fixed payment
generally made at the time of service) before paying 100 percent of the
cost of covered preventive services.

35One employer did not cover annual physical exams under its traditional
plan.

Enrollee Costs Would Be Higher for HSA-Eligible Plans Than for PPO Plans When
Extensive Care Is Used, but Lower When Low to Moderate Care Is Used

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
plan enrollees for extensive use of health care, but would incur lower
annual costs than PPO plan enrollees for low to moderate use of health
care.37 For example, 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 plan
enrollees. Specifically, the total costs of health coverage paid by
HSA-eligible plan enrollees would range from $3,710 to $5,111, while the
costs paid by PPO plan enrollees would range from $2,136 to $3,472. 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 plan enrollees.38
Specifically, the total annual costs of health coverage for HSA-eligible
plan enrollees would range from $440 to $679, compared with $1,056 to
$1,317 for PPO plan enrollees.

36 GAO-06-143 .

37We 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. We also did not consider the
tax implications associated with enrollee spending for health care
services; if HSA-eligible plan enrollees used tax-advantaged funds they,
or someone other than their employer, contributed to their HSA, their
costs could have been lower.

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, but age differences varied depending on the data reviewed.
Fifty-one percent of tax filers reporting HSA contributions had an
adjusted gross income of $75,000 or more, compared with 18 percent for all
tax filers under age 65 in 2004. 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. Regarding age
differences, data from IRS for tax filers and from eHealthInsurance for
individual market enrollees indicate that the average age of HSA-eligible
plan enrollees was higher than that of individuals from comparison groups.
In contrast, data from several employer groups indicate that the average
age of HSA-eligible plan enrollees was lower than that of comparison
groups of enrollees.

HSA-Eligible Plan Enrollees Had Higher Incomes Than Comparison Groups

HSA-eligible plan enrollees had higher incomes than comparison groups. The
average, or mean, adjusted gross income of the estimated 108,000 tax
filers reporting HSA contributions in 2004 was about $133,000,39 compared
with $51,000 for all tax filers under age 65, according to IRS data.
Similarly, the median adjusted gross income for these tax filers was about
$76,000, compared with $30,000 for all tax filers under age 65. 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 65.40 (See fig. 1.)

38We assumed that the negotiated rate for each doctor's visit was $80. We
developed this assumption based on our analysis of one insurer's
negotiated rates for office visits for low to moderate problems in the
regions in which the three employers' plans were offered.

39To 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.

40All tax filers includes both insured and uninsured individuals. The
uninsured tend to have lower incomes than those with health insurance
coverage.

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. As we previously reported, among 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 2005.41 Actively employed
HSA-eligible plan enrollees also had higher incomes than traditional plan
enrollees in 2005 for two of the three employers we reviewed. One employer
reported that the average salary of its HSA-eligible plan enrollees was
$75,000, compared with $61,000 for its traditional plan enrollees, and the
second employer reported that the average salary of its HSA-eligible plan
enrollees was $91,000, compared with $81,000 for its traditional plan
enrollees. The third employer reported that about the same share (4
percent) of its actively employed HSA-eligible plan and traditional plan
enrollees had incomes of $75,000 or more in 2005. In the individual
market, eHealthInsurance reported that 35 percent of its HSA-eligible plan
enrollees had incomes of $75,000 or more, compared with 21 percent of its
traditional plan enrollees in 2005.42

41 GAO-06-271 .

Data Sources Did Not Show Consistent Age Differences between HSA-Eligible Plan
Enrollees and Comparison Groups

The data sources we examined did not conclusively indicate whether
HSA-eligible plan enrollees were older or younger than comparison groups.
IRS data indicate that the average age of tax filers reporting HSA
contributions was about 9 years higher than that of all tax filers under
age 65 in 2004.43 Similarly, eHealthInsurance reported that the average
age of its individual market HSA-eligible plan enrollees was 5 years
higher than that of its individual market traditional plan enrollees in
2005.44 In contrast, several data sources from the group market in 2005
suggest that the average age of HSA-eligible plan enrollees was lower than
that of the traditional plan enrollees or the average of all enrollees. As
we previously reported, the average age of FEHBP's HSA-eligible plan
enrollees, excluding retirees, was about 3 years lower than that of all
FEHBP enrollees.45 The three employers we reviewed reported that the
average age of HSA-eligible plan enrollees, excluding retirees, was 2 to 6
years lower than that of their traditional plan enrollees. (See table 4.)

42Traditional plans offered through eHealthInsurance include both PPO
plans and other major medical plans that do not meet the federal criteria
for HSA-eligible plans.

43All tax filers include both insured and uninsured individuals. The
uninsured tend to be younger than those with health insurance coverage.

44Traditional plans offered through eHealthInsurance include both PPO
plans and other major medical plans that do not meet the federal criteria
for HSA-eligible plans.

45 GAO-06-271 .

Table 4: Average Age of HSA-Eligible Plan Enrollees and Comparison Groups

                           Average age of                                     
                        HSA-eligible plan   Average age of  
Source                       enrollees comparison group  Comparison group
All Markets                                              
IRS a,b                            47c               39  All tax filers    
                                                            under 65 years of 
                                                            age               
eHealthInsuranced                   38               33  Traditional plan  
                                                            enrolleese        
Group market                                             
FEHBPf                              44              47g  All FEHBP         
                                                            enrollees         
Employer 1f                         40               46  Traditional plan  
                                                            enrollees         
Employer 2f                         44               50  Traditional plan  
                                                            enrollees         
Employer 3f                         42               44  Traditional plan  
                                                            enrollees         

Source: GAO analysis of data from IRS, eHealthInsurance, the Office of
Personnel Management, and three employers we reviewed.

Note: All data are for 2005 unless otherwise noted.

aData are based on a sample of 2004 tax returns processed by IRS, and the
average age is for the primary taxpayer filing the income tax return in
2004. Most HSA-eligible plans were sold in the individual market in 2004.

bThe average age of tax filers reporting HSA contributions was about 9
years higher than that of all tax filers under age 65. The average ages
listed in the table are rounded.

cAverage age of tax filers reporting an HSA contribution.

dEnrollees under 65 years of age.

eTraditional plans offered through eHealthInsurance include both PPO plans
and other major medical plans that do not meet the federal criteria for
HSA-eligible plans.

fExcludes retirees.

gAverage age of all FEHBP enrollees, excluding retirees, in 2004.

Just over Half of Enrollees and Most Employers Contributed to HSAs, and Account
    Holders Used HSA Funds to Pay for Medical Care and to Accumulate Savings

Just over half of HSA-eligible plan enrollees, and most employers,
contributed to HSAs, and account holders used their HSA funds to pay for
current medical care and to accumulate savings. About 55 percent of
HSA-eligible plan enrollees reported HSA contributions in 2004. On
average, tax filers claimed a deduction of about $2,100 for their HSA
contributions in 2004, and the average amount increased with income. Most
employers offering HSA-eligible plans contributed to their employees'
HSAs, and the average employer HSA contribution was about $1,064 in 2004.
HSA account holders used their funds to pay for medical care and to
accumulate savings. About 45 percent of those reporting 2004 HSA
contributions also reported withdrawing funds in 2004, and 90 percent of
these funds were withdrawn for qualified medical expenses. The remaining
55 percent of those reporting HSA contributions in 2004 reported that they
did not withdraw any funds from their HSA in 2004.

Just over Half of Enrollees Opened and Contributed to HSAs

Not all HSA-eligible plan enrollees opened and contributed to an HSA.
According to our analysis of publicly available survey data and data
obtained from IRS, about 55 percent of HSA-eligible plan enrollees
reported HSA contributions in 2004. Industry experts we spoke with also
estimated that the share of all HSA-eligible plan enrollees that had
opened and contributed to an HSA was about 50 percent to 60 percent.
Similarly, one insurance carrier representative reported that about 60
percent of its HSA-eligible plan enrollees who obtained coverage through
an employer opened and contributed to an HSA.

HSA-eligible plan enrollees from the employers we reviewed were more
likely to contribute to an HSA when their employer also offered account
contributions. Specifically, two employers we reviewed contributed to
employees' HSAs and reported that 64 percent and 90 percent of employees
enrolled in HSA-eligible plans contributed to an HSA in 2005. In contrast,
the third employer did not contribute to its employees' HSAs and reported
that 38 percent of its employees who were enrolled in HSA-eligible plans
contributed to an HSA in 2005.46

46For the three employers we reviewed, these data represent only those
individuals who contributed to their HSA through payroll deduction.

Tax filers claimed an average deduction of about $2,100 for HSA
contributions in 2004, and the average amount increased with income.47
(See fig. 2.) The three employers we reviewed reported that employees
enrolled in HSA-eligible plans contributed, on average, $826, $1,284, and
$1,544 to their HSAs in 2005.48

47Tax filers may claim an income tax deduction for contributions they, or
someone other than their employer, make to their HSA. The average
deduction amount does not include HSA contributions individuals may have
made through pretax payroll deductions and therefore may understate the
amount individuals contributed to their HSAs.

48These data represent the contributions made by employees who contributed
to their HSA through payroll deduction.

Figure 2: Average Deduction Claimed for HSA Contribution, 2004

Note: Data are based on a sample of 2004 tax returns processed by IRS.

aHSA deductions represent the amount individuals claimed they, or someone
other than their employer, contributed to their HSA. Deductions do not
include employer contributions, although employers may contribute to
employees' HSAs. Average deduction amounts do not include HSA
contributions individuals may have made through pretax payroll deductions
and therefore may understate the amount individuals contributed to their
HSAs. In 2004, most HSA-eligible plan enrollees purchased coverage in the
individual market rather than obtaining coverage through an employer.
These data are reported on a per-return basis and thus could include
contributions to more than one HSA in some instances. Moreover, the data
do not distinguish between deductions claimed for HSA contributions made
by enrollees with single and family coverage or between HSA-eligible
coverage obtained in the group and individual market. The maximum
allowable HSA contribution in 2004 was $2,600 for single coverage and
$5,150 for family coverage; account holders aged 55 or over and not
enrolled in Medicare could contribute an additional $500.

bAdjusted gross income may include income earned by family members who are
not covered under HSA-eligible plans.

Most Employers Offering HSA-Eligible Plans Contributed to HSAs

About two-thirds of employers offering HSA-eligible plans contributed to
their employees' HSAs. According to a national employer health benefits
survey, about two-thirds of employers offering HSA-eligible plans-covering
approximately 65 percent of workers in these plans-contributed to HSAs for
either single or family coverage in 2005.49 Similarly, another national
employer health benefits survey reported that 62 percent of large
employers offering HSA-eligible plans contributed to their employees' HSAs
in 2005.50

The amounts contributed by employers to employees' HSAs varied. In 2004,
the average employer HSA contribution reported to IRS was about $1,064.
Two national employer health benefits surveys reported that employers
contributed different amounts to their employees' HSAs. Specifically, one
national employer health benefits survey reported that the average annual
employer contribution to HSAs in 2005 was $553 for single coverage and
$1,185 for family coverage.51 Another survey reported that among large
employers that contribute to employees' HSAs, the median employer
contribution was $100 for single coverage.52 Two of the three employers we
reviewed contributed to their employees' HSAs in 2005. The employers'
contribution amounts varied from $100 to $1,400 for single coverage and
from $200 to $2,300 for family coverage in 2005.53 One employer offered
fixed HSA contribution amounts to employees, and the other employer
offered varying contribution amounts, which were linked to employees'
participation in wellness programs. (See annual employer contribution to
HSA in table 2.)

49Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey.

50Mercer Human Resource Consulting, National Survey of Employer-Sponsored
Health Plans: 2005 Survey Report.

51Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey. This average includes HSAs
to which the employer did not make a contribution.

52Mercer Human Resource Consulting, National Survey of Employer-Sponsored
Health Plans: 2005 Survey Report. This median includes only HSAs to which
the employer made a contribution.

53One employer contributed an additional $50 if an employee completed a
health risk assessment and an additional $200 if an employee completed a
health coaching program. These amounts are in addition to its base
contribution amounts of $1,400 for single coverage and $2,300 for family
coverage.

HSA Account Holders Used HSA Funds to Pay for Medical Care and to Accumulate
Savings

Our review of available data showed that HSA account holders used HSA
funds to pay for current medical care and to accumulate savings. Data from
IRS indicate that about 45 percent of those reporting 2004 HSA
contributions-made by themselves, others on their behalf, or their
employers-also reported withdrawing funds from their HSA, and the average
annual amount withdrawn by these tax filers was about $1,910. Our analysis
of data from IRS also indicates that about 90 percent of these withdrawn
funds were used to pay for qualified medical expenses. Additionally, 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 to pay for medical and other expenses, account
holders appeared to use their HSA as a savings vehicle. About 55 percent
of those reporting HSA contributions to IRS in 2004 did not withdraw any
funds from their account in 2004. We could not determine whether
HSA-eligible plan enrollees accumulated balances because they did not need
to use their account (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. For example, one focus group
participant reported paying out of pocket for a costly surgery in order to
save HSA funds for future use.

     Focus Group Participants Generally Understood and Were Satisfied with
    HSA-Eligible Plans, but Would Not Recommend These Plans to All Consumers

Participants in our focus groups who were enrolled in HSA-eligible plans
generally reported positive experiences, but most would not recommend
these plans to all consumers. Participants generally understood the key
attributes of their plan, such as low premiums, high deductibles, and the
mechanics of using the HSA, but were confused about certain other
features. Few participants researched the cost of hospital or physician
services before obtaining care, although many participants researched the
cost of prescription drugs. Most participants reported satisfaction with
their HSA-eligible plan and account, but said they would not recommend
these plans to everyone. Participants said they would recommend
HSA-eligible plans to healthy consumers, but not to people who use
maintenance medication, have a chronic condition, have children, or may
not have the funds to meet the high deductible.

Focus Group Participants Generally Understood Key Attributes of HSA-Eligible
Plans and Accounts, but Expressed Confusion about Certain Features

Many participants in our focus groups were able to describe key attributes
of HSA-eligible plans, including low premiums, high deductibles, and how
to pay for services using the HSA.54 Participants understood that
employers and employees can contribute to an HSA and were aware of the
maximum contribution limits. Participants also understood the ability to
accumulate savings over time and that their HSA was portable if they left
their company.

Participants expressed confusion about certain other features of
HSA-eligible plans and accounts. Regarding their HSA-eligible plan, many
participants understood that certain preventive visits were covered free
of charge,55 but cited problems distinguishing between preventive services
and other services provided during a preventive visit to a physician. In
particular, participants noted that certain laboratory tests associated
with a preventive visit were not considered a preventive service and thus
were not paid for by the plan. Participants of one focus group also
reported that they did not always know whether services were provided by
an in- or out-of-network provider, particularly in emergency situations.
For example, one participant had to pay $1,800 for transporting his wife
10 miles in an ambulance because the ambulance that was dispatched was not
an in-network provider. Regarding their HSAs, many participants were
unsure what medical expenses qualified for payment using their HSA.56 Some
participants said that they were initially unaware of, or confused about,
how having an HSA limited their use of flexible spending arrangement (FSA)
funds to certain medical expenses.57,58 Participants from one employer
said that they were initially unaware of a monthly $3 administrative bank
fee for maintaining the HSA and felt that it diminished any potential
savings from interest earned on their HSA balance.

54Unless otherwise noted, the participant experiences we report reflect
multiple focus groups.

55One employer's HSA-eligible plan required a copayment before paying 100
percent of the cost of covered preventive services.

56According to Mercer Human Resource Consulting's briefing, "Mercer's
National Survey of Employer-Sponsored Health Plans" (Feb. 24, 2006), about
70 percent of large employers offering CDHPs reported that their employees
had at least some difficulty understanding what services may be paid from
their account.

57Health FSAs are employer-established benefit plans that allow employees
to be reimbursed for medical expenses. According to IRS, employees with
HSAs can have only a limited-purpose FSA, which is restricted to certain
benefits, such as vision, dental, or preventive care, or a postdeductible
FSA, which can be used only after a minimum annual deductible is met.

58About 60 percent of large employers offering CDHPs reported that their
employees had at least some difficulty understanding how their account
coordinated with an FSA, according to "Mercer's National Survey of
Employer-Sponsored Health Plans" briefing.

Few Focus Group Participants Researched Cost before Obtaining Health Care
Services

Few focus group participants enrolled in HSA-eligible plans researched the
cost of services before obtaining care, although many 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.59 For example, one participant said, "Americans
don't negotiate. It's not polite to question the value of [a provider's]
work." Participants noted that physicians did not always know the cost of
the services and that this information was generally handled through a
billing office. 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 as consumers, including by asking
questions about the cost of services and medications.

Participants 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.60
Many participants relied on referrals from family, friends, or health care
providers for recommendations on providers. Some participants continued
going to physicians with whom they already had an established
relationship. Most participants did research general information on health
care issues, such as on health conditions or treatment options.

Focus Group Participants Were Generally Satisfied with HSA-Eligible Plans but
Would Not Recommend These Plans to All Consumers

Most participants, who had voluntarily elected to enroll in the
HSA-eligible plan as one of several choices offered by their employer,
reported that they were generally satisfied with their health plan. Many
participants cited the ability to accumulate savings, the tax advantages
of having an HSA, and the ability to use an HSA debit card or online
accounts as positive aspects of HSAs. Participants reported few problems
obtaining care, and many used their health plan to obtain preventive
services, visit an emergency room or urgent care clinic, or fill
prescriptions. When given a choice of health plan options, many focus
group participants reported that they reenrolled in an HSA-eligible plan
for the following year.

59"Mercer's National Survey of Employer-Sponsored Health Plans" briefing
noted that 40 percent of all employers reported that they provided access
to Web sites on provider quality and cost information.

60In an earlier study, we reported on the challenges faced by carriers in
providing cost and quality data. See GAO-06-514 .

Despite their general satisfaction with HSAs and HSA-eligible plans, some
participants did not like certain aspects of their plan or account. Some
participants said that they would prefer the ability to contribute more to
the HSA to accumulate savings, while others noted that deductibles for
HSA-eligible plans were too high and they would be willing to pay higher
premiums for plans with lower deductibles. Participants also reported that
the cost of prescription drugs was high under HSA-eligible plans. Under
two employers' HSA-eligible plans, participants had to pay 100 percent of
the plan's negotiated price for prescription drugs until meeting the
deductible.61 In using the HSA, some participants said they encountered
problems paying for services, such as billing errors for physician visits,
and that the physician offices did not understand how to accept payment
for services with an HSA debit card.

Most participants said they would recommend HSA-eligible plans to healthy
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.
However, participants would not recommend these plans to people who use
maintenance medication, have a chronic condition, have children, or may
not have the funds to meet the high deductible.

Focus Group Participants Enrolled in Traditional Plans Cited Several Reasons for
Not Enrolling in HSA-Eligible Plans

Participants enrolled in traditional plans from all three employers
reported that they received and reviewed information about their health
care options, including HSA-eligible plans. Most participants easily
understood the features of their traditional plan, including copayments,
deductibles, and the differences between in- and out-of-network providers,
and one group of participants characterized the information on
HSA-eligible plans as confusing and complicated. Participants reported
that they did not elect to enroll in an HSA-eligible plan because their
costs under a traditional plan would be lower and they were concerned
about meeting the high deductible for potentially high medical expenses.
Most participants said they were satisfied with their traditional plan,
citing steady monthly premiums, no unexpected costs or coverage
limitations, no need to manage one's own health care, or an overall sense
of comfort with traditional plans. If given a choice, most of the
participants enrolled in traditional plans would reenroll in these plans.
One group of participants, whose employer was planning to offer only CDHP
options in the future, suggested they would consider seeking employment
elsewhere if forced into a CDHP. Some participants said they might have
considered enrolling in an HSA-eligible plan if they had been younger and
healthier.

61Under these two employers' traditional plans, enrollees pay a portion of
prescription drug costs through a copayment or coinsurance. A copayment is
a fixed payment generally made at the time of service, while coinsurance
is a payment representing a percentage of expenses.

                            Concluding Observations

As more individuals face the choice of enrolling in HSA-eligible plans or
other CDHPs, 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. We found that enrollees who use little
health care could incur lower costs under HSA-eligible plans than under
traditional plans, while those who use more extensive health care services
could incur higher costs under HSA-eligible plans. Thus, when individuals
are given a choice between HSA-eligible and traditional plans-as in the
individual market and with employers offering multiple health
plans-HSA-eligible plans may attract healthier individuals who use less
health care or, as we found, higher-income individuals with the means to
pay higher deductibles and the desire to accrue tax-free savings. While
patterns evident during the first few years of HSA-eligible plan
enrollment may not predict future trends and enrollment will depend on the
particular choices available, 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.

Contrary to the hopes of CDHP proponents, few of the HSA-eligible plan
enrollees who participated in our focus groups researched cost before
obtaining health care services. According to proponents, an increase in
such health care consumerism is central to cost reductions that may occur
under the plans. Any increase in consumerism that may be exhibited by CDHP
enrollees 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 plan, 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
and the views of traditional plan enrollees who opted not to elect an
HSA-eligible plan suggest 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
CDHP enrollees.

                                Agency Comments

We provided to IRS and eHealthInsurance portions of a draft of this report
pertaining to the data each had provided us. We received technical
comments from IRS and eHealthInsurance by email and incorporated these
comments as appropriate.

As we agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We will then send copies to others who
are interested and make copies available to others who request them. The
report will also be available at no charge on GAO's Web site at
http://www.gao.gov .

If you or your staff have any questions about this report, please contact
me at (202) 512-7119 or at [email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs can be found on the
last page of this report. GAO staff who made major contributions to this
report are listed in appendix II.

Sincerely yours,

John E. Dicken Director, Health Care

Appendix I: S Appendix I: Scope and Methodology

To respond to our study objectives regarding health savings accounts
(HSAs) and HSA-eligible plans, we examined (1) the financial features,
covered services, and enrollees' annual costs of HSA-eligible plans in
comparison with those of traditional plans; (2) the characteristics of
HSA-eligible plan enrollees in comparison with those of other individuals
and traditional plan enrollees; (3) the funding and use of HSAs; and (4)
the experiences of enrollees with HSA-eligible plans. We reviewed all data
for reasonableness and consistency and determined that the data were
sufficiently reliable for our purposes. We performed our work from
November 2004 through July 2006 in accordance with generally accepted
government auditing standards.

                    Financial Features and Covered Services

We relied on several sources to compare the financial features-that is,
the premiums, deductibles, and out-of-pocket spending limits-of
HSA-eligible plans with those of traditional plans.1 For the group market,
we summarized data on financial features of HSA-eligible and traditional
plans from two 2005 national employer health benefits surveys.2 In
addition, we hired a contractor, Hewitt Associates LLC, to contact
employers, conduct focus groups with their employees, and obtain
information about the employers' 2005 health plans. We judgmentally
selected employers for review that (1) offered an HSA-eligible plan and a
traditional plan in 2005, (2) had at least 500 enrollees in their
HSA-eligible plan in 2005, and (3) allowed us to conduct focus groups with
their employees. We selected three large employers in the public, utility,
and insurance sectors that met these criteria, and we agreed not to
identify these employers by name in this report. The three employers we
reviewed offered HSA-eligible plans that were administered by different
insurance carriers. We requested that each employer provide us with plan
brochures and other documentation, including responses to a questionnaire
describing its 2005 HSA-eligible and traditional plans.3

1Unless otherwise noted, traditional plans refers to preferred provider
organization (PPO) plans.

2Kaiser Family Foundation and Health Research and Educational Trust,
Employer Health Benefits: 2005 Annual Survey (Menlo Park, Calif., and
Chicago, Ill.: 2005); and Mercer Human Resource Consulting, National
Survey of Employer-Sponsored Health Plans: 2005 Survey Report (New York,
N.Y.: 2006).

3For the three employers, we reviewed the features of their PPO plan with
the largest enrollment.

To examine the financial features of HSA-eligible and traditional plans in
the individual market, we reviewed data for plans sold for 2005 by
eHealthInsurance, a large, national broker of individual and small
business health insurance that offers more than 5,600 plans for more than
140 health insurance carriers.4 Data reported from eHealthInsurance
represent only the policies of individuals who purchased insurance in the
individual market through the brokerage for 2005 and cannot be generalized
to all enrollees. These data were based on a random sample of policies
sold by eHealthInsurance as of December 31, 2005.

To examine the covered services and provider networks of HSA-eligible and
traditional plans, we reviewed the three employers' plan brochures and
spoke with employer and insurance carrier officials and industry experts.

To illustrate the potential health care costs faced by HSA-eligible and
traditional plan enrollees, we estimated the total annual costs to
enrollees of the three employers' HSA-eligible and preferred provider
organization (PPO) plans in 2005. We considered the following annual costs
associated with coverage under the plans:

           o  Premiums. HSA-eligible plans typically have lower premiums than
           PPO plans. We considered only enrollees' share of the premiums.
           o  Deductibles. HSA-eligible plans typically have higher
           deductibles than PPO plans. We considered all costs for covered
           services that enrollees incurred before meeting their deductible.
           o  Out-of-pocket spending limits. HSA-eligible plans typically
           have higher out-of-pocket spending limits than PPO plans. The
           out-of-pocket spending limit includes deductibles and other
           payments, but does not include premiums. We considered all
           copayments and coinsurance enrollees incurred before meeting their
           out-of-pocket spending limit.

           We also considered the contributions employers made to employees'
           HSAs. Most employers contribute to their employees' HSAs. We
           assumed that when paying for their health care expenses, enrollees
           only used funds their employer contributed to their HSA in 2005
           and paid for the rest out of pocket.

           When performing these calculations, we assumed that enrollees had
           single coverage and used in-network services. For the analysis of
           enrollees' total health care costs related to extensive use of
           health care, we examined the potential costs incurred by enrollees
           for an illness or injury resulting in a hospitalization costing
           $20,000. For the analysis of costs related to low to moderate use
           of health care, we examined the potential costs incurred by
           enrollees for six doctor's office visits, classified as for low to
           moderate problems, and assumed the negotiated rate for each visit
           was $80. We developed this assumption based on our analysis of one
           insurer's negotiated rates for office visits for low to moderate
           problems in the regions the three employers' plans were offered.
           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 drugs. We assumed
           that enrollees did not have HSA funds carried over from a prior
           year. If enrollees had used funds carried over from a prior year,
           their out-of-pocket costs could have been lower. We also did not
           consider the tax implications associated with enrollee spending
           for health care services; if HSA-eligible plan enrollees used
           tax-advantaged funds they or someone other than their employer
           contributed to their HSA, their costs could have been lower.

           Characteristics of HSA-Eligible Enrollees
			  
			  To compare the characteristics of HSA-eligible and traditional
           plan enrollees, we compared demographic data provided by the
           Internal Revenue Service (IRS) on adjusted gross income and age
           for tax filers who reported HSA contributions on their 2004 tax
           returns with the corresponding data for all tax filers less than
           65 years of age. IRS data were based on a random probability
           sample of 200,295 individual income tax returns for 2004 from the
           IRS Statistics of Income (SOI) individual tax return file, of
           which a small proportion reported an HSA contribution. The SOI
           file is a stratified probability sample of income tax returns
           filed with IRS, weighted to represent an estimated population of
           about 132 million tax returns. Of the 115 million tax filers less
           than 65 years of age in 2004, approximately 0.1 percent-an
           estimated 108,000 tax filers-reported an HSA contribution. To
           assess the relative precision of IRS's data estimates, we reviewed
           the coefficients of variation for all estimates we used in our
           calculations.5 The coefficient of variation measures the magnitude
           of dispersion around the mean. In each instance, the coefficient
           of variation was less than 33 percent, indicating small to
           moderate variation.6

           IRS data for tax filers reporting an HSA contribution are not
           generalizable to all HSA-eligible plan enrollees because the
           sample is not designed to capture individuals enrolled in a
           high-deductible health plan who did not have an associated HSA.
           IRS data depend on tax filing status (e.g., single, married filing
           jointly, married filing separately) and are not linked to plan
           size; a tax return reporting an HSA contribution therefore may
           include contributions to multiple HSAs that may represent single
           and family policies obtained in the group or individual market.
           With regard to specific data elements, adjusted gross income data
           may represent the income earned by other family members who may or
           may not be covered under the HSA-eligible plan, whereas age data
           represent the age of the primary taxpayer, who may or may not be
           enrolled in the HSA-eligible plan. For comparison purposes, we
           analyzed data for a sample of all tax filers under age 65, because
           individuals 65 years and older are generally enrolled in Medicare
           and are ineligible to contribute to an HSA.

           To supplement IRS data, we analyzed 2005 income and age data
           reported for HSA-eligible and traditional plan enrollees who
           purchased coverage in the group market, excluding retirees,
           through the three employers we reviewed as well as in the
           individual market through eHealthInsurance for enrollees under 65
           years of age.

           HSA Funding and Use
			  
			  To determine how HSAs are funded and how HSA account holders are
           using their funds, we gathered and analyzed SOI data from IRS,
           data from two national employer health benefits surveys, and data
           from the three employers we reviewed. To determine the share of
           enrollees that opened HSAs, we analyzed survey data on the number
           of HSA-eligible plan enrollees7 and IRS data on the number of tax
           returns reporting HSA contributions,8 and examined data provided
           by the three employers we reviewed regarding the share of
           HSA-eligible plan enrollees who contributed to HSAs through pretax
           payroll deductions. We also conducted interviews with industry
           experts regarding the share of enrollees that opened HSAs. To
           examine individuals' HSA contributions, we analyzed IRS data on
           the average 2004 HSA tax deduction claimed by tax filers and
           reviewed 2005 data provided by the three employers regarding the
           contributions of employees enrolled in HSA-eligible plans. To
           examine employer HSA contributions, we analyzed IRS data on the
           average employer contribution among those who reported any HSA
           contribution on their 2004 tax return and summarized 2005 data
           reported by two national employer health benefits surveys9 and the
           three employers. To determine how HSAs are used, we analyzed IRS
           data on account withdrawals among those who reported HSA
           contributions made by themselves, others on their behalf, or their
           employers in 2004. We also obtained information regarding enrollee
           HSA funding and use through the focus groups with employees of the
           three employers we reviewed.10

           Enrollee Experiences
			  
			  To determine enrollees' experiences with HSA-eligible plans, we
           used focus groups of HSA-eligible plan enrollees to obtain
           qualitative information on enrollee education, plan comprehension,
           experience with obtaining care, use of decision-support tools, and
           plan satisfaction in 2005. We contracted with Hewitt Associates
           LLC, a human resources consulting firm, to screen and select
           participants and to moderate these focus groups. For each of the
           three employers selected, focus groups were conducted with
           employees enrolled in an HSA-eligible plan or, for comparison
           purposes, in a traditional plan in 2005. Across the three
           employers, eight focus groups were conducted, comprising 47
           employees enrolled in HSA-eligible plans and 28 employees enrolled
           in traditional plans.11 Each group consisted of 7 to 12
           participants. In screening and selecting focus group participants,
           we requested that Hewitt Associates LLC attempt to balance the
           focus groups by demographic characteristics, including age, sex,
           and type of coverage (i.e., single or family), and with regard to
           employee job title or position. In order to ensure that the focus
           groups could describe the experiences of both users and nonusers
           of health care services, we requested that Hewitt Associates LLC
           include a mix of participants who used their health care plan to
           obtain medical care or prescription drugs and participants who did
           not. Finally, we requested that employees and their supervisors
           not be included in the same focus group to encourage participants
           to speak freely. Unless otherwise noted, the participant
           experiences we report reflect multiple focus groups. The results
           of the focus groups and the data obtained from the three employers
           may not be generalized to all HSA-eligible plan enrollees or
           employers because they represent only the experiences of the focus
           group participants and the benefit offerings of the three
           employers.

           Appendix II: GAO Contact and Staff Acknowledgments
			  
			  GAO Contact
			  
			  John E. Dicken, (202) 512-7119 or [email protected]

           Acknowledgments
			  
			  In addition to the contact named above, Randy DiRosa, Assistant
           Director; N. Rotimi Adebonojo; Rashmi Agarwal; Martha R. W. Kelly;
           Roseanne Price; Pamela N. Roberto; and Patricia Roy made key
           contributions to this report.

           Products Related GAO Products
			  
			  Consumer-Directed Health Plans: Small but Growing Enrollment
           Fueled by Rising Cost of Health Care Coverage. GAO-06-514 .
           Washington, D.C.: April 28, 2006.

           Federal Employees Health Benefits Program: First-Year Experience
           with High-Deductible Health Plans and Health Savings Accounts.
           GAO-06-271 . Washington, D.C.: January 31, 2006.

           Federal Employees Health Benefits Program: Early Experience with a
           Consumer-Directed Health Plan. GAO-06-143 . Washington, D.C.:
           November 21, 2005.

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4Traditional plans offered through eHealthInsurance include both PPO plans
and other major medical plans that do not meet the federal criteria for
HSA-eligible plans.

5GAO, Using Statistical Sampling, GAO/PEMD-10.1.6 (Washington, D.C.:
Revised May 1992).

6GAO/PEMD-10.1.6.

7America's Health Insurance Plans, Number of HSA Plans Exceeded One
Million in March 2005 (Washington, D.C.: 2005).

8Department of the Treasury, "Fact Sheet: Dramatic Growth of Health
Savings Accounts (HSAs)."
http://www.treasury.gov/offices/public-affairs/hsa/pdf/fact-sheet-dramatic-growth.pdf
(downloaded Mar. 28, 2006).

9Kaiser 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.

10In addition to the focus groups, we also gathered information regarding
enrollee HSA funding and use on a questionnaire administered to focus
group participants.

11For two employers, two focus groups were conducted with employees
enrolled in HSA-eligible plans, and a third focus group was conducted with
employees enrolled in a traditional plan. For the third employer, one
focus group was conducted with employees enrolled in an HSA-eligible plan,
and a second focus group was conducted with employees enrolled in a
traditional plan.

(290424)

www.gao.gov/cgi-bin/getrpt? GAO-06-798 .

To view the full product, including the scope 
and methodology, click on the link above.

For more information, contact John E. Dicken at (202) 512-7119 or
[email protected].

Highlights of GAO-06-798 , a report to the Ranking Minority Member,
Committee on Finance, U.S. Senate

August 2006

CONSUMER-DIRECTED HEALTH PLANS

Early Enrollee Experiences with Health Savings 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. Employers and plan enrollees may contribute to tax-advantaged
HSAs, and enrollees can use the accounts to pay for health care expenses.
Because HSAs and HSA-eligible plans are new, there is interest in the
experiences of plan enrollees, as well as in comparing the plan features
and enrollee characteristics with those of traditional plans, such as
preferred provider organization (PPO) plans.

GAO reviewed (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, (3) HSA funding and use, and (4) enrollees' experiences with
HSA-eligible plans. GAO analyzed data regarding HSA-eligible and
traditional plans and enrollees from national employer health benefits
surveys, three selected employers, and a national broker of health
insurance. GAO compared Internal Revenue Service (IRS) data for tax filers
reporting HSA contributions with corresponding data for all tax filers
under 65 years old. GAO also conducted focus groups with employees of the
three employers.

In 2005, HSA-eligible plans had different financial features than
traditional plans-such as lower premiums and higher deductibles-but both
plan types covered similar health care services, including preventive
services, and used similar provider networks. 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 plan enrollees for extensive use of health care, but
would incur lower annual costs than PPO plan 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 and a national broker
of health insurance also reported that HSA-eligible plan enrollees had
higher incomes than traditional plan enrollees in 2005. GAO's data sources
did not conclusively indicate whether HSA-eligible plan enrollees were
older or younger than individuals and enrollees in comparison groups.

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
current medical care and to accumulate savings. About 55 percent of
HSA-eligible plan enrollees reported HSA contributions to IRS in 2004. Tax
filers claimed an average deduction of about $2,100 for their HSA
contributions in 2004, and the average amount increased with income. About
two-thirds of employers offering HSA-eligible plans contributed to their
employees' HSAs, and the average employer HSA contribution was about
$1,064 in 2004. About 45 percent of tax filers reporting 2004 HSA
contributions also reported that they withdrew funds in 2004, and 90
percent of these funds were withdrawn for qualified medical expenses. The
other 55 percent of those reporting HSA contributions in 2004 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. Participants enrolled in the plans generally
understood the key attributes of their plan. 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 plan and would recommend these 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.

GAO received technical comments from IRS and a national broker of health
insurance and incorporated the comments as appropriate.
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