No one knows how well the new health savings accounts will really end up doing, but so far they seem to be popular with baby boomers.
Boomers opened about 188,000 HSAs during the first three quarters of 2004, and boomers have accounted for 43% of all HSA sales, according to results of a carrier survey by Americas Health Insurance Plans, Washington.
Boomers are an even bigger presence, percentage-wise, in the HSA market than they are in the general health coverage market.
In 2003, roughly one-third of the 198 million U.S. residents who had private health coverage were boomers, according to the Census Bureau.
The survey results could boost morale among advisors who have been recommending that healthy, affluent boomers cut health coverage costs by combining dedicated health accounts with high-deductible health coverage.
The HSA program gives taxpayers who buy qualified high-deductible health plans a chance to deduct contributions to health savings accounts and avoid paying taxes on distributions spent on health care.
President Bush brought the HSA program to life in December 2003, when he signed a major Medicare reform bill that included a brief HSA provision.
The Internal Revenue Service and the U.S. Department of Labor have been rushing ever since to issue the regulations and release the guidance notices that taxpayers need to take advantage of the HSA program. The IRS issued a key batch of guidance in August 2004. Earlier this year, it explained the rules governing partnerships that contribute to HSAs.
Despite lingering uncertainty about how federal agencies will interpret the HSA laws and regulations, HSAs already have outsold the old, tightly limited Medical Savings Accounts, which appeared in 1996, AHIP reports.
The AHIP HSA survey results do not include enrollment in employer-sponsored health reimbursement arrangements.
Employers that establish HRAs, which have been on the market since 2002, can deduct contributions to the HRAs, and employees can use tax-free distributions to pay qualified health care costs. But, in most cases, individuals cannot contribute to their own HRAs. One advantage of HRA programs is that employers can combine them with ordinary low-deductible health coverage or moderate-deductible health coverage.
Meanwhile, one of the major barriers for advisors who want to help affluent boomers set up HSAs is that few employers offer the kinds of high-deductible health coverage policies that are compatible with HSAs, says Edward Zurek, manager of group insurance at Goldstein Financial Corp., Deerfield, Ill.
In many markets, boomers who are self-employed or who work for some of the companies that have hurried to adopt HSAs may find that the price difference between plans with $500 deductibles and plans with much higher deductibles is too narrow to make the high-deductible plans seem appealing, Zurek says.
“The average savings to go from a $500 deductible into an HDHP is running at about 22%, which I dont believe will be a strong enough incentive yet to get employers to flock to the new plan,” Zurek says.
In the long run, Zurek says, most boomers who buy HSA plans probably will benefit from them.
“Many of the boomers will not even submit claims, unless they have a catastrophic event,” Zurek says.
Zurek points out that 85% of the U.S. residents who have $500 annual deductibles fail to reach their deductibles in any given year.
One problem with the HSA program from an economic standpoint is that the boomers who use the health care system the most have the least incentive to set up HSAs.
A woman who has high blood pressure, for example, might benefit from a program that gives her a financial incentive to eat well, exercise and take her prescription medications. But an HSA plan would be a bad deal for a taxpayer with high cholesterol, high blood pressure or most other chronic conditions because paying for care for those conditions probably would eat up the HSA assets, Zurek says.