Health savings accounts, which Congress authorized in 2003, are the newest addition to the alphabet soup of health insurance available to American workers. Now workers and employers must sort through HSAs, health reimbursement accounts (HRAS), and flexible spending accounts (FSAS). Each has its own rules about how money is spent, how it can be saved, and how it is taxed. Here's a road map through the complex new world of health insurance:
How do the plans differ from each other?
FSAs, familiar to many workers at large companies, allow you to contribute pretax dollars to an account managed by your employer. You use the money for health-care spending but forfeit anything left over at the end of the year.
HRAs are tied to high-deductible policies. They are funded solely by your employer and give you a pot of money to spend on health care. You can carry over unspent money year to year, but you lose the balance if you switch jobs. Premiums tend to be lower than for traditional insurance but higher than for HSAs.
With HSAs, which are also linked to high-deductible coverage, you contribute your own pretax dollars to a health account. You can invest the funds in stocks, bonds, and mutual funds -- just like a 401(k). Unlike a 401(k), the money grows tax-free but can be spent only on health care. And it's your money: Any unspent funds stay in your account year to year, and you take it all with you if you leave the company.
What are the rules for an HSA?
To qualify, your insurance policy must have an annual deductible of at least $1,000 for singles or $2,000 for families. Your annual tax-free contributions can be no more than your deductible, up to a maximum of $2,600 for singles and $5,150 for families. Both contribution and deductible levels will rise with inflation.
How does the deductible work?
Say your plan has a $1,500 deductible. You can contribute up to $1,500 to your account each year. Or you might contribute $1,000, and your employer might kick in $500. But whether you contribute or not, you must pay the first $1,500 of your health costs. Once you do, regular insurance kicks in, and your company might pay 80% of costs while you pay 20%, although your pretax dollars would be used up unless your HSA has had a chance to accumulate. Finally, when you reach an annual out-of-pocket maximum -- say $5,000 -- the company policy will cover all costs.
What about preventive care?
Most HSA plans allow you to get certain preventive care, such as an annual checkup, at no cost. Your employer can also choose to provide drugs for chronic illnesses at no charge. But you may have to pay for certain routine tests, such as mammograms or prostate screenings, if you want them more frequently than the plan permits.
What if I have a chronic disease, such as diabetes?
Many companies are offering programs called disease management, which identify people who are at risk for chronic illnesses. Those workers are assigned health coaches to help them manage or even avoid such diseases. If, for example, you are overweight, your employer might provide a diet and exercise program for you.
Will I spend more overall with an HSA?
That depends on how much medical care you buy. If you get sick, you probably will spend more than under a traditional plan. But HSAs' monthly premiums tend to be much lower, so people who don't use the medical system a lot will save money.
Can my employer contribute to my HSA?
Yes, although it is not required to. And you get to keep any company contributions when you change jobs, as you would with a 401(k). Employers can increase their funding to keep up with health inflation, but they don't have to. Current rules require them to make the same match to all workers, no matter how much eventually accumulates in employees' HSA accounts.
Can I use both an FSA and an HSA?
Legally, you can use your FSA money to pay for monthly premiums and for uncovered care such as dental or vision but not for most medical care. You can use only your HSA account for that. However, because of the possible confusion, some companies that offer HSAs may not allow participants to use an FSA as well.
How about an HRA and an HSA?
Under current rules, your employer can switch from an HRA to an HSA, or even offer both plans and let you choose between them. But your company cannot match your HSA with its own HRA contribution, which many employers would prefer. It can put in only money that you control and can take with you if you change jobs.
Will individual consumers be able to muster enough market clout to get the best deals?
You won't be expected to haggle over price with your doctor or hospital. Insurance companies will continue to offer networks of providers for you to choose from. Eventually, they hope to provide lots of data about the price and quality of those doctors and hospitals. But if you go out of network, you're on your own.
Will my relationship with my family doctor change?
You will still be able to go to your regular internist or family practitioner. But consumer-driven plans like HSAs and HRAs do encourage patients to get outside advice. Typically, they're linked to extensive Web-based and telephone assistance operated by insurance companies. The idea is for you first to call or check out the Web site if you suffer a non-emergency illness or injury. A nurse will tell you whether you need to see a doctor, or whether you can manage the problem with watchful waiting or over-the-counter medications.
Will this new approach eventually lead to a two-tier medical system?
The extensive tax breaks HSAs involve clearly benefit the wealthy more than low-income workers. But the bigger risk may be from divisions between the sick and the well. The fear is that healthier, younger workers will use HSAs, leaving older, sicker workers in old-style PPOs. That will make those plans riskier and boost premiums for those who remain in them. Experts also worry that less educated workers may have trouble taking advantage of Web-based information.
By Howard Gleckman in Washington