HSAs, Favored by McCain, Grow in Number—Slowly

People with health savings accounts are more affluent than the average taxpayer.

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They may have grown 35 percent in the past year, but the fact is that health savings account (HSA) plans—which are high-deductible health plans that can be linked to tax-advantaged health savings accounts—are still pretty thin on the ground. In 2007, the number of Americans covered by these plans grew to 6.1 million, up from 4.5 million the year before, according to a new survey by America's Health Insurance Plans, a trade group. With total private insurance coverage topping 170 million, however, that's small potatoes indeed.

In case you haven't come across them, these plans (also sometimes described as consumer-driven health plans, though that phrase can also refer to other plans) must have a deductible of at least $2,200 for families and $1,100 for individuals in 2008, among other criteria. An HSA that links to the plan allows people to accumulate money tax free to pay for medical expenses.

When Congress authorized the creation of these plans beginning in 2004, critics charged that they would primarily act as tax shelters in which healthy, affluent people would park their money, while many regular Joes wouldn't be able to afford to set aside cash in HSAs. Supporters said the premiums would be more affordable and that requiring people to have more financial "skin in the game" would give them an incentive not to be healthcare spendthrifts.

It's still too soon to know the long-term effect on healthcare costs, but we're beginning to be able to examine the experience of individuals. A few weeks ago, I wrote about new research showing that many uninsured people don't have enough assets to cover the deductibles in high-deductible plans. Now a Government Accountability Office report says that the average adjusted gross income of people with HSA activity was $139,000 in 2005, more than twice as high as the $57,000 AGI of a typical income tax filer. No surprise there, says Gary Claxton, vice president of the Kaiser Family Foundation, a healthcare research organization. "That's who [HSAs] make the most sense for," he says. People with HSAs contributed $2,100 on average to their accounts and withdrew $1,000.

Presumptive Republican presidential nominee John McCain, in a major healthcare speech this week, said people need to make their own healthcare decisions, and he said he supports HSAs as one way to help "put the family in charge of what they pay for."

But in the long run, it's going to be employers who will probably decide the fate of consumer-driven healthcare, says Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute. "If the savings aren't there in a few years, there will be a backlash by employers against these plans."