Health Savings Accounts are considered by many to be the future of consumer-driven health care, as illustrated by recent changes and proposed legislation designed to encourage greater participation.
For 2008, contribution limits increased to $2,900 for individuals and $5,800 for family coverage, and the catch-up contribution limit for those age 55 and older rose to $900. Legislation passed in 2007 also eliminated prorating of contributions to accounts opened less than a year. As a result, account holders had until April 14, 2008, to contribute the 2007 maximum into accounts opened by Dec. 1, 2007.
Those improvements are just the tip of the iceberg. Proposed legislation currently before several House and Senate committees could substantially enhance the tax and coverage benefits of HSAs. The enhancements include the following:
- allowing HSA funds to be used for any type of health insurance premium
- allowing reimbursement of qualified medical expenses incurred after coverage under an HSA-qualified plan begins, provided the HSA is opened by April 15 of the following year
- eliminating the requirement for those ages 55 or older to open separate accounts to make catch-up contributions
- expanding the definition of "preventive drugs" to include prescriptions and over-the-counter medications that prevent the worsening of, or complications from, chronic conditions
- allowing deduction of fees for direct practice physicians, the cost of exercise and physical fitness programs, and the cost of nutritional and dietary supplements, up to $1,000 per year
Taking control of health care
Dr. Sally Vivrette is one of millions already realizing the benefits of combining a high-deductible health insurance plan with an HSA—benefits that will increase substantially under the proposed legislation.
Dr. Vivrette opened the savings account after she purchased the HSA-qualified plan through the AVMA Group Health and Life Insurance Trust with the idea of building up funds to help offset future medical expenses. What she did not expect was to begin making withdrawals within a year to cover out-of-pocket costs related to the treatment of breast cancer.
"I was lucky because I was having routine mammograms, so they caught the cancer early. I had surgery, chemotherapy, and reconstruction, and I'm doing well," Dr. Vivrette said. "I'm just very glad that I had the HSA so that my health insurance wasn't something I had to worry about."
Dr. Vivrette said she had many providers from whom to choose and was delighted to find that her options were not limited to her medical plan's preferred providers. Although she may have had to pay more out of her pocket for out-of-network physicians, she knew she could fund those and other extra medical expenses from the HSA.
Dr. Vivrette noted that having an HSA-qualified health insurance plan allowed her to go to whichever doctor she wanted. "There was no guarantee that the doctor would accept the payment the AVMA (GHLIT) offered ... but in every case, the provider (did). It was nice; there was not a single hassle. I don't know if that was an exception or not, but for me, (my medical care) was seamless because of the HSA-qualified plan."
For Dr. Vivrette, the HSA already helps offset the financial burden of her current medical expenses, including annual prescription costs of $7,200. Taking full advantage of the savings benefits of the HSA will have to wait until she completes treatments in three years.
"Building up an account that you can use down the road, that's the obvious beauty of the HSA"
– DR. SALLY VIVRETTE
"I have not yet been able to take advantage of the financial ability to build up the savings account, so I'm not a poster child for using the HSA to its fullest," she said. "Building up an account that you can use down the road, that's the obvious beauty of the HSA."
A popular alternative
Driven by the high cost of health insurance and the emergence of consumer-driven health plans, the number of participants in HSA-qualified plans has steadily grown.
According to the American Association of Preferred Provider Organizations, 5 million were enrolled in HSA-qualified plans in 2007, up from 1.8 million in 2006. Of those, the Government Accountability Office estimates that 50 percent to 60 percent also opened HSAs.
The AVMA GHLIT has seen a similar rise in popularity of HSA-qualified plans. During 2007, participation in HSA-qualified plans increased by 33 percent and now accounts for approximately 28 percent of all GHLIT medical coverage.
Many AVMA GHLIT participants are also supplementing their high-deductible insurance plans and HSAs with the added protection of hospital indemnity insurance. These affordable plans may be used to alleviate out-of-pocket costs by providing insureds with daily payments during a covered hospitalization to help cover deductibles or co-payments, pay for a private room, or provide extra cash when it is most needed.
The AVMA GHLIT program is underwritten by New York Life Insurance Company (NY, NY 10010). AVMA GHLIT and New York Life Insurance Company bear no responsibility for the establishment or administration of any HSA. For more information on AVMA GHLIT plans, including eligibility, rates, renewal provisions, exclusions, and limitations, or to find a GHLIT agent in a particular area, call the Trust office at (800) 621-6360.