High-Deductible Health Plans with Health Savings Accounts: Emerging Evidence and Outstanding Issues

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Expanding Health Savings Accounts (HSAs) is a central objective of President George H. W. Bush's proposed health policy reforms.1 As part of his 2006 State of Union address, the President outlined numerous policy changes intended to increase enrollment in HSAs by making them more attractive to consumers and employers. HSAs, used in conjunction with high-deductible health plans (HDHPs), are part of a grouping of health insurance products commonly referred to as "consumer-driven health plans" (CDHPs). CDHPs are designed to increase the sensitivity of individual consumers to the costs of medical services.

CDHPs typically include a high-deductible health insurance product and may be coupled with an account, such as health reimbursement accounts or HSAs. These accounts allow individuals and/or their employers to make tax-preferred contributions toward medical care not covered by the HDHP. The high deductibles are intended to make consumers think carefully about their need for care prior to using services, since the initial spending prior to meeting the deductible would come out of either the consumer's own pocket or out of their HSA. The accounts allow employers and/or consumers to pay for outof- pocket medical expenses on a tax-preferred basis. Consumers not spending the full yearly allotment in their accounts can build up their balances over time, accumulating resources for future medical needs. Funds contributed to HSAs are owned by the individual, similar to an Individual Retirement Account (IRA). Health reimbursement accounts provide taxpreferred funds for medical needs just as HSAs do, but unlike HSAs, funds not paid out are retained by the employer.

HDHPs tend to have significantly lower premiums than more comprehensive insurance plans. These lower premiums derive from two cost-saving techniques. First, they cover fewer of the medical dollars spent, since individuals must pay a larger amount of their medical needs before the actual insurance protection begins. Second, highdeductible plans tend to attract and, therefore, cover less costly healthy individuals. Because health insurance premiums are determined in relations to the expected health care risk of those enrolling, a plan with a healthier population would have lower premiums than one with a sicker population.

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