News: CJ Exclusives

Report: State Should Embrace HSAs

Study finds employees with HSAs spend less on health care

RALEIGH – Two years ago President George W. Bush signed legislation that made tax-free “health savings accounts” possible. With many private businesses embracing HSAs as an alternative to traditional insurance arrangements, a new report from the John Locke Foundation urges the General Assembly to offer HSAs to North Carolina’s teachers and state employees.

The cost to North Carolina taxpayers of providing health insurance to state employees rose significantly over the past decade, with a dramatic doubling just since 2000, according to the new JLF report. It concluded that state lawmakers will need to reform the state employee health plan to avoid a budgetary train wreck in the coming years.

The author of the report is Michael E. DeBow, Samford University Law professor and Professor of Health Care Organization & Policy and Lister Hill Scholar in the University of Alabama at Birmingham School of Public Health. DeBow argued that HSAs offer an attractive alternative to low-deductible, high-cost insurance benefits. The first academic study on HSAs found that employees with HSAs had lower total expenditures and lower out-of-pocket expenditures on health care than employees under Preferred Provider Organization (PPO) plans like North Carolina’s.

“HSAs are a form of medical savings account, similar to IRAs, that can be used for health care expenses” DeBow said. “But HSAs are the property of the individual employees. Unspent funds roll over to the next year, can accumulate interest and dividends, and be used for retirement and even willed to heirs.”

The head of the State Employees Association of North Carolina said while his group hasn’t studied HSAs for his members, he is open to discussing it as an option with the new administrator of the N.C. State Health Plan, George Stokes.

“I think it would save the health plan dollars,” said Dana Cope, executive director of SEANC. “It’s an incentive for people to consume health care more wisely.”

Cope said although the idea is not yet under consideration for state workers, this Spring SEANC offered HSAs to its own 30-or-so employees. He said initially they were skeptical about the idea, but those who are participating in the plan that he hears from say they like it.

“We wanted to give our employees the option to consume health care in their own ways,” Cope said. “I personally have seen them work for our own employees. I think it could work for the state health plan.”

Cope added that if offered, HSAs should be a voluntary option. A spokeswoman for the State Health Plan said discussions have focused on PPOs and a wellness plan for employees, but the HSA idea could come up next year.

“We haven’t looked at it in any depth yet,” said Linda McCrudden, director of communications for the State Health Plan.

According to Debow, eight percent of large private employers currently offer HSAs, and research shows that another 18 percent plan to offer them in 2006, with 47 percent studying the option for future implementation.

“Private industry is poised for rapid, even radical, transformation over to HSAs,” DeBow said.

DeBow said that while initial reports find that companies offering HSAs are experiencing lower costs without cutting access to needed medical services, the real benefits of HSAs may come later.

“By putting consumers in control of their own health care expenditures,” DeBow said, “they encourage employees to be better informed and thriftier in their consumption of health care services. HSAs bring efficient market solutions to health care.”

Carolina Journal Associate editor Paul Chesser contributed reporting to this article.