MEDICARE LAW Workers will get a new way to save for medical expenses

Some worry employers will now feel free to cut health insurance options.
KNIGHT RIDDER NEWSPAPERS
American workers will have a new tax-deductible way to save money for out-of-pocket medical expenses starting next year, under a provision in the new Medicare law.
Health savings accounts, a lesser-known component of legislation associated primarily with a controversial prescription-drug package, are meant for people to use before they reach retirement. HSAs are also an expansion of the medical savings accounts that were already in place for the self-employed and smaller company employees.
While HSAs, available beginning Thursday, provide consumers with means to battle rising medical costs, there's concern they'll also give employers incentive to cut back on the types of health insurance options they offer employees.
HSAs allow employees with high-deductible insurance plans -- at least $1,000 for individuals and $2,000 for families -- to contribute pretax dollars for medical expenses. They earn interest tax-free, and even withdrawals are not taxed, provided they are for medical expenses. Participants can withdraw funds for nonmedical reasons, but will pay regular income tax on the money and a 10 percent penalty if they are under 65. After 65, participants can pull money out for any reason.
Getting started
Two major insurance companies are ready to jump on HSAs. UnitedHealth Group purchased Golden Rule Insurance Co., a company at the forefront of the medical savings account trend, for $500 million. And Aetna said it will offer HSAs.
About 20 percent of employers are offering or thinking of offering high-deductible insurance plans, said Helen Darling, president of the National Business Group on Health. She expects that number to increase to about 30 percent when HSAs are introduced next year.
Unlike flexible spending accounts that have been around for years, employees can take their HSA funds with them when they change jobs and roll over unused dollars each year. Benefits consultants say the accounts may become a big financial-planning tool.
"It could be a way for baby boomers to put some money away to fund their retirement medical costs," said Steve Graybill, senior benefits consultant at Mercer Human Resource Consulting in Charlotte, N.C. "With fewer employers offering retiree medical benefits, it is becoming a critical part of your financial plan when you retire ... to [know] how you are going to fund your medical expenses."
Only 28 percent of employers offer health care to retirees younger than the Medicare age of 65 and only 21 percent extend it to retirees eligible for the federal program, according to Mercer's 2003 national survey of employer-sponsored health-care plans. That's down from 46 percent and 40 percent in 1993.
Still, workers will find plenty of controversy surrounding HSAs. Advocates say the accounts save employers money and give consumers more control over their health care.
Dr. Michael Miltich, a Charlotte, N.C., ear, nose and throat specialist, believes that HSAs will encourage patients to be less wasteful and get only the services they really need.
"Patients are spending their money and, therefore, patients will question the value of what they are receiving," Miltich said. "When you use your own dollars, you are rewarded for making good health care decisions."
But critics say HSAs, because they're connected with low-cost, high-deductible insurance plans, will lure only younger, healthier participants, driving up costs for everyone else. They are also worried that the HSAs will prompt employers to drop more conventional health care plans in favor of high-deductible options that aren't right for all workers.
Repeal effort
Sen. Edward Kennedy, D-Mass., has said he will sponsor a bill to repeal large portions of the Medicare legislation, including the HSA component.
HSAs might not be good or bad -- just necessary, said one expert.
"Employers are struggling with health care costs that are going up a lot each year. Double digits for three or four years," said Rich Stover, principal at Mellon Financial Corp.'s Human Resources & amp; Investor Solutions. "Employers of necessity are shifting more of the cost to employees. To the extent employers are doing that, if they included this HSA into their plan, that is a better vehicle for employees than other options they have."