HRAs Hold Their Own As HSAs Gain Steam

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Programs that incorporate health savings accounts, health reimbursement arrangements and other types of personal health accounts could start to have a noticeable effect on the group health market starting in January, a top benefits executive says.

Researchers at Celent Communications, Boston, say workers will hold about 740,000 HSAs with a total account value of about $800 million in 2006, and hundreds of thousands of other workers have HRAs.

Jerry Ripperger, director of consumer health at Principal Financial Group Inc., Des Moines, Iowa, says he sees plenty of evidence of the rise of the "consumer-driven health plan" market at Principal.

Earlier this year, "there were a lot of employers kicking the tires," Ripperger says. "They're going to buy on Jan. 1."

The Internal Revenue Service gave birth to the HRA in 2002, by issuing a revenue ruling that permitted HRA holders to roll over account funds from year to year without including the rolled over assets in taxable income.

Congress included the provision that created the HSA program in the Medicare Modernization Act of 2003.

The HSA law offers employers and employees attractive tax breaks but requires employers to combine the accounts with specific types of high-deductible health coverage and to turn control of the assets over to the employee account holders.

Employers that offer HRAs can combine the HRAs with any type of health coverage, and they retain control over HRA assets.

For now, the HRA seems to be surviving the arrival of the HSA, Ripperger says.

The HRA is more popular with large employers that want to offer rich benefits and smaller employers that want control over account assets, while the HSA tends to be more popular with owners of small and midsize businesses who want to cut their taxes, Ripperger says.

Ripperger continues to see some room for improvement in the rules governing the HSA program.

A change letting retirees younger than 65 use HSA assets to pay for private health coverage would be a big help, Ripperger says.

Ripperger also would like to see Congress and regulators let employers offer HSA-compatible health plans together with traditional, co-payment-driven prescription drug plans.

In the long run, Ripperger and other executives in the consumer-driven health care movement are hoping that increased access to price and quality information and increased out-of-pocket expenses will turn consumers into better health care shoppers.

Principal recently sponsored a survey by the Employee Benefit Research Institute, Washington, that looked at 1,003 adult U.S. residents' views on health care cost and quality.

The researchers found that consumers continue to be far more interested in information about the quality of care than in information about the cost of care.

When the researchers asked about the characteristics that consumers consider when evaluating the quality of health care received, 97% mentioned the skill, experience and training of their doctors.

Information about the cost patients "pay for health care and prescription drugs" ranked near the bottom of the list: Only 79% of the consumers interviewed agreed that the quality of cost information received is related to the quality of health care.

But 79% of the consumers did say that cost information is related to health care quality, and consumers say health care costs are affecting the way they use health care.

In some cases, the changes may be counterproductive: 54% of the consumers who have experienced cost increases say they now go to the doctor "only for more serious conditions or symptoms."

But other, more common changes could help hold down the cost of care without affecting the quality of care: 71% of the survey participants say they are responding to rising health care costs by trying to take better care of themselves, and 79% are choosing generic drugs when generics are available.

Kicker: Changes

How consumers with health insurance are responding to increases in their share of health care costs
		Annual household income
	Total	Under $35,000	$35,000-$75,000	$75,000 or more
Cutting contributions to other savings	45%	52%	41%	38%
Using all or most of savings to pay bills	29%	45%	21%	8%
Cutting retirement plan contributions	26%	27%	32%	17%
Struggling to pay for basic necessities, such as food	24%	38%	15%	7%
Borrowing money	18%	29%	13%	6%
Source: Employee Benefit Research Institute, Washington, and Mathew Greenwald & Associates Inc., Washington, 2005 Health Confidence Survey

HRAs Hold Their Own As HSAs Gain Steam

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HRAs Hold Their Own As HSAs Gain Steam

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