These plans could become enormously important. We will have to see how they play out.
December 9, 2003
Insurers Ready to Sell Medical Savings Accounts
By MILT FREUDENHEIM
robably no one was more surprised that Congress added tax breaks for health savings accounts to the new Medicare law than John C. Goodman, a conservative Texan who has been avidly promoting medical accounts for a decade.
The measure, a favorite of Newt Gingrich, the former speaker of the House, and Representative Bill Thomas, chairman of the conference committee, was added to the bill, later dropped and finally restored during negotiations.
"People thought it would be gone at the end," Mr. Goodman, president of the National Center for Policy Analysis, a research group in Dallas, said yesterday as President Bush was signing the legislation. "Frankly even I thought that was going to happen."
Under the new law, consumers will be able to obtain relatively inexpensive health insurance policies with high deductibles combined with savings accounts. The contributions to the accounts will be tax deductible, the money will accumulate year after year tax free, and it can be withdrawn to pay for a variety of medical expenses.
But while insurers could only guess and gamble on the outcome in Congress, at least two of the nation's biggest insurance companies were ready to seize the opportunity.
Only days before the bill passed, the UnitedHealth Group, the largest insurer, bought the Golden Rule Insurance Company, a pioneer in selling medical savings accounts, a less-favored version of the accounts, for $500 million. Aetna, which already had 45,000 members in high-deductible health plans that include savings accounts, jumped in yesterday with a plan to add 100,000 more under the new law.
"Over a million people are currently covered by a variety of consumer-driven health plans, most of which involve a spending or savings account," said Tom Beauregard, a health care consultant with the Hewitt Associates consulting firm. As employers shift an increasing share of health costs to workers, a growing number need to put aside money to pay those bills, he said.
Mr. Gingrich said he knew of several other insurance companies, in addition to United and Aetna, that plan to introduce similar types of coverage by Jan. 1, when the provision takes effect.
Some Wall Street analysts view the accounts as a threat to the existing health care system. "This provision gives employers a door to discontinue health care as an employee entitlement," Charles Boorady, a securities analyst at Smith Barney, wrote in a research report yesterday.
The new accounts could attract new competitors, including life insurance and property-casualty companies, 401(k) retirement administrators and start-up ventures, Mr. Boorady said, while draining profits from many current health insurers.
Indeed some large employers are wary of the high-deductible policies, which have come under sharp attack from several Democratic presidential candidates and consumer advocates.
The accounts have long been a goal of conservative lawmakers and academics who want to add cost-cutting competition to the health insurance marketplace and offer a way for workers to save money for medical expenses in their retirement. President Bush said that under the new law, people with health savings accounts would "save between 10 to 35 percent on any costs covered by money in your account," depending on their tax bracket.
Critics contend that they will attract healthy and higher-income workers, raising costs for low-wage and sick people who stay behind in traditional health plans.
Only about 40 of the 200 big companies in the National Business Group on Health have offered or are considering the older type of high-deductible plan, said Helen Darling, executive director of the organization.
"Employers will look very carefully at the new plans," she said. "I don't think people will be jumping on the bandwagon right away, but they certainly will look at them with more interest now."
Mr. Gingrich contended that the new accounts would challenge unions that hold on to traditional forms of coverage in future years as nonunion employees accumulate cash savings in the tax-free accounts.
Jack Whelan, chief executive of Golden Rule, said the health savings account legislation would be "a benefit to us because an enormous slice of the population are now eligible for the accounts."
His new owners at UnitedHealth Group are considering offering the new plans to larger employers, said Mark Lindsay, a spokesman for UnitedHealth. Golden Rule's customers are mainly individuals.
"This is one more step on the path of consumerism as a movement," said Shellie Stoddard, a bond analyst at Standard & Poor's, the credit-rating firm. She said "increased cost-shifting to consumers will temporarily benefit the health insurers," by holding down wasteful spending.
But she sees problems in the long run for the industry if too many lower-income workers decide that coverage is beyond their means. "We feel that the political pressure to maintain the affordability of health insurance will be focused on the health insurance industry.''
"Regulators are already keeping the for-profit insurers out of certain states," contending that the companies' profit margins are too high, she added.
Mr. Boorady at Smith Barney said that in the long run, with sweeping changes brought in by the new accounts, he expects "industrywide returns to come down."
Mr. Goodman of the National Center for Policy Analysis said employees could replace vanishing retiree health benefits with "401h plans" financed by savings accounts that they can take with them when they retire.
That could have a downside for health insurers, Mr. Boorady said. "Other insurance companies, mutual fund companies, 401(k) administrators, and even commercial banks may see it as an attractive product to gather assets" and as the accounts grow generate new customers for the mutual funds, he said.
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