SB 6130 - To Allow State Employees to Choose Tax-Free Health Savings Accounts
February 2006
Today, more than three million Americans have acquired Health Savings Accounts (HSAs). Yet under current state law Washington state employees are not allowed to choose an HSA as a way to receive their health benefits.
For two years now, federal government employees have been allowed to choose flexible Health Savings Accounts (HSAs) as a way of receiving their health benefits. Thousands of federal workers have taken advantage of HSA plans. Florida offers a similar benefit to its 360,000 state workers. Several other states – Alaska, Montana, Minnesota, New Hampshire, Texas and Wisconsin – are considering adding an HSA benefit for their state employees.
A bill introduced by Senator Evans Parlette (R-Wenatchee) would change state law so Washington’s state employees could gain access to HSAs. SB 6130 would create the new benefit by allowing state workers to choose an HSA plan as their regular health coverage. The HSA option would provide equal or better coverage than traditional plans, and would include a number of added benefits.
In addition to full health coverage, access to HSAs would provide several unique advantages to state workers:
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HSAs give state employees direct control over their health care dollars, so they can choose the health care services that are best for themselves and their families.
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The funds in an HSA belong to the employee. Any money not spent on health care is the employee’s to keep. Currently, all money spent on state employee benefits, except co-pays, goes to insurance companies.
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Money in an HSA earns interest tax free. The employee gets to keep these earnings as well.
Unused money in an HSA rolls over from year to year. There is no “use-it-lose-it” pressure on employees as December 31st approaches. -
HSA funds are fully portable. Employees keep their health coverage if they decide to change jobs or temporarily leave the workforce. Portability reduces “job lock,” staying in a job just to keep health coverage.
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At retirement, employees can use accumulated HSA funds to buy long-term care insurance or supplement their retirement income.
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HSA money can be inherited. Retired state employees can leave the money they have saved in an HSA to their families.
Implemented properly, HSAs for state employees could save taxpayers millions of dollars a year in state-provided health care benefits.
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Taxpayer savings. A recent report from the Health Care Authority* identifies potential savings ranging from $3 million (0.3% of total costs) at 2% enrollment to $20 million (1.8% of total cost) at 10% enrollment. The report notes that low enrollment is likely in the early years without significant changes to existing programs.
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Lower health care costs. HSAs help control costs by encouraging better utilization of health care services and by promoting price competition among providers. Any state policy that reduces health care inflation directly benefits everyone in Washington.
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Promotes employee morale by giving workers greater flexibility and control over their own benefits. Better morale among state employees contributes to higher-quality service to the public.
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Lower administrative and record-keeping costs. With HSAs, bills for most routine health care are handled by an employee-chosen bank or other financial institution, not by state administrators. The employee receives a monthly statement showing balances and activity on the account.
The Health Care Authority report notes that, “If introduced thoughtfully and managed well, HSAs can help improve healthcare choice, value, and transparency while controlling cost in the PEBB benefit environment.”
Most importantly, the program SB 6130 would create is 100% voluntary. It shows respect for state workers by empowering them to make their own decisions about how to manage their own health care benefit. Employees who are happy with their current coverage do not have to change. For employees who choose them, though, HSAs provide full health coverage that is personal, private and portable, as well giving these workers access to a new tax-free financial asset.
*”Washington State PEBB and Health Savings Accounts,” Washington State Health Care Authority, January 13, 2006. PEBB stands for “Public Employee Benefits Board.”