Proposed bill would legalize Health Savings Accounts for state workers
by Paul Guppy, Vice President for Research
February 2006
Lawmakers in Olympia are half way through the 60-day legislative session. One of the better ideas under consideration is a proposal to legalize Health Savings Accounts (HSAs) for state workers. To date more than three million Americans have acquired HSAs, the flexible tax-free personal accounts that put workers in charge of their own health care. Federal workers have had an HSA option for two years now. Yet under current state law, Washington state employees are barred from choosing an HSA as a way to receive their health benefits.
Legislation backed by Wenatchee-area lawmakers Cary Condotta and Linda Evans Parlette would allow Washington's state employees to select 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.
Here are some of the unique advantages:
• HSAs give employees direct control over their health care dollars, so they can choose the health care services that are best for themselves and their families.
• 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.
• 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.
• At retirement, employees can use accumulated HSA funds to buy long-term care insurance or supplement their retirement income.
• HSA money can be inherited. Retired state employees can leave the money they have saved in an HSA to their families.
An HSA option for state employees would also save taxpayers millions of dollars a year in state-provided health care benefits. Here's how:
• 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.
• 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.
• 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.
• 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 reports that, "If introduced thoughtfully and managed well, HSAs can help improve healthcare choice, value, and transparency while controlling cost in the PEBB benefit environment." (PEBB stands for Public Employee Benefits Board.)
Most importantly, the HSA option would be 100% voluntary. Many health care reform proposals rely on a mandatory, one-size-fits-all approach. The voluntary approach shows respect for state workers by empowering them to make their own decisions about health care benefits. 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 as giving these workers access to a new tax-free financial asset.
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