Benefits of personal health accounts

Like other forms of health coverage, personal health accounts are typically funded by employers. Employers make deposits into for employees, but they also purchase a low-cost, catastrophic (major medical) health insurance with a high deductible for the employee.

  • Options such as medical savings accounts (MSAs) and health reimbursement arrangements (HRAs) allow employees to control spending on incidental medical expenses.

  • Due to federal restrictions, MSAs are not available to most workers in America. However, a recent ruling by the U.S. Treasury Department allows any company to establish HRAs.

    Employees prefer MSAs and HRAs because personal accounts allow them to select health services that fit their needs. This especially benefits patients suffering from chronic conditions, but patients with few medical expenses can roll forward unspent dollars for future use.

    Employers like health savings accounts because they are simple and reduce waste. Funds are readily available and patients seek care only when needed, which helps control costs and improves quality since there is no incentive to seek unnecessary care.

    Neither MSAs nor HRAs are tax shelters for the healthy and wealthy. Employer-paid health insurance premiums are already excluded from taxation, which benefits high-income workers more than low-income workers. Younger workers often do not participate in employee-sponsored plans because they feel they won't need much care and, therefore, would be wasting their money. For them, rolling forward unused funds is a significant benefit.

    When employees control health care spending, they will be more willing to participate in employer-sponsored health insurance plans. Moreover, employers will be pleasantly surprised that annual increases in premiums will decline once employees become smarter consumers.

    Source: Devon M. Herrick (NCPA senior fellow),Have employees control health care spending, Equal Time, Atlanta Journal-Constitution, October 2, 2003.

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    For more on the Uninsured

    FMF Policy Bulletin\7 October 2003
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