ONLY THE THIRD WAY WILL DO WHAT THEY CLAIM TO WANT:

Health Savings Accounts Can Save Michigan Money (Mr. Michael D. LaFaive and Mr. James Porterfield, Nov. 9, 2009, Mackinac Center)

A health savings account (HSA) is an account into which pre-tax money is placed by an employer or an employee to pay for the employee's ongoing medical expenses. These accounts are married to a high-deductible insurance policy, known as a "consumer-directed health plan," to cover unpredictable big-ticket expenses.

Most people have become familiar with the general concept: The money in the HSA is spent for routine or less costly types of care, up to the point at which the deductible is met and the actual insurance kicks in. For example, a 2009 federal law requires that HSA deductibles be at least $1,150 for self-coverage and $2,300 for family coverage. There are ceilings, too. These accounts are "thrice blessed," because money deposited in the accounts is untaxed by the federal government, earns interest tax free and can be withdrawn and used for qualified medical expenses tax-free.

Savings accrue to employers — in this case, the state — because high-deductible insurance premiums cost less than premiums associated with more traditional insurance, including PPOs or HMOs. An estimate by the AHIP Center for Policy and Research indicates that the number of people using HSA/CDHPs grew from 1 million in early 2005 to more than 8 million by January 2009. In 2008, large- and small-group HSA coverage leapt 35 percent and 34 percent, respectively.

To estimate what savings might be obtained by the state adopting HSAs for its classified workforce, assume the state would pay 100 percent of the premiums for the HDIP and fund 75 percent of the legally allowable employee contributions for each civil servant (state employees currently make premium contributions of 5 percent to 10 percent, depending on their coverage). Based on these and other assumptions, we estimate first-year savings of $106 million from moving civil service state employees into HSAs, and cumulative savings of up to $5.9 billion through 2021.