RIDGEFIELD PARK, N.J. – With health care coverage increasingly a top concern of American workers, and escalating health care costs challenging employers, a new survey released by Mellon’s Human Resources and Investor Solutions (HR&IS) business reveals that many more employers are planning to offer Health Savings Accounts (HSAs) in 2006. While only 7% of survey respondents currently offer HSAs, 32% plan to add them next year. Mellon’s survey, “Health Reimbursement Arrangements/Health Savings Accounts: National Trends” was completed in the second quarter of 2005. The vast majority of employers planning to first offer HSAs in 2006 are adding the accounts as an option for employees, with only two percent planning a 2006 implementation as a total replacement. Mellon’s survey revealed that 66% of employers expect to contribute to the accounts. On average, 16% of eligible employees are currently enrolled in an HSA. Survey respondents are targeting 24% as their enrollment goal. “Small employers and individual consumers are leading the HSA charge this year,” said Brad Engel, national health and welfare product leader with HR&IS. “But 2006 will see an explosion of HSAs, with many more large employers adding them to their benefits package.” Administrators of HSAs have amassed $460 million in deposits, according to a recent estimate by “Inside Consumer-Directed Care.” HSAs, which were authorized by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, are portable health savings accounts consumers can use to pay for qualified medical expenses. The accounts are offered in conjunction with a high deductible health plan that provides security against catastrophic medical costs. Both employers and employees can contribute to HSAs – up to $5,250 for a family and $2,650 for individuals in 2005. For employees, the pre-tax contributions will reduce their income taxes while allowing them to set aside money for their health expenses. Employees accumulate tax-free interest on their HSA balances and do not pay any taxes when using the money to pay for qualified medical expenses. Unused HSA balances can be carried forward from year-to-year, rolled over if the individual changes jobs, or even used for post-retirement health expenses. Health Reimbursement Arrangements (HRAs) are employer-sponsored plans that are similar to flexible spending accounts, except that employees may roll over unused balances at year’s end. They are funded with employer dollars, not employee salary reductions. HRAs can be coupled with a high-deductible health plan, helping the employer control costs. Sixteen percent of survey respondents currently offer HRAs, and 20% plan to add them in 2006. Current average enrollment in HRAs stands at 28% of eligible employees. Respondents are targeting an average of 36%. Of employers that have not yet implemented HRAs, 53% are likely to skip over HRA-style plans and instead adopt HSAs. “Plan sponsors are going directly to Health Savings Accounts because employees and other plan members view them positively, seeing them as their own money,” Engel said. “It’s hard for a book entry account to compete with real, movable cash.” Some 66% believe consumer directed health plans can be designed and communicated to help promote informed consumerism and decision-making behavior. Finally, about two-thirds of respondents believe that their HR staff understands HRAs and HSAs very well or relatively well.

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