Health savings accounts, made available just late last year, already are growing in popularity as an alternative to conventional health-insurance plans.


With health-care insurance premiums continuing to climb and more information about health savings accounts, or HSAs, becoming available, interest in the new accounts is on the rise, says Lesley Hutson, an employee benefits specialist at Spokane insurance agency Wolf-Majeskey-Rapp Inc.


News accounts nationally confirm that rising interest, as does a survey last spring by Mercer Human Resource Consulting, in which nearly three quarters of employers who responded said they likely will offer an HSA by 2006. Very small employers and very large ones are likely to be the first to offer such plans, the survey found.


The accounts, created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, allow individuals to pay for health-care expenses and save for future such expenses on a tax-free basis.


HSAs are used in conjunction with a high-deductible health plan, with the idea that account holders can use the money saved in the accounts to pay for medical expenses up to the amount of their large deductible. The plans have been heralded as a way to avoid the high premiums that low- and non-deductible health plans carry, while also giving individuals more controland responsibilityfor their day-to-day health-care costs.


The HSA funds can be invested like the money put into an IRA or 401(k), and oftentimes the account holder is provided with a debit card to use when paying medical expenses from the account. They are open to individuals and groups of any size that buy a high-deductible health plan. Individuals or their employers can put into the accounts as much as they like up to the amount of the deductible in the umbrella plan, or $2,600 a year, whichever is lower. Families can contribute up to $5,150 a year.


The accounts can continue to grow over the years, and individuals can take the accounts along with them when they change jobs.


Last June, amidst increased interest in the plans, the Internal Revenue Service released a set of clarifications of the rules surrounding HSAs.


One rule that some news accounts say might concern employers is that the employees, as account holders, can use the funds any way they choose, which means that while employers can contribute to the accounts on behalf of employees, they cant control how the funds are used. Still, the rules dictate that account holders must use the funds only for qualified medical expenses, or otherwise must declare the withdrawals as income and pay a 10 percent IRS penalty, Hutson says.


She says she believes its actually beneficial that employees get to choose how to use their HSA funds, by deciding what financial decisions are more important to them and whether they should use the money for medical expenses or for something else.


I think that should be their responsibility and their financial choice, not the employers, Hutson says.


One of the advantages of an HSA is that the account holders get to keep the funds that arent spent, which can grow as an investment over time, and use them for health-care expenses even after they qualify for Medicare, she says.


Theyre such a better fit for how were aging and using our medical, Hutson says.


Another rule the IRS clarified this summer was that employees can determine how much they want to contribute to the HSA on a monthly basis, whether they choose to put in nothing one month and contribute $200 the next month.


Hutson says shes finding that a lot of employers arent sure their employees will be interested in an HSA. In one such case, however, 98 of one companys 108 employees recently opted for an HSA when it was offered to them.


Rob Crow, vice president of Lloyd Industries Inc., a Spokane manufacturer of pizza and bakery equipment, recently offered his employees the choice between an HSA and a traditional plan. He says he envisioned years ago the benefits something like an HSA would provide, and says that when he learned about HSAs last year, they were exactly what he was looking for in a health program.


Currently, Lloyd Industries offers its employees an HSA, backed by a high-deductible insurance plan, as well as a traditional health-care plan, but Crow says he expects he will be forced to offer only the HSA/high-deductible plan combo in the future because of the rising costs of traditional plans. He says if he continues to offer a traditional plan, hell likely have to pass more of the rate increases on to his employees.


Crow says eight of his 25 employees opted for the HSA. Lloyd Industries buys the high-deductible health plan for the employees, and contributes another $50 a month into each employees HSA.


The company spent a lot of time educating its employees on the HSAs, and those who chose it are all in agreement that for the most part, its a better way to go in terms of being responsible for their own medical well being, Crow says.


One downfall of the plan Crow sees is that he wishes there was more flexibility to allow different deductibles. The high-deductible plan he chose wont allow him to offer two different deductibles, and had it done so, he feels more of his employees would have opted for it.


As far as employees having the freedom to spend the money any way they want, Crow says that doesnt bother him because hes not spending any more money with HSAs than he would otherwise, and it gives employees responsibility for their health choices.


Meanwhile, Hutson says the HSAs are more powerful as a financial tool than are conventional health-care plans, because the money in the accounts can grow and can be used for any purpose after age 65, without penalty, although they must be declared as income.


She says when people retire, they often no longer have health insurance other than Medicare.


When you really need medical youre left out in the cold because you have nothing saved up, Hutson says.


She says some employers are waiting to see how HSAs play out before deciding to offer them, but groups that already have HSAs really like them.