Topeka Gov. Kathleen Sebelius signed legislation last week making health savings accounts legal in Kansas.
Proponents of health savings accounts say the law will make it possible for more small businesses to offer health care coverage to their employees. State officials say the accounts could be marketed by mid-June.
But health savings account critics say a large number of uninsured workers won't be able to afford the plan.
Health savings accounts are the latest product in a nationwide move toward "consumer-driven" health care options, which involve making consumers more accountable for their health care decisions. But like the other products, health savings accounts will place a larger portion of the cost for health care on consumers.
Health savings accounts were born out of the same legislation that added prescription drug coverage to Medicare.
To open a health savings account, an individual must be covered by a high-deductible medical plan. Policies with a minimum deductible of $1,000 for an individual or $2,000 for a family are required. But many plans have deductibles starting at $2,500 for individuals and $5,000 for families.
The Internal Revenue Service allows an individual or his employer to deposit pre-tax dollars into the account and withdraw that money tax-free to pay for medical bills. Contributions to the account are limited to no more than the deductible, or $2,600 for singles or $5,150 for families, whichever is less.
Any money that is not spent at the end of the year is rolled over to the next year, but does not count against the following year's contribution limit.
Accounts are interest-bearing and earnings are tax-free as long as money is not withdrawn for nonmedical reasons.
Advocates of health savings accounts tout them as an answer to high-cost insurance for business owners and for individuals who cannot afford high premiums.
Some health care plan administrators, however, caution that health savings accounts are not a panacea.
If neither an individual nor an employer can afford to fund the savings account, for example, consumers could find themselves in debt for the amount of the deductible if they get sick. And the plans would still leave insurance companies paying for the highest medical bills.
"What we really have to do is get the people who have high-risk lifestyles to change," said Karen Cox, with IMA, a benefits administrator in Wichita. "Modifying those lifestyles and reducing the number of people who require those high-dollar services is what will eventually drive costs down."
The law allows health savings accounts to be used to pay:
- Qualified medical expenses.
- Premiums on COBRA.
- Long-term care insurance premiums or expenses.
- Health premiums while on unemployment insurance.
- Medicare and retiree health insurance premiums.
Health savings accounts cannot be used to pay Medicare supplement premiums.