Confirming trends first reported by HSAfinder in Spring 2004, HSAs are expected to be a big purchase item in 2005 for small and medium sized businesses.

Ironically, many experts believe that the major beneficiaries in 2005 will be large corporations who are gearing up to make HSAs manadatory for their employees. United Healthcare, Sara Lee, Wendy’s and others are among large employers switching to HSAs in 2005.

Many other firms report they are seriously weighing the move.

A Fortune/HSAfinder Study (underway for a special Spring issue in Fortune Small Business) indicates 23% of those surveyed planned to implement HSAs.

Reflects Changing Economics

Years of double-digit increases have made the cost of health care so overwhelming that the federal government is allowing consumers to set aside tax-free money in health savings accounts—a shelter like those for major expenses such as retirement or a college education.

The accounts, known as HSAs, were created a year ago by the Medicare reform law signed by President Bush. They are expected to proliferate in 2005 as consumers learn more about them and how they can blunt the effects of cost increases projected at more than 10 percent next year.

However, experts are reporting a disturbing trend in which voluntary signups for HSAs are not as strong as hoped for.

Disappointing Results Reported

These experts report that sometimes less than 5% of all employees sign up for this option when presented by employers.

The major problem, experts concede, is that employers are not offering any financial support in the critical two or three transition years.

Said one expert, “companies are not putting in any funding for each account even though the process may save them thousands of dollars.”

Said another expert, “if the company takes our advice and adds two or three hundred dollars to the first year’s account, the signup rate soars.”

Added another consultant, “I have been able to make this rate reach 50% or more by simply promising to fund $25 a month for 18 months. This is less than half what the company was saving. And it is tax deductible.”

While the numbers are encouraging, experts such as Dr. Kenneth E. Lehrer, a Houston economist measuring adoption rates, think the trend could be accelerated with added education programs and better advice to senior managers.

Education Programs Offered

HSAfinder, in association with several publications and institutions, will present more than40 "webseminars" and in-person programs to help companies and agents better implement HSAs.

Insurers say they have sold a few thousand HSAs this year, largely to individuals and small businesses, but expect a large jump next year as mid-size to large employers adopt the concept.

The tax-sheltered accounts allow people with high-deductible health insurance plans to set aside money each year for medical care and carry-over money not used from one year to the next. They are also portable and follow people from job to job.

Money in health savings account can be used to pay for doctor visits, drugs, co-payments or other medical services not covered until the deductible is met. More important, the services covered are far wider than other programs, including smoking cessation and acupuncture, to name two.

"They sell briskly, and that will only pick up from here as people know more information," said Destiny Health Chief Executive Scott Spiker. "Large employers are going to be the market movers next year."

Deductibles may rise

Some critics fear people will put off a trip to the doctor's office or prolong the need for a surgery to avoid exhausting money in their accounts. That could lead to higher costs.

Furthermore, nothing prevents insurers or employers from raising deductibles in future years, which may cause health savings account purchasers to exhaust money in their funds more quickly.

"It only creates a situation where you are going to use the money for catastrophic situations and not for preventive care," said Lynda DeLaforgue, co-director of consumer group Citizen Action Illinois.

The American Medical Association (which represents 250,000 physicians) touts the ability of patients in high-deductible plans associated with health savings accounts to have more choice of doctors and hospitals.

Once the health plan's high deductible is met, healthcare coverage tends to take on the look of a preferred-provider organization. Doctors like PPOs over HMOs, which are the most restrictive form of health insurance, in that they restrict choices of doctors and hospitals to their networks.

"We believe health savings accounts put more control back into the hands of the patient," said Dr. Donald Palmisano, AMA board trustee and the Chicago-based national doctor group's past president.

Still, with few new health insurance options, health savings accounts have substantial backing even among physicians, who are rarely known to cheer new concepts developed by the health insurance industry.

Supporters of health savings accounts see the plans as able to control costs because consumers will think twice before spending money on a trip to the doctor for the sniffles or for a brand-name drug that has a cheaper generic equivalent.

And some doctors believe the high deductible could even lead to patients bargaining with medical-care providers on prices as a way to conserve money in their accounts.

"It brings it back to the old days," said the 64-year-old Palmisano, a New Orleans vascular surgeon. "If it is strictly negotiating with a physician in a physician's office, that is an easy thing to do. We think it gives more control to the patient and makes the patient a more prudent purchaser."

For now, insurers and industry analysts say that HSAs are popular among upper middle-income small-business owners and self-employed who already own high-deductible plans.

Less than 10 percent of employers with 500 employees are covered with some form of HSAs, said Debra Gold, Chicago office leader for health and benefits at Mercer Human Resource Consulting. "A lot of employers are redesigning their benefits as an option to include an HSA," Gold said.

HSAs may be a way of adding uninsured to the insured roles, according to some experts.

"I absolutely believe we will bring in those who were uninsured, because it is their money, the government is behind it and it is portable," said Peter Rodes, vice president for consumer markets at Blue Cross and Blue Shield of Illinois.

There is no question that the Bush administration will continue to support and widen HSAs. A special report on that will appear in January.