State of Indiana employees enrolled in HSAs
experience several cost-saving benefits.
New Michigan Gov. Rick Snyder has cited
Indiana Gov. Mitch Daniels as a model because of the Hoosier’s business-like
approach to state government. One of the business-like practices Indiana has
adopted is placing government employees in consumer-driven health plans
The most common CDHP, a health savings
account, pairs a high-deductible insurance policy with a tax-advantaged savings
account. HSAs are increasingly common in private-sector workplaces, and even
some Michigan local governments have adopted them — as has the Mackinac Center
for Public Policy. Recent research by Center analysts estimates that placing
state and school employees in HSAs could save taxpayers roughly $32 billion
Savings in the first year could amount to $106 million, with accrued savings of nearly $6 billion through 2021.
In 2005, Gov. Daniels offered HSAs to state
employees as one option among competing health care plans. Choosing an HSA was
voluntary and popular. In 2010, 70 percent of the state’s entire workforce of
30,000 had made this selection; when the 2009 final numbers are completed, the
program is projected to have saved taxpayers $20 million. The benefits don’t
end there, however.
The state of Indiana pays 100 percent of the
premiums for the health insurance portion of the plan, and also deposits an
amount equal to 55 percent of the employees’ annual deductibles into each employee’s tax-free
savings account. Employees can make additional tax-free deposits, and
withdrawals are not taxed provided they are spent on health-related purchases.
Any interest on assets held in the accounts is tax free too, so they are thrice-blessed.
The Mercer Group, a management consulting
company, reports that through September 2009, Indiana state employees had
accumulated positive HSA account balances of $28.1 million. This occurred
during a time of budget austerity when state employee pay was frozen. Note too
that these HSA accounts are the property of the employees; should the employee
leave for any reason the assets go with him or her, rather than revert to the
One of the knocks leveled against HSAs is the
mistaken belief that people will under-consume preventive health care services
and pocket the money. Aside from the elitist presumption that someone else
knows more about any particular individual’s needs, the criticism ignores the
fact that most plans include check-ups and some other preventative services at
no charge to the employee.
The accompanying graphic is reproduced from
the Mercer Group’s case study of Indiana and shows several metrics for
“healthcare utilization.” Compared to those in a traditional insurance plan (a
preferred provider organization), Indiana state employees enrolled in the
state’s two CDHPs experienced shorter hospital stays, fewer admissions, lower
average costs for prescriptions and greater generic drug selection.
In 2009, Mackinac Center scholar James
Porterfield, an HSA expert, calculated that if this state’s classified civil
service employees were placed into CDHPs, the savings in the first year could
amount to $106 million, with accrued savings of nearly $6 billion through
Those estimates may be conservative.
Porterfield assumed that the state would annually pay 75 percent of employee
deductibles and 100 percent of the insurance premium, but Michigan’s plan need
not be that generous. Again, the state of Indiana only pays 55 percent of its
If Michigan also included public school
employees in a state HSA system, our estimates indicate that the state could
save $451 million in its first full-year and an additional $26 billion through
Like Gov. Daniels, Gov. Snyder comes
from a business background, and is on the hunt for reasonable cost-saving
proposals for the state. He and his administration would be hard pressed to
find one better than employee HSAs. They have a well-established history of
success in the private sector, are championed by a governor Mr. Snyder admires,
offer the promise of billions of dollars in savings for Michigan taxpayers and
produce satisfied employees. Health savings accounts would be a win-win for
Michael D. LaFaive is director of the Morey Fiscal Policy Initiative at
the Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission
to reprint in whole or in part is hereby granted, provided that the author and
the Center are properly cited.