Health Savings Accounts (HSAs), as authorized by the Medicare Prescription Drug, Improvement, and Modernization Act ( P.L. 108-173 , MMA) of 2003, are tax-preferred savings accounts used to pay for unreimbursed qualified medical expenses such as health insurance deductibles, copayments, and services not covered by insurance. To open or contribute to an HSA, the insured must have a high-deductible health plan (HDHP), and generally no other health insurance coverage. One of a number of the stated goals of the HSA enabling legislation is to encourage workers to better save for their health care in retirement. Moreover, the HDHP/HSA combination is thought to provide incentives for consumers to be more active in their care, and purchase the best possible medical services for the lowest possible price. The savings accounts provide strong incentives for the consumers to be especially prudent with their own funds, because they can save whatever is not spent on health services. HDHPs may have benefits even if plan holders do not go on to open an HSA. First, HDHPs have lower premiums than most other types of insurance plans, and therefore may be affordable to those who would otherwise not purchase insurance. Second, a plan with a high deductible removes some of the incentive for patients to purchase more care than they otherwise would under low deductible plans. On the other hand, the lower premium does not guarantee that all individuals will go on to open an account or use health services. Indeed, it has been argued that HSAs encourage individuals to under-use health care and forego necessary services. These various objectives of HDHPs, with and without HSAs, are part of a larger concept known as Consumer-Directed Health Care (CDHC). CDHC, which is also known as consumerism, provides incentives for the consumers of health services to become more active in their care by becoming well informed, and choosing practitioners and treatments that best suit their medical needs at the lowest possible prices. In fact, the use of "consumer" and not "patient" is indicative of the degree to which individuals are intended to take charge of their health care and expenditures. Despite their growing importance in the insurance market, little has been known about the effects of HDHPs and HSAs; data for any analysis have simply not been available. Now that data are starting to be collected and released, congressional agencies, policy organizations, and academics have begun to examine the impact of CDHC in general, and HDHPs and HSAs in particular. This report analyzes the available data, and presents findings from refereed academic publications, working papers, government documents, and reports from policy organizations. The goal of this report is to state what is known (and not known) about HDHPs and HSAs at this time. The report is in two parts. First, the report describes the rules covering HDHPs and HSAs, the trends in HDHPs purchased and the trends in individual contributions to HSAs. Second, the report discusses policy questions, including the degree to which HDHPs and HSAs have increased the quality of health care, contributed to retirement savings, reduced uninsurance, and reduced aggregate health expenditures. Existing research is too fragmented to answer this second group of questions very definitively. Frequently, only one or two studies test any given hypothesis, which makes it hard to generalize about the effects of HDHPs and HSAs, especially when the limited number of studies reach opposite results. This report therefore documents the state of the existing literature, including its strengths and its weaknesses. This report can be viewed as an analytic discussion of what is known about HDHPs and HSAs, and what remains to be learned. HDHPs have been available for many years. Their popularity, however, increased with the advent of HSAs over the past seven years. In this report, the term HDHP is restricted to mean a plan where the insured is eligible to open an HSA. In other words, HDHP in this report is shorthand for HSA-eligible HDHP. Also in this report, a preferred provider organization (PPO) not associated with an HDHP is used as the baseline to which an HDHP is compared. The choice of PPOs as the baseline structure is because more people are covered by PPOs without HDHPs than any other type of insurance plan structure. However, it should be noted that some HDHPs use PPO networks for the delivery of care. The high deductible associated with an HDHP is one primary difference between HDHPs and other insurance plans. HDHPs also limit the maximum amount of out-of-pocket spending by the consumers. The distinction between in-network and out-of-network is present in many HDHPs. In addition, HDHPs are available in the individual, small group, and large group markets. The basic rules for HSA-qualifying HDHPs in 2010 are as follows: The annual deductible for self-only coverage must be at least $1,200 and for family coverage at least $2,400, The annual limit on out-of-pocket spending is $5,950 for self-only plans and $11,900 for family plans, and Deductibles need not apply to preventive care. The amount of the minimum deductible is updated annually to reflect changes in the cost of living. The updates are rounded to multiples of $50. The HSA is one type of savings account associated with consumerism in health care. HSAs are used to pay for unreimbursed qualified medical expenses such as insurance deductibles, copayments, and services not covered by insurance. The basic rules covering HSAs are as follows: Individuals can establish and fund HSAs when they have qualifying HDHPs and no other coverage. HSA contributions may be made by account owners, their employers, or others up to an annual limit ($3,050 for self-only coverage and $6,150 for family coverage in 2010). Individuals who are at least 55 years old but not yet enrolled in Medicare may contribute an additional $1,000. This amount is not indexed for inflation. Contributions may be made at any point in the year, even after the health expenditures have been incurred. Unused balances may accrue without limit. HSA contributions and income are tax free. HSA withdrawals are tax free if used for qualified medical expenses, or if the account-holder is at least 65 years old. Many insurance carriers provide their HDHP/HSA plan holders with an HSA card. The card is similar to a debit card, and can be used to pay for health goods and services at the point of care (or purchase). Individuals are required to provide documentation for their reimbursed health expenditures to the Internal Revenue Service (IRS) upon request. HSAs are a particularly generous form of health-related savings account. The account contributions and income are not taxed, and consumers keep the account even if they change jobs. There is no "use it or lose it" provision; theoretically account balances can grow quite high. Although insurance policies must have a high deductible, the policies may (but are not required to) cover preventive care before the deductible is met. In addition, consumers can add money to the HSA even after the medical expenses have been incurred, so that individuals do not have to deposit money until it is actually needed. This section of the report discusses insurance premiums and deductibles for those with HDHPs and perhaps HSAs. The individual's (or family's) decision whether or not to select an HDHP and whether or not to subsequently open an HSA are separate but related decisions. The decisions are separate because selecting an HDHP does not require subsequently opening an HSA. The decisions are related because some of the factors that influence selecting an HDHP might also influence opening an HSA. For example, wealthy individuals might choose an HDHP because they can easily afford the relatively high out-of-pocket payments for health care associated with a high deductible. These same individuals might go on to open an HSA because they will receive relatively high tax benefits because of their high marginal tax bracket. On the other hand, lower-income individuals might choose an HDHP for its lower premiums but would not necessarily have the same tax incentive to open an HSA. In addition, all individuals may not face the same insurance plan options. Those who purchase insurance on the individual market can purchase HDHPs in all states. Individuals who receive employer-sponsored insurance (ESI), however, can only purchase HDHPs if their employer offers a plan with this structure. Some individuals who elect to receive ESI must purchase HDHPs because their employer offers only this plan structure. In any case, the price of the plan to the individual influences the individual's decision whether to enroll in an HDHP and take out an HSA. In health insurance, the common recurring and consistent measure of price is the premium, or the monthly (or annual) amount the policyholder pays for coverage. Data on single-coverage insurance premiums and deductibles for HDHPs and standard PPOs are provided in Table 1 ; data on family coverage shows similar relationships between the cells. Because the three insurance markets differ greatly, the data are presented separately for the individual market, small firms, and large firms. The data for small and large firms come from a survey of employers, and the data source for the individual market is a survey of insurers. For this reason the individual and firm data are not strictly comparable. HDHP deductibles are indeed high. For example, in 2009 the average deductible in the individual market was $3,263. Even though the legal minimum deductible in 2009 was $1,150, average deductibles were between 40% and 180% greater than this amount.