Consumer-directed health plans generally include three components: a health plan with a high deductible, a savings account—such as an HSA—to pay for health care expenses, and enrollee decision-support tools. An insurance plan with a high-deductible. HSA-eligible plans are required to meet certain statutory criteria. The plans must have a minimum deductible amount—$1,050 for single coverage and $2,100 for family coverage in 2006—and a maximum limit on enrollee out-of-pocket spending—$5,250 for single coverage and $10,500 for family coverage in 2006. Preventive care services may be exempted from the deductible requirement, but coverage of most other services, including prescription drugs, is subject to the deductible. After meeting the deductible, the HSA- eligible plan pays for most of the cost of covered services until the enrollee meets the out-of-pocket spending limit, at which point the plan pays 100 percent of the cost of covered services. A savings account to pay for health care expenses. There are several types of savings accounts that may be associated with consumer-directed health plans, with HSAs being among the most prominent. An HSA is a tax- advantaged savings account established for paying qualified medical expenses. Individuals are eligible to open an HSA if they are enrolled in an HSA-eligible plan and have no other health coverage, with limited exceptions. HSAs are owned by the account holder, and the accounts are portable—individuals may keep their accounts if they switch jobs or enroll in a non-HSA-eligible health plan. Both employers and individuals may contribute to HSAs, and individuals may claim a deduction on their federal income taxes for their HSA contributions. HSA balances can earn interest; roll over from year to year; and be invested in a variety of financial instruments, such as mutual funds. HSA-eligible plan enrollees who choose to pay for medical expenses from their HSA may access their account funds by check, by debit card, or by authorizing insurance carriers to allow providers to directly debit their account funds. HSAs are subject to annual contribution limits. In 2006, contributions were limited to 100 percent of the deductible, but not more than $2,700 for single coverage or $5,450 for family coverage. Contributions, earned interest, and withdrawals for qualified medical expenses are not subject to federal income taxation. A financial institution, such as a bank or insurance company, typically administers the account. Decision-support tools. HSA-eligible plans typically provide enrollee decision-support tools that include, to some extent, information on the cost of health care services and the quality of health care providers. Experts suggest that reliable information about the cost of particular health care services and the quality of specific health care providers would help enrollees become more actively engaged in making health care purchasing decisions. These tools may be provided by health insurance carriers to all health insurance plan enrollees, but are likely to be more important to enrollees of HSA-eligible plans who have a greater financial incentive to make informed decisions about the quality and costs of health care providers and services. HSA-eligible plans had lower premiums, higher deductibles, and higher out-of-pocket spending limits than traditional plans in 2005. Specifically, data from national employer health benefits surveys regarding plans offered in the group market indicate: Premiums for HSA-eligible plans averaged 35 percent less than employers’ traditional plan premiums for single coverage and 29 percent less for family coverage in 2005. Annual deductibles for HSA-eligible plans averaged $1,901 for single coverage and $4,070 for family coverage in 2005—nearly six times greater than those of employers’ traditional plans. The median annual out-of-pocket spending limit for HSA-eligible plans offered by large employers was $3,500 for single coverage in 2005, which was higher than the median out-of-pocket spending limit of $1,960 reported for traditional plans. The HSA-eligible and traditional plans we reviewed covered the same broad categories of services, including preventive services, and also used similar provider networks in 2005. Our illustration of enrollees’ potential health care costs—including premiums, deductibles, and other out-of-pocket costs for covered services—for the three employers’ 2005 health plans we reviewed showed that HSA-eligible plan enrollees would incur higher annual costs than PPO enrollees for extensive use of health care, but would incur lower annual costs than PPO enrollees for low to moderate use of health care. Specifically, we estimated that in the event of an illness or injury resulting in a hospitalization costing $20,000, the total costs incurred by the three employers’ HSA-eligible plan enrollees would be 47 to 83 percent higher than those faced by the employers’ PPO enrollees. In contrast, we estimated that the total costs paid by HSA-eligible plan enrollees who used low to moderate amounts of health care, visiting the doctor for illnesses or injuries six times in one year, would be 48 to 58 percent lower than the costs paid by the PPO enrollees. If HSA-eligible plan enrollees used tax- advantaged funds that they, or someone other than their employer, contributed to their HSA, their costs could have been lower than our estimates. HSA-eligible plan enrollees generally had higher incomes than comparison groups. The average adjusted gross income of the estimated 108,000 tax filers reporting HSA contributions in 2004 was about $133,000, compared with $51,000 for all tax filers under age 65, according to IRS data. Moreover, 51 percent of tax filers reporting HSA contributions had an adjusted gross income of $75,000 or more, compared with 18 percent of all tax filers under age 65. (See fig. 1.) We also found similar income differences between HSA-eligible plan and traditional plan enrollees when we examined other data sources from the group and individual markets. Among Federal Employees Health Benefits Program (FEHBP) enrollees actively employed by the federal government, 43 percent of HSA-eligible plan enrollees earned federal incomes of $75,000 or more, compared with 23 percent for all enrollees in 2005. Additionally, two of the three employers we reviewed and eHealthInsurance reported that HSA-eligible plan enrollees had higher incomes than did traditional plan enrollees in 2005. The data sources we examined did not conclusively indicate whether HSA- eligible plan enrollees were older or younger than comparison groups. IRS data suggest that the average age of tax filers who reported HSA contributions was about 9 years higher than the average age of all tax filers under age 65 in 2004. Similarly, eHealthInsurance reported that in the individual market the average age of its HSA-eligible plan enrollees was 5 years higher than that of its traditional plan enrollees in 2005. In contrast, data from FEHBP and the three employers we reviewed indicate that the average age of HSA-eligible plan enrollees, excluding retirees, was 2 to 6 years lower than that of comparison groups of enrollees. Just over half of HSA-eligible plan enrollees and most employers contributed to HSAs. About 55 percent of HSA-eligible plan enrollees reported HSA contributions in 2004, according to our analysis of data obtained from IRS and a publicly available survey. HSA-eligible plan enrollees from the employers we reviewed were more likely to contribute to an HSA when their employer also offered account contributions. Among tax filers who claimed a deduction for an HSA in 2004, the average deduction was about $2,100 and the average amount deducted increased with income. About two-thirds of employers offering HSA-eligible plans contributed to their employees’ HSAs in 2005, according to two national employer health benefits surveys. In 2004, the average employer HSA contribution reported to IRS was about $1,064. Account holders used HSA funds to pay for medical care and to accumulate savings. About 45 percent of tax filers reporting an HSA contribution in 2004—made by themselves, their employers, or others on their behalf—also reported withdrawing funds in 2004. The average annual amount withdrawn by these tax filers was about $1,910. About 90 percent of these withdrawn funds were used to pay for expenses identified under the Internal Revenue Code as eligible medical expenses. IRS data show that about 40 percent of all funds contributed to HSAs in 2004 were withdrawn from the accounts by the end of the year. In addition to using HSAs for medical and other expenses, account holders appeared to use their HSA as a savings vehicle. About 55 percent of tax filers reporting HSA contributions in 2004 withdrew no money from their account in 2004. We could not determine whether HSA-eligible plan enrollees accumulated balances because they did not need to use their accounts (that is, they paid for care from out-of-pocket sources or did not need health care during the year) or because they reduced their health care spending as a result of financial incentives associated with the HSA-eligible plan and HSA. However, many focus group participants reported using their HSA as a tax-advantaged savings vehicle, accumulating HSA funds for future use. HSA-eligible plan enrollees who participated in our focus groups at the three employers we reviewed generally reported positive experiences with their plans. These focus group participants, who had voluntarily elected to enroll in HSA-eligible plans as one of several choices offered by their employers, cited the ability to accumulate savings, the tax advantages of having an HSA, and the ability to use an HSA debit card as positive aspects of HSAs.