Insurance Agent Frank Haberlach was one of the first people in Kitsap County to sign up for an HSA, and the very first to sign up for one with Kitsap Bank.

Frank Haberlach is always on the lookout for a good health insurance deal, and he found one a few months ago. A health and life insurance broker for more than three decades, he became the first Kitsap Bank customer earlier this year to sign up for a Health Savings Account. In just a few months, he and his wife have already enjoyed nice savings.

“We think we’ve done well with it,” he said.

Health Savings Accounts, or HSAs, are tax-deductible savings accounts that work together with a high-deductible health plan (HDHP). A person who enrolls in a specifically designed plan with at least $1,000 deductible ($2,000 per family) can contribute to the HSA, and use the account to cover the deductible or co-pay expenses. Unlike flexible savings accounts offered by some employees, HSAs can be rolled over every year. Similar to an IRA, the contribution is tax-deductible, and it is subject to taxes and penalties if used for other purposes. At age 65, the HSAs can be converted into an IRA.

The HSAs can be opened through a bank, and the customer can get a checkbook and ATM card to pay for medical expenses. Some health insurance plans administer the accounts directly. The IRS limits the yearly contribution amount.

As long as the money is used for eligible health care expenses, including long-term care, the withdrawals are not taxed. The account also earns tax-deferred interest, based on each bank’s interest rate.

“Having the HSA, you’re getting a discount in the form of the tax deduction,” Haberlach said. “It works well if you’re healthier or don’t need as much work done.”

Health Savings Accounts fall under the IRS “213 (d) list” and were signed into law by President Bush in December 2003 as part of the Medicare Modernization Act. The law became effective in January 2004 although it took the federal government until the end of last summer to finalize the regulations.

“The advantage is that you are paying for eye glasses, teeth and other expenses with tax-deductible dollars,” said Haberlach, a former Port Orchard City Council member and part president of the Chamber of Commerce.

America’s Health Insurance Plans, an association representing about 1,300 health insurance companies nationwide, said that in March 2005, more than 1 million people were covered under an HSA/HDHP. That was more than double the enrollment in September of 2004. The number of companies offering the HAS/HDHP grew from 29 to 99 in the same period, with more reporting that they planned to enter the market in the near future.

The AHIP survey also found that about a third of consumers enrolling in the program under individual plans were previously uninsured, and nearly a third of small companies that enrolled in HAS/HDHP did not offer coverage previously. In Washington state, LifeWise insurance provider said more than half its new individual plan members who enrolled in the HSAs were previously uninsured.

The Keiser Family Foundation estimates that 45 million Americans lack health insurance coverage. In an October 2004 survey by KFF, more than half of the uninsured respondents said cost was the main reason (half of those had the option of an employer-sponsored plan).

Health insurance premium costs have seen double-digit rate increases in recent years, along with a significant rise in out-of pocket expenses. The HSAs are being promoted as a way for working Americans to save money on their health insurance as well as take more charge of their health care options.

“The money in your Health Savings Account is your own. This means your employer cannot tell you what to do with your own money or restrict what you can spend on it. Since it is your money, it goes with you when you change jobs,” wrote Dan Perrin, publisher of the online HSA Insider, in “HSA Road Rules” published by the HSA Coalition. “You are in charge of your Health Savings Account funds, making you and your doctor the decision makers, not some third party.”

Several banks now offer HSAs, but their fees vary widely so consumers should shop around. Kitsap Bank, for example, started offering the accounts earlier this year. In some cases, employers set up payroll deductions, and in others individuals open their own accounts.

“For people with a high deductible insurance, this is a good product,” said Kitsap Bank Customer Service Representative Margaret Eddy, adding that it doesn’t involve much more paperwork than a regular account.