Health Savings Accounts
A win-win for Illinois public
employees and taxpayers
Executive Summary
When it comes to health insurance, Illinois
September 29, 2010
faces a looming dilemma. State government
spending on core services is increasingly
squeezed by the growing cost of providing
health insurance to state employees and retirees.
Meanwhile, state workers face limited options
when it comes to the type of health insurance
they can choose for themselves and their
families.
Illinois taxpayers and the state budget could
realize significant savings by adopting Health
Savings Account-qualified Consumer Directed
Health Plans (HSA/CDHPs) while providing
state civil service employees and non-Medicare
retirees more savings, choice, and control over
Policy Brief
their healthcare needs and expenses.
Health insurance costs for state civil service
employees and non-Medicare retirees make
up a sizable portion of the Illinois state
budget. National trends compiled by The Segal
Company suggest increases of 10.3 percent
and 10.0 percent in the cost of PPO and
HMO health insurance plans, respectively, for
2010, and increases of 10.8 percent and 10.0
percent for 2011.1 A straight line projection
of 10 percent annual increases indicates that
health insurance premiums in 2023—for the
same number of employees and non-Medicare
retirees as in 2011—would cost $4.939 billion
per year. This amounts to a 214 percent
increase over the $1.574 billion per year cost
projected for fiscal year 2011.
Jim Porterfield is a healthcare/HSA policy analyst based in Illinois. Kristina Rasmussen is executive vice president of the Illinois
Policy Institute.
By adopting HSA/CDHPs, these costs can
be reduced significantly without sacrificing
quality insurance options. When compared
to the state’s HMO and Quality Care Health
Plan premium costs for fiscal year 2011,
properly-structured health savings account
reforms could allow the state budget to show
a savings every year through 2023. Under the
three scenarios examined in this study, Illinois
taxpayers could save as much as $18 billion to
$27 billion between 2011 and 2023. Moreover,
state employees and non-Medicare retirees
can also save on FICA and federal income
taxes while building savings for day-to-day
and unexpected current and future health care
expenses.
The Problem
General state revenues are expected to stay
flat between fiscal year 2010 and 2011 due to
a variety of economic and fiscal challenges.
Increasing health insurance costs for state
employees puts pressure on other government
spending, including programmatic and grant
funding. The State of Illinois needs to pursue
quality, cost-effective health insurance options
for state employees in order to help maintain
core services and also balance the budget.
The State Employees’ Group Insurance
Program provides coverage for state employees,
retirees, and dependents in the areas of
medical, dental, vision, and life insurance. The
state offers two primary medical insurance
 Page 2 of 26

plans, the Quality Care Health Plan (QCHP)
and an HMO-style managed plan. According
to the 2011 Segal Health Plan Cost Trend Survey
released September 16, 2010, all 2011 medical
plan types are projected to experience cost
trends that are more than eight times higher
than the consumer price index for all urban
consumers.2
The Illinois Commission on Government
Forecasting and Accountability’s March 2010
report3 notes that individual employees pay

Graphic 1. FY 2011 State Contributions and Enrollment

Empl + Dep
Employee # of % of State Employee Dependent Total
share of
QCHPs Employees Employees Share Share Share Premium
Total %
Employee
Plus Medicare 53 0.2% $815.69 $89.73 $142.03 $1,047.45 22.1%
Dependent
Employee
Plus 2+ 5,575 22% $1,333.43 $89.73 $231.83 $1,654.99 19.4%
Dependent
Employee
Plus 1 5,502 22% $1,129.03 $89.73 $197.72 $1,416.48 20.3%
Dependent
Employee
14,126 56% $619.17 $89.73   $708.90 12.7%
Only
Subtotal 25,256            
The State of Employee Managed Care (HMOs)
Employee
Illinois needs Plus Medicare 91 0% $767.16 $60.00 $89.55 $916.71 16.3%
Dependent
to pursue Employee
quality, Plus 2+
Dependent
29,906 36% $1,235.19 $60.00 $135.47 $1,430.66 13.7%

cost-effective Employee
Plus 1 20,405 24% $922.15 $60.00 $94.95 $1,077.10 14.4%
health Dependent
Employee
insurance Only
33,591 40% $526.86 $60.00   $586.86 10.2%

options Subtotal 83,993

Non-Medicare Retirees QCHPs*
   
 
 
 
 
 
 
 
 
 
for state Non-
Medicare 13,135   $877.44 $13.98   $891.42 1.6%
employees in Only

order to help Non-

Medicare 4,919     $211.70      

maintain core Plus 1

Subtotal* 18,054            
services and Non-Medicare Retirees HMOs*          
Non-
also balance Medicare 13,526   $615.63 $12.57   $628.20 2.0%
Only
the budget. Non-
Medicare 5,661     $108.32      
Plus 1
Subtotal* 19,187            
Total 146,490            

* A Non-Medicare Plus 2+ category which represents the number of dependents for both Medicare and Non-Medicare retirees was not
included in the analysis because it was not possible to separate out dependents for only Non-Medicare Retirees.
Source: Compiled from Freedom of Information Act requests submitted by the Illinois Policy Institute
 Page 3 of 26
about 11.0 percent of medical premium costs.
Actual premium costs for fiscal year 2011, as
indicated in Graphic 1, show that employees
with one dependent pay 14.4 percent (HMOs)
to 20.3 percent (QCHPs) of the total cost.
Employees with two dependents pay 13.7
percent (HMOs) to 19.4 percent (QCHPs) of
the cost. Non-Medicare retirees pay an average
of $12.57 (HMOs) or $13.98 (QCHPs) per
month—or only 2.0 percent and 1.56 percent,
respectively—of the premium cost.
Health care coverage for state employees and
non-Medicare retirees is a significant budget
item. Including individuals and those with one
dependent, there are 18,054 non-Medicare
retirees with QCHP plans and 19,187 with
HMOs. The state subsidizes the full cost of
the premiums for non-Medicare retirees if they
have 20 or more years of service, but their
dependents must pay part of the premium.
Employee premium sharing has not always
increased proportionately with premium
increases. For example, in fiscal year 2011, the
Health Alliance HMO for retirees with one
dependent increased its premium by 8 percent
(from $1,250 to $1,350 per month), but the
monthly contribution from the retiree for the
dependent stayed the same ($94 per month).
The total QCHP premium for non-Medicare
retirees with one dependent increased 15
percent (from $1,639 to $1,885 per month),
Graphic 2. Annual Cost Per Participant in the Group Health Insurance Program
Source: Commission on Government Forecasting and Accountability (COGFA)
but again, the monthly contribution from the
retiree for the dependent stayed the same ($196
per month.)4
Given the
According to the Illinois Commission on
Government Forecasting and Accountability financial
(CGFA), the cost per participant in the
State Employees’ Group Insurance Program
realities
increased by 72 percent between fiscal year of these
2003 and fiscal year 2011, going from $3,735 to
$6,449 per person.5 challenging
Given the financial realities of these challenging
economic
economic times, addressing rising civil service times,
health care costs is a critical issue for state
lawmakers. addressing
rising civil
The Solution
One way to solve the problem of rising civil service health
service health care costs is to offer a Health
Savings Account-eligible insurance option to
care costs
Illinois state employees and retirees. is a critical
The benefits of expanding the health insurance issue for state
options of State of Illinois employees to
include a Health Savings Account-eligible plan
lawmakers.
are twofold:
1. State employees will benefit from the
choice of a plan that comes with lower
premiums and the potential to increase
take-home pay, while maintaining access
to quality care.
 Page 4 of 26
2. Illinois’s budget will benefit from cost
savings.
What is an HSA?
As defined by the U.S. Department of the
Treasury:
A Health Savings Account is an
alternative to traditional health
insurance; it is a savings product that
offers a different way for consumers to
pay for their health care. HSAs enable
you to pay for current health expenses
and save for future qualified medical
and retiree health expenses on a tax-
free basis.
Owners of a Health Savings Account may
deposit pre-tax dollars into their account.
These funds can in turn be used to pay for
approved medical expenses, including doctor
Funds in visit co-pays, prescription drugs, surgery costs,
and therapy. In 2010 and 2011, individuals
Health can make a maximum contribution to their
Savings Health Savings Account of $3,050. For family
coverage, the maximum contribution is $6,150.6
Accounts In many instances, the employer will make a
contribution to the account, and the employee
accumulate may make up the rest until the yearly maximum
over time, is reached.
earn interest Unlike Flexible Spending Accounts, unused
funds don’t “disappear” at the end of the year.
tax-free, Rather, funds in Health Savings Accounts
and can even accumulate over time, earn interest tax-free, and
can even be willed to surviving beneficiaries.
be willed to Here’s how the U.S. Department of the
surviving Treasury describes HSA ownership:
beneficiaries. You own and you control the money in
your HSA. Decisions on how to spend
the money are made by you without
relying on a third party or a health
insurer. You will also decide what
types of investments to make with the
money in the account in order to make
it grow.
A Health Savings Account is paired with a
Consumer Directed Health Plan (CDHP). In a
Consumer Directed Health Plan, the consumer
Source: America’s Health Insurance Plans
is expected to pay health costs incurred up
to the deductible out of their own pocket—
primarily from the Health Savings Account.
According to the Internal Revenue Service, the
minimum annual deductible of a CDHP for
2011 is $1,200 for individuals and $2,400 for
families (these limits are adjusted annually for
inflation). After the deductible is reached, and
depending upon how the policy is structured,
the consumer may have to pay co-pays similar
to an ordinary insurance plan. The maximum
annual deductible and other out-of-pocket
expenses limit for 2011 is $5,950 for individuals
and $11,900 for families (these limits are
adjusted annually for inflation), although in
many cases the limits are much lower. The ideal
plan would eliminate co-pays and co-insurance
and make the maximum out-of-pocket limit the
same amount as the deductible.
HSA/CDHP plans first became available in
2004. Well-structured HSA-qualified CDHPs
have kept premium increases fairly low, from
1.0 to 3.5 percent per year, while traditional
PPO and HMO increases have tended to
average between 5 and 10 percent per year.
According to the U.S. Department of the
Treasury, “An CDHP generally costs less than
what traditional health care coverage costs,
so the money that you save on insurance
can therefore be put into the Health Savings
Account.”
Approximately 10 million Americans
nationwide are now covered by HSA/CDHP
products, up 25 percent from January 2009.7 In
Illinois, 574,553 people were covered by Health
Savings Account-eligible plans as of January
2010, up from 383,922 enrollees two years
prior.
Graphic 3. Total Illinois Enrollment
in HSA/CDHP Plans and as a
Percentage of Total Enrollment in
Private Health Insurance
  Total Enrollment Percentage
January 2010 574,553 6.30%
January 2009 497,340 n/a
January 2008 383,922 4.70%
 Page 5 of 26

HSAs vs. Traditional Approaches much it might cost. However, when the money
is in the hands of the consumers, making
The traditional approach of having four health them responsible for paying the bills for non-
care plans in one turns out to be an increasingly insurable events, behavior patterns change During the
expensive proposition. A base plan starts out instantly.
with major medical coverage. Over the years, first year
office visit plans, prescription drug plans and
lab/procedure plans have been rolled into the
HSAs in the Hoosier State
the Health
original plan. Graphic 4 shows an example of Take Indiana as an example. Indiana’s success Savings
how these plans each add costs to the base with Health Savings Accounts for government
major medical plan, eventually amounting to up workers should be instructive to Illinois. Upon Account
to 55 percent of the total premium cost.8 entering office, Indiana Governor Mitch
Daniels directed the state to add a Health
option was
To put it simply, why would anyone pay $80 per Savings Account option to its conventional offered in
month or $960 per year just to have an office health insurance offerings.11
visit co-pay plan, which requires them to then 2006, just
plunk down $20 per office visit on top of the For Indiana employees electing the HSA 4 percent of
$960 per year they paid in premium to be able option, the state covers the plan’s premium
to do so? Just two doctor visits per year would and deposits $2,750 into an account controlled employees
actually cost a person $1,000 per year under the by the employee. The funds can then be used
traditional approach. If each office visit truly to pay health bills. Unused funds belong
signed up. In
costs only $100, then under the HSA/CDHP to the individual worker; more than $30 2010, over
approach, the cost could be paid out of the million—about $2,000 per employee—are in
Health Savings Account and that person would the accounts. For employees who use up their 70 percent
still be $800 ahead. Even a family of four, with
each person making two office visits per year,
entire account balance (in 2009, this amounted
to only 6 percent of employees), the state
of 30,000
would pay only $800 with the HSAs (for a total further shared health costs up to the out-of- Indiana state
of 8 office visits). The HSA/CDHP would save pocket maximum of $8,000; beyond this, the
them $320 compared to using a “traditional” employee’s care is completely covered by the workers chose
PPO or HMO, which include $20 office visit
co-pays that in reality would cost a total of
plan. the HSA.
$1,120. During the first year the Health Savings
Account option was offered in 2006, just 4
Moreover, what many consumers have not percent of employees signed up. In 2010, over
recognized is that third-party payment of 70 percent of 30,000 Indiana state workers
non-insurable events is the cause of rising chose the HSA. Only 3 percent have opted to
premiums.10 As long as someone else is paying switch back to a standard PPO offering after
for care, money is no object. In this system, enrolling with an HSA, indicating a high level
the consumer rarely questions whether a test of satisfaction.
or procedure or pill is truly needed or how
Graphic 4. Relative Costs of Traditional Healthcare
Plans vs. HSA/CDHP Approaches9
Traditional Approach: Four Plans in One HSA/CDHP Approach
Buy CDHP only Put Rest in HSA
Major Medical Plan $180 $180
Office Visit Plan $80 $80
Prescription Plan $80 $80
Lab/Procedure Plan $60 $60
Monthly Totals $400/mo $180/mo $220/mo
Annual Totals $4800/year $2,160/year $2,640/year
 Page 6 of 26
Indiana state employees enrolled in the HSA
option will save more than $8 million in 2010
compared to workers in the PPO option.
Governor Daniels notes that Health Savings
Accounts allow workers to add thousands
of dollars to their take-home pay, which is
especially important in years when the state has
delayed salary increases due to tight budgets.
Indiana’s employees are not the only ones
benefiting from the Health Savings Accounts;
they’ll help save the state at least $20 million
in 2010. Mercer Consulting, an independent
health care consulting firm, estimates that
Indiana will save 11 percent on its total health
care costs, thanks to the HSA option.
Health Savings Accounts have a demonstrable
impact on behavior. Indiana found that in 2009,
state workers with HSAs visited emergency
rooms and physicians 67 percent less frequently
than co-workers in traditional care. HSA
Indiana’s holders were more likely to use generic drugs,
and they were admitted to hospitals less than
HSA half as often as colleagues with traditional
participants coverage. In sum, HSA participants incurred
$65 in costs for every $100 incurred by
incurred $65 associates who kept the old coverage. The
growth in HSA participation rates, meanwhile,
in costs for suggests that users are more than happy with
every $100 the HSA coverage and that it meets their health
care needs.
incurred by
Governor Mitch Daniels believes that good
associates incentives go a long way toward positively
who kept the impacting behavior, and therefore, cost:
old coverage. It turns out that, when someone is
spending his own money alone for
routine expenses, he is far more likely
to ask the questions he would ask if
purchasing any other good or service:
“Is there a generic version of that
drug?” “Didn’t I take that same test
just recently?” “Where can I get the
colonoscopy at the best price?”
It is important to note that lower costs do not
indicate lower levels of health care. Mercer
Consulting, the group that studied Indiana’s
plan, could find no evidence that HSA
participants were denying themselves needed
care in order to save money.
Federal Government and Other States
Indiana isn’t alone in offering its employees a
consumer-driven health insurance choice; the
federal government also offers a Health Savings
Account option to its employees.12
In addition, according to a 2009 survey of
health benefits by The Segal Company, 17
states offer a Consumer Directed Health Plan
to state employees.13 These plans may or may
not be paired with a Health Savings Account
plan. In the Midwest region, 4 out of 12 states
offer Consumer Directed Health Plans.
A July 2010 survey conducted by the Illinois
Policy Institute found that the 19 states
indicated in Graphic 5 offered a CDHP and/
or an HSA to state workers. It’s worth noting
that employees with an HSA-eligible health
plan can still set up a health savings account
even if one is not directly arranged by the state
(although a state-arranged HSA can be useful
in streamlining regular payroll deductions
to the account). Not all states offer HSA
contributions as generous as Indiana’s plan, but
the increased choices still benefit state workers.
Plans Meet Taxpayer Action Board Recommendations
In its June 2009 report on identifying budgetary
savings, the Illinois Taxpayer Action Board
recommended a number of strategies for
containing state employee healthcare costs,14
including:
• Addressing the significant cost differential
between the QCHP and the other plan
offerings;
• Modifying plan design, such as changing
deductible amounts, copayments, and out-
of-pocket maximums;
• Modifying behaviors in ways that further
benefit the state and covered individuals
(e.g., encourage use of primary care
physicians over emergency rooms); and
• Offering premiums linked to coverage
levels, with the option of lower premiums
with more responsibility for costs.
 Page 7 of 26

Graphic 5. State Employee Access to CDHPs and HSAs

Offers HSA- State
State State’s Monthly HSA Contribution
eligible CDHP offers HSA
Arizona yes yes Single: $42, Family: $83 Health
Arkansas yes no Facilitates HSA with payroll deduction privileges Savings
Colorado yes yes Does not contribute
Single: $41.66 ($500 per annum), Family: $83.33 ($1,000 per
Accounts and
Florida yes yes
annum) Consumer
Georgia yes no Does not contribute
Idaho yes no Does not contribute Directed
CDHP Plan 1, Single: $114.66 ($1,375.92 per annum), Family: Health Plans
Indiana yes yes $229.19 ($2,750.28 per annum), CDHP Plan 2, Single: $68.90
($826.80 per annum), Family: $137.54 ($1,650.48 per annum) encourage
Kansas yes yes Single: $75.00, Family: $112.50
Initial contribution of $100 and the state will match up to an
consumers
Louisiana yes yes
additional $400 in employee contributions per year to be aware
Minnesota yes yes Single: $58.32, Family: $116.66
Mississippi yes no Does not contribute
of costs
Missouri yes yes Single and Family: $50 and spend
Oklahoma yes yes Does not contribute
South
judiciously
yes no Does not contribute
Carolina while at the
South
Dakota
yes yes Initial contribution of $300 upon opening HSA
same time
Utah yes yes Single: $90, Family: $180
Virginia yes no Does not contribute
allowing
West
yes yes Does not contribute them to put
Virginia
Wyoming yes yes Does not contribute away tax-free
Source: compiled by the Illinois Policy Institute savings for
A Consumer Directed Health Plan paired Why This Works
future health
with a Health Savings Account incorporates Health Savings Accounts coupled with qualified care needs.
many of the cost-containment reform Consumer Directed Health Plans (HSA/
recommendations of the Taxpayer Action CDHPs) could help balance the state budget
Board. and help taxpayers save significant amounts
in future taxes. They will also provide the
Taken together, Health Savings Accounts and participants with more choice, and will save
Consumer Directed Health Plans encourage them, and any dependent they choose to cover
consumers to be aware of costs and spend with the plan, a substantial amount of money.
judiciously while at the same time allowing
them to put away tax-free savings for future This study analyzes three HSA/CDHP options
health care needs. The benefit to employers—in in detail (See Appendix A for a complete
this case, the State of Illinois—is that HSA/ discussion of the underlying methodology).
CDHP plans generally come with lower Each option was assumed to have 10 percent
premiums than traditional health insurance annual increases in HMO/QCHP premiums,
plans. This allows employers to split the savings 5 percent increases in CDHP premiums, no
between state employees (direct contributions change in the number of individuals covered
into a worker’s HSA) and taxpayers (deficit (model assumes all were enrolled in the
reduction). HSA/CDHP plan), and an increase in state
 Page 8 of 26
contributions to HSAs of 1 percent per year.
• Option 1 provided more budgetary
savings, but less benefit to employees and
non-Medicare retirees.
• Option 2 is a mid-range estimate that
could be a win-win for all parties.
• Option 3 provided less budgetary savings,
but more benefits to employees and non-
Medicare retirees.
Option 1
By 2023, under Option 1, if employees and
non-Medicare retirees (NMRs) were assumed
to pay 30 percent of the CDHP premiums,
and the state contributed 15 percent of the
maximum allowed to the HSAs during the first
year and increased it 1 percent per year after
that, then the following could occur:
• State budget would save $915 million in
Under the first year. Savings would decline to
$457 million per year by the thirteenth
Option 1, year. Illinois taxpayers would save an
the average estimated total of $9.2 billion in real
savings (available for deficit reduction)
taxpayer over 13 years compared to 2011’s costs.
• A total of $27 billion is saved over 13
saves $5,222 years compared to projected cost curves.
over 13 years. • Average taxpayer saves $5,222 over 13
years.
• State employees and NMRs could save an
average of $1,435 up to $2,900 on FICA
and federal income taxes over 10 years.
This could be more if federal income
tax rates revert back to pre-Bush tax cut
levels.
• State employees and NMRs would have
an average of $0 (zero dollars) in their
HSAs after medical expenses in years
2011 and 2020, respectively, although
they could choose to contribute over
and above the 15 percent funded by the
state, which would leave them with more
in their accounts. Participants who are
age 55 and older could put an additional
$1,000 per year of their own money into
the HSAs.
• Cumulative savings on premiums for
dependents of these employees and
NMRs could range from $12,700 up to
$34,991 over 10 years.
Option 2
By 2023, under Option 2, if employees and
non-Medicare retirees (NMRs) were assumed
to pay 20 percent of the CDHP premiums,
and the state contributed 65 percent of the
maximum allowed to the HSAs during the first
year and increased it 1 percent per year after
that, then the following could occur:
• State budget would save $500 million
in the first year, declining to no savings
in 2021. Illinois taxpayers would save
an estimated total of $3.2 billion in real
savings (available for deficit reduction)
over 11 years compared to 2011’s costs.
• A total of $21 billion is saved over 13
years compared to projected cost curves.
• Average taxpayer saves $4,062 over 13
years.
• State employees and NMRs could save an
average of $6,225 up to $12,555 on FICA
and federal income taxes over 10 years.
This could be more if federal income
tax rates revert back to pre-Bush tax cut
levels.
• State employees and NMRs would have
an average of $1,325 and $29,918 in their
HSAs after medical expenses in years
2011 and 2020, respectively. They could
also contribute the other 35 percent to
the HSA and put an additional $1,000 per
year of their own money into the HSAs if
they are age 55 and older.
• Cumulative savings on premiums for
dependents of these employees and
NMRs could be from $12,700 up to
$34,991 over 10 years.
Option 3
By 2023, under Option 3, if employees and
non-Medicare retirees (NMRs) were assumed
to pay 10 percent of the CDHP premiums,
and the state contributed 90 percent of the
maximum allowed to the HSAs during the first
year and increased it 1 percent per year after
that, then the following could occur:
• State budget would save only $252 million
the first year, declining to no savings in
2017. Illinois taxpayers would save an
estimated total of $0.8 billion in real
 Page 9 of 26

savings (available for deficit reduction) would have if the state fully subsidized the
over 6 years compared to 2011’s costs. QCHPs/HMOs. On average, this would be
• A total of $18 billion is saved over 13 true for Option 2 as well (with the exception
years compared to projected cost curves. of the employee with 2 dependents, who would Option 2
• Average taxpayer saves $3,481 over 13 have a slightly negative cash position by 2020).
years. is shown as
• State employees and NMRs save an Option 1 is unlikely to be adopted because one possible
average of $8,625 to $17,385 on FICA employees and NMRs will perceive little or
and federal income taxes over 10 years. no benefit from the HSAs, as they all would midpoint
State employees and NMRs have an have an average of $0 in the HSAs after 10
•
average of $2,110 (employee only) up years due to the low level (15 percent) of
where
to $48,866 (employee + 1 dependent) state dollars contributed to the HSAs. Non- taxpayers,
in their HSAs after medical expenses in Medicare retirees would find themselves in an
years 2011 and 2020, respectively. They increasingly negative cash position each year employees,
could also contribute the other 10 percent
to the HSA and put an additional $1,000
compared to their current position, where
the state fully subsidizes the HMO/QCHP
non-Medicare
per year of their own money into the premiums for those with 20 or more years of retirees and
HSAs if they are age 55 and older. service. There would, however, be noticeable
• Cumulative savings on premiums for premium savings for any dependents they the state’s
dependents of these employees and
NMRs could range from $12,700 up to
might have on the HSA/CDHP plans. budget can
$34,991 over 10 years. Option 2 is shown as one possible midpoint all see real
where taxpayers, employees, non-Medicare
Options 1 and 3 are generally on the upper retirees and the state’s budget can all see real benefits.
and lower ends of offerings to consider for benefits. Analysis of the various options in
HSA/CDHPs. Employees and NMRs would Graphic 6 suggests there may be a win-win
find Option 3 to be quite attractive because target zone for the state to fund somewhere
of the average positive cash position, which between 60 to 90 percent of the maximum
leaves more money in their pockets each year allowable contribution to the HSAs, pay 80
from the state contribution to the HSAs (after to 90 percent of the premium, and still find
subtracting average medical expenses and their budgetary savings for the next 11 to 13 years.
10 percent of the CDHP premium) than they This is compared to the base of $1.574 billion

Graphic 6. Illinois State Employees & Non-Medicare Retirees

Average Cumulative HSA Savings Over 10 Years vs. Savings
to State ofEmployees
IL State Switching from HMO/QCHPs
& Non-Medicare to HSA/CDHP
Retirees Average Cumulative HSA Savings and
Employees Payvs.10%,
Over 10 years Savings20%,
to Stateor 30% ofFrom
of Switching CDHP Premiums
HMO/QCHPs
to HSA/CDHP and Employees Pay 10%, 20% or 30% of CDHP Premiums
$700 $60,000
HSAs for EM+2 Dep EM or NMR +1 EM or NMR Only Savings to State
$597
$600 Opt 3 EM pays 10% of CDHP
$48,866 $50,000
EM or NMR+1
State Savings in 2020 $/yr x (000,000)

$500 Opt 2 EM pays 20%

Avg. Cum. in HSAs in 2020 ($)

Win - Win $40,000

Target Zone
$35,584 EM+2
$400
$29,918 $30,000
$300
$24,180 EM or NMR Only Opt 1 EM pays
30% of CDHP $20,000
$200 $16,636 $0 in All HSAs
$14,784

$107 $10,000
$100

$0
$0 $0 $0
% State contributes to HSAs
100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15%

Estimated Average Cumulative $ in Employee+2 Deps HSAs in 2020

$43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0 $0
 Page 10 of 26

Three Possible HSA/CDHP Healthcare Plans

For State of Illinois Employees and Non-Medicare Retirees

Graphic
Graphic 7. Option
7. Option 1 State
1 State Contributes 15%
Contributes 15%to
toHSAs
HSAsand Employees
and Pay Pay
Employees 30%30%
of CDHP Premiums
of CDHP Premiums
5000
Savings

4939
available for
4000 Deficit
Option 1 Reduction
Taxpayers Avoid
Under Option 1, after average medical
1,000,000 $/year

Total State
3000
$27 Funds to expenses, employees will have an average
Billion in Taxes HSAs of $0 in their HSAs after 10 years and will
2000 State saves $9.2 billion over 13 years have a negative cash position of
CDHP -$17,000 to -$28,000 from paying 30
640 597 553 506 457
Premiums
1574

915 886 855 824 790 755 718 680 113 $/yr percent of the premiums.
109 110 111 112
1000
106 107 108
101 102 103 104 105

1003
955
910
866
825
786
748
713
2015 679
2014 647
2013 616
2012 586
2011 558

Total
0 HMO/QCHP
2011

2016

2017

2018

2019

2020

2021

2022

2023

2023
Prem in 2011
& Est. 2023

Graphic 8. Option
Graphic 2 State
8. Option 2 StateContributes 65%toto
Contributes 65% HSAs
HSAs andand Employees
Employees Pay of
Pay 20% 20% of CDHP
CDHP Premiums
Premiums
5000
Savings
4939

available for
4000 Deficit
Option 2 Reduction
Taxpayers Avoid Under Option 2, after average medical
1,000,000 $/year

Total State
3000
$21 Funds to expenses, employees will have an average
Billion in Taxes HSAs of $14,000 to $29,000 in their HSAs after
2000 State saves $3.2 billion over 11 years 10 years and most will have a positive cash
53 0 0 CDHP position.
208 159 107
500 463 425 386 344 301 256 486 491 Premiums
1574

472 477 481

453 458 463 467 $/yr
436 440 444 449
1000
1146
1092
1040
990
943
898
855
815
776
739
704
2012 670
2011 638

Total
0
HMO/QCHP
2011

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023

Prem in 2011
& Est. 2023

Graphic 9. Option
Graphic 3 State
9. Option 3 StateContributes 90%toto
Contributes 90% HSAs
HSAs andand Employees
Employees Pay of
Pay 10% 10% of CDHP
CDHP Premiums
Premiums
5000
Savings
4939

available for
4000 Deficit
Option 3 Reduction
Taxpayers Avoid Under Option 3, after average medical
1,000,000 $/year

Total State
3000 $18 Funds to expenses, employees will have an average
Billion in Taxes HSAs of $24,000 to $49,000 in their HSAs after
State saves $0.8 billion over 6 years
2000 0 0 0 10 years and most will have positive cash
0 0 0
167 121 73 680 23 0 CDHP positions ranging from $18,000 to $42,000.
252 210 666 673
647 653 660 Premiums
1574

628 634 640

1000 603 609 615 622 $/yr
1290
1228
1170
1114
1061
1010
962
916
873
831
792
754
718

Total
0
HMO/QCHP
2011

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023

Prem in 2011
& Est. 2023
 Page 11 of 26

Graphic 10. Summary of Potential Results for State of Illinois Employees and Non-Medicare
Retirees Using HSAs/CDHPs Instead of Current HMOs/QCHPs
   Option 1   Option 2   Option 3 
More Benefit to State Budget, Less Less Benefit to State Budget,
Benefit to Employee with HSA/ Mid-Range Option with HSA/CDHP More Benefit to Employee with HSA/
Assumptions CDHP Employee pays 30% Employee pays 20% of Prem CDHP Employee pays 10% of
of Prem State contributes State contributes 65% to HSAs Prem State contributes 90%
15% to HSAs to HSAs
Year 2011 to 2020 2011 to 2020 2011 to 2020
# Employees with HMOs +QCHPs
+ Non-Medicare Retirees (NMR 146,490 to 146,490 146,490 to 146,490 146,490 to 146,490
and NMRs+1)
HMOs & QCHPs % increase/yr 10% to 10% 10% to 10% 10% to 10%
CDHP % increase/yr 5% to 5% 5% to 5% 5% to 5%
St CDHP Prem Em +2 Dep $/mo $438 to $679 $500 to $776 $563 to $873
St CDHP Prem Em +1 Dep $/mo $286 to $444 $327 to $508 $368 to $571
St CDHP Prem Em Dep $/mo $209 to $325 $239 to $371 $269 to $417
St CDHP Prem NMR +1 Dep $/mo $375 to $581 $428 to $664 $482 to $747
St CDHP Prem NMR $/mo $361 to $559 $412 to $639 $464 to $719
HSAs Contribution increase%/yr 1% to 1% 1% to 1% 1% to 1%

Average Results for Employees and Non-Medicare Retirees        

Year 2011 to 2020 2011 to 2020 2011 to 2020

State Funds to Em and NMR’s

$458 to $500 $1,983 to $2,168 $2,745 to $3,002
HSAs $/year

State Funds to Em+1 or Em+2

$923 to $1,009 $3,998 to $4,372 $5,535 to $6,054
and NMR+1’s HSAs $/yr

Average Cumulative Amount in HSAs (after Avg Medical Expenses) $/Employee

Em + Medicare Dep $0 to $0 $2,679 to $29,918 $3,916 to $48,410

Em + 2 Deps $0 to $0 $1,746 to $16,636 $3,330 to $35,584
NMR or Em + 1 Dep $0 to $0 $2,679 to $29,918 $4,262 to $48,866
NMR or Employee only $0 to $0 $1,325 to $14,784 $2,110 to $24,180

Cumulative CDHP Premiums Paid by Employee or NMR $ 

Em + Medicare Dep $1,433 to $18,023 $955 to $12,015 $478 to $6,008

Em + 2 Deps $2,250 to $28,300 $1,500 to $18,867 $750 to $9,433
NMR or Em + 1 Dep $1,624 to $20,421 $1,082 to $13,614 $541 to $6,807
NMR or Employee only $1,336 to $16,799 $890 to $11,199 $445 to $5,600

Cash Position with HSA/CDHP $ (Cumulative in HSAs minus Cum CDHP Premiums)

Em + Medicare Dep -$1,433 to -$18,023 $1,723 to $17,903 $3,438 to $42,403

Em + 2 Deps -$2,250 to -$28,300 $246 to -$2,231 $2,580 to $26,151
NMR or Em + 1 Dep -$1,624 to -$20,421 $1,596 to $16,304 $3,721 to $42,059
NMR or Employee only -$1,336 to -$16,799 $434 to $3,584 $1,665 to $18,581

Avg FICA &Tax Savings $/yr

Em + Medicare Dep $277 to $303 $1,199 to $1,312 $1,464 to $1,816

Em + 2 Deps $277 to $303 $1,199 to $1,312 $1,661 to $1,816
NMR or Em + 1 Dep $277 to $303 $1,199 to $1,312 $1,661 to $1,816
NMR or Employee only $137 to $150 $595 to $650 $824 to $901
 Page 12 of 26
Graphic 11. Cumulative Premium Savings for Dependent/s Using HSA/
CDHPs $ and Savings for State
  Option 1   Option 2   Option 3 

Cumulative Premium Savings for Dependent/s using HSA/CDHP $*      

Year 2011 to 2020 2011 to 2020 2011 to 2020
QCHP Em +2 Dep* $2,782 to $34,991 $2,782 to $34,991 $2,782 to $34,991
QCHP Em + 1 Dep $2,373 to $29,843 $2,373 to $29,843 $2,373 to $29,843
HMO Em +2 Dep $1,626 to $20,447 $1,626 to $20,447 $1,626 to $20,447
HMO Em + 1 Dep $1,139 to $14,331 $1,139 to $14,331 $1,139 to $14,331
NMR QCHP + 1 Dep $2,373 to $29,843 $2,373 to $29,843 $2,373 to $29,843
NMR HMO + 1 Dep $1,010 to $12,700 $1,010 to $12,700 $1,010 to $12,700

Savings for State and Taxpayers 

Year 2011 to 2023 2011 to 2023 2011 to 2023

$0 in
State Saves $million/yr ** $915 to $457 $500 to $252 to $0 in 2017
2022
State’s Budget Savings over
13 yrs compared to QCHP
$9.2 $3.2 $0.9
& HMO Premiums in 2011
($Billion)

In addition Total Savings to Taxpayers

$27 $21 $18
to the savings over 13 years ($Billion ***)

on premiums * Savings on premiums by using HSA/CDHP instead of employees or Non-Medicare Retirees paying partial cost of QCHP or HMO
premiums.

and savings ** By switching to HSA/CDHPs, the total cost to the state to provide funds for both premiums & HSAs at the indicated amounts
represents a savings vs. the current $1,574 million/yr it would spend for QCHPs and HMOs for employees, Non-Medicare retirees and

in the dependents.
*** Taxpayers save the difference between the current $1,574 million/year for employees and non-Medicare retirees and the amount it
HSAs, would cost if premiums continued to increase at 10%/year and state continued to pay current % of QCHP/HMO premiums.

savings Graphic 12. Estimated Cumulative Average Savings of

FICA and Federal Income Taxes over 10 Years
on FICA Option 1 Option 2 Option 3

and federal Employee or NMR

Employee or NMR with Dependents
$1,436
$2,897
income taxes
per year, which is the state’s portion of the
are another HMO/QCHP premiums that were calculated
benefit. for fiscal year 2011. See Appendix B for
supplementary graphics and analysis.
Of the twelve main factors affecting HSAs,
only two were allowed to vary for this analysis,
namely, Percent of State’s Contribution to
HSAs (15 percent, 65 percent, and 90 percent)
and Percent of Premium Paid by Employees
(10 percent, 20 percent, and 30 percent). See
Appendix A for a complete discussion of the
underlying methodology. Therefore, there
$6,226
$12,554
$8,620
$17,383
is a wide range of other options that could be
examined to determine which combination is
best for Illinois. In addition to the savings on
premiums and savings in the HSAs, savings
on FICA and federal income taxes are another
benefit.
Under Option 1, starting at age 55, the
average non-Medicare retiree would have
an estimated $14,784 in their HSA at age 65
(after medical expenses) and would have saved
$1,436 (individual) or $2,897 (NMR+1 or 2+
Dependent/s) in FICA and federal income
 Page 13 of 26
taxes. Over 10 years, the same FICA and federal
income tax savings would be similar for any
employee. Another benefit to some retirees
would be that cumulative savings dependent
on the plan would save the policy holder from
$12,700 up to $34,991 over the 10 years (see
Graphic 11).
For Option 2, starting at age 55, the average
non-Medicare retiree would have an estimated
$14,784 in their HSA at age 65 (after medical
expenses) and would have saved $6,226
(individual) or $12,554 (NMR+1 or 2+
Dependent/s) in FICA and federal income
taxes. Over 10 years the same FICA and
federal income tax savings would be similar for
any employee. Premiums for any dependent
covered by a CDHP plan would be reduced by
a total ranging from $12,700 up to $34,991 over
10 years, compared to a fully-subsidized QCHP
where premiums were assumed to increase 10
percent annually.
For Option 3, starting at age 55, the average
non-Medicare retiree would have an estimated
$14,784 in their HSA at age 65 (after medical
expenses) and would have saved $8,620
(individual) or $17,383 (NMR+1 or 2+
Dependent/s) in FICA and federal income
taxes. Over 10 years, the same FICA and federal
income tax savings would be similar for any
employee.
Taxpayers are—and should be—expecting
more efficient use of the money that they send
to Springfield. And so HSAs/CDHPs will
undoubtedly deserve a serious look.
Conclusion
Public employees expect their employer, the
state government, to offer quality health care
benefits. Taxpayers expect their government
to get the “biggest bang” for their tax dollars.
During tough economic times and budget
crunches, the State of Illinois must look for
innovative new ways to offer quality benefits
while maximizing limited taxpayer resources.
Health Savings Accounts can help reconcile
these competing demands.
By offering a Health Savings Account-eligible
health insurance plan in addition to current
plans, state employees would benefit from more
choices, lower premiums, and an opportunity
to save thousands of dollars on a tax-free basis.
tate government, in turn, would benefit from Indiana’s
significant savings.
success with
Indeed, this study shows that Health Savings
Account/Consumer Directed Health Care
its HSA
Plan reforms could allow state budgets to program for
show a savings every year through 2023.
Illinois taxpayers could save as much as $18 to state workers
$27 billion between 2011 and 2023 under the
three scenarios examined in this study. State
provides a
employees and non-Medicare retirees (NMRs) path forward
can also save on FICA and federal income
taxes while building savings for day-to-day for Illinois.
and unexpected current and future health care
expenses.
In order to advance, any reform will need
the support of both taxpayers and public
employees. In our mid-range option, detailed as
Option 2, the state would provide 65 percent
of maximum funding to the HSAs and the
employee or NMR would pay 20 percent of
the CDHP premium. Illinois taxpayers would
benefit from an estimated total of $3.2 billion
in real savings (available for deficit reduction)
over 11 years compared to 2010’s costs. A total
of $21 billion would be saved over 13 years
compared to projected cost curves. Starting at
age 55, the average non-Medicare retiree would
have an estimated $14,784 in their HSA at age
65 (after medical expenses) and would have
saved $6,226 (individual) or $12,554 (NMR+1
or 2+ Dependent/s) in FICA and federal
income taxes. Premiums for any dependent
covered by a CDHP plan would be reduced by
an amount ranging from $12,700 up to $34,991
over 10 years, compared to a fully-subsidized
QCHP where premiums were assumed to
increase 10 percent annually. It’s a win-win for
everybody.
Indiana’s success with its HSA program for
state workers provides a path forward for
Illinois. State leaders should expand the state’s
insurance offerings to include Health Savings
Accounts, and provide the education employees
will need to understand its benefits.
 Page 14 of 26
Appendix A. Methodology
Three options were investigated to show • Average percent increase per year in
scenarios that range across a wide spectrum HMO/QCHP premiums (assumed to be
of twelve input factors and their results. Input 10 percent per year).
factors included: • Interest rate of 3 percent for funds
remaining in HSAs at year’s end.
• Average monthly premiums for HSA/ • Average of FICA and federal income tax
CDHPs. savings of 30 percent.
• Average percent increase per year in • Average medical expenses dollar amount
CDHP premiums (assumed to be 5 per year (see Graphics 13 and 14).
percent per year). • Average annual increase in medical
• Number of employees and non-Medicare expenses (assumed to be 5 percent per
retirees (assumed constant at 146,490). year for all but the top 8 percent of the
• Average percent change per year in population, which was assumed to use the
number of employees and non-Medicare maximum amount allowed by law to be
retirees (assumed as no change). contributed to the HSAs and increased
• Average dollar amount that the state at 1 percent per year. It further assumes
contributes to HSAs per year (analyzed the deductible and the maximum out-
for 15 percent, 65 percent and 90 of-pocket expenses are the same as the
percent). maximum allowable contribution to the
• Average annual percent increase in HSA HSAs).
contributions by the state (assumed to be
1 percent per year increase). The same average medical expense assumptions
• Average percent of premium paid by were used as an initial starting point in 2011 for
employees and non-Medicare retirees all three options as shown in Graphic 13. State
(assumed to be 30 percent, 20 percent and contributions to HSAs for the three options for
10 percent, respectively, for Options 1, 2, 2011 are also shown.
and 3).
Graphic 13. Average Medical Expenses and State
Contributions to HSAs in 2011
% of Ind or Families HSAs HSAs HSAs
  34% 34% 24% 8%
in Category OPT 1 OPT 2 OPT 3
Avg Med Exp $/ HSAs 15% of 65% Of 90% of
  $125 $500 $1,000
person Max Max Max Max
Factor for # of
Estimated Avg Medical Expense $/ $ Amount state contributes
Category People covered by
yr in 2011 to HSAs in 2011
policy
Empl + MC Dep x2 $250 $1,000 $2,000 $6,150 $923 $3,998 $5,535
Empl + 2+ Dep x4 $500 $2,000 $4,000 $6,150 $923 $3,998 $5,535
NMR or Empl +1 Dep x2 $250 $1,000 $2,000 $6,150 $923 $3,998 $5,535

NMR or Empl only x1 $125 $500 $1,000 $3,050 $458 $1,983 $2,745

Graphic 14. Estimated Average Medical Expenses

Based on Annual Average (%) Increases
Estimated Medical Expense in 2020
Initial Assumptions for Medical Expenses in 2011
At 5% Increase Per Year
34% of People spend $125/yr * $194
34% of People spend $500/yr * $776
24% of People spend $1,000/yr * $1,551
8% of People spend $3,050/yr ** $3,336
8% with +1 or 2+ Dependents spend $6,150/yr ** $6,726
*Assumes medical expenses for employees and non-Medicare retirees increase at the same rate as the HSA/CDHP
Premium increases after 2011 (5 percent per year)
** Assumes medical expenses increase at the same rate as the HSAs’ contribution increases (1 percent per year).
 Page 15 of 26
On average, Graphic 13 shows that 66
percent of CDHP participants are projected
to have more medical expenses than the state
would contribute to HSAs under Option 1
(at 15 percent of the maximum allowable
contribution). Under Options 2 and 3, only 8
percent of the family units would be expected
to have medical expenses that exceed the 65
percent and 90 percent of maximum allowable
contributions made to the HSAs by the state.
For the most part, these would not be the
same family units every year, unless there was
some major chronic illness in the family. But
even if they were to use up the entire HSA
contribution every year, they would only be
out the difference between that amount and
the deductible if the CDHP were structured
properly.
Estimated medical expenses were increased at
an annual average rate of 5 percent per year to
correspond to the 5 percent per year rate of
increase in the CDHP premiums.
Results were straight line projected out 13 years
to 2023 because under some sets of input
factors, there turned out to be possible savings
to the state budget every year for 13 years
compared to the current projection.
HMO and QCHP premiums for non-Medicare
retirees and dependents were averaged together.
CDHP Premium Rates used for
Options 1, 2 & 3
Setting the CDHP premium rates at reasonable
levels is crucial to the analysis. The online
resource eHealthInsurance.com15 was used to
determine the average starting premiums for
the HSA-qualified Consumer Directed Health
Plans (CDHPs); see Graphic 15.
Rates that companies provide for
eHealthInsurance.com are the best rates for
healthy individuals, so to make CDHP rates
fairly realistic, 8 premiums were averaged
from 21 HSA-qualified CDHPs found on
eHealthInsurance.com.
For Non-Medicare Retirees (NMRs) and NMRs
with one dependent, the following categories
were used:
• Lowest premiums found for male and
female non-smokers ages 55 and 64.
• Highest Premiums found for male and
female smokers ages 55 and 64.
The $515 per month average premium obtained
for NMRs from this process is 53 percent
of the $962.67 per month rate projected for
NMRs in Illinois in Table 8 of the report issued
by the Illinois Commission on Government
Forecasting and Accountability (CGFA). This
number is fairly close to the ideal premium
of 45 percent for the major medical premium
component of a traditional approach described
in Graphic 10. For NMRs plus one dependent,
the average came out to $535 per month.
CDHP rates to replace QCHP and HMO rates
were established in similar fashion, using ages
64 and 23 for employees only. The average rate
was $299 per month.
For Employee plus one dependent, 16
premiums were averaged, including smoking
and non-smoking husband and wife teams at
age 26 and 64; female smoker age 64 plus male
student child age 22 who smokes; male age 64
plus female student child age 22 who smokes;
smoker female age 26 plus male child age 2;
and male age 26 plus female child age 2. The
average rate was $409 per month.
For the Employee plus 2 or more dependents,
premiums were averaged for a family of four:
• Smoking and non-smoking families (male
and female age 64 plus male age 22 and
female age 20).
• Smoking and non-smoking families (male
and female age 26 plus non-smoking male
4 and female age 2).
The average rate was $625 per month.
CDHP rates for Employee plus Medicare
dependent were estimated as a proportion
similar to QCHP and HMO rates for Employee
plus 2 dependents versus Employee plus
Medicare dependent. This produced an
estimate of $396 per month for the QCHP
category and $400 per month for the HMO
category (see Graphic 15).
 Page 16 of 26

Graphic 15. CDHP Premium Rates

Number of State’s Total QCHP

QCHP Plan employees Weighted Premium Total Averaged
Category in each Avg QCHP Weighted Avg CDHP Premium
Category Contribution Em +State

    $/mo $/mo $/mo

Employee + MC Dep 53 $816 $1,047 $396
Employee + 2 Dep 5,575 $1,333 $1,655 $625
Employee + 1 Dep 5,502 $1,129 $1,416 $409
Employee only 14,126 $619 $709 $299
State’s Premium Cost $22,435,422 $27,089,478 $9,979,332

Number of State’s Total HMO

Managed Care HMO Employees Weighted Premium Total Averaged
Plan Category in each Avg HMO Weighted Avg CDHP Premium
Category Contribution Em +State
    $/mo $/mo $/mo
Employee + MC Dep 91 $767 $917 $400
Employee + 2 Dep 29,906 $1,235 $1,431 $625
Employee + 1 Dep 20,405 $922 $1,077 $409
Employee only 33,591 $527 $587 $299
State’s Premium Cost $73,523,629 $84,560,178 $37,117,047

State’s
Number Total Weighted
Non-Medicare Weighted
of NMRs Avg QCHP/ Total Averaged
Retirees Plan NMR Avg
in each HMO Premium CDHP Premium
Category QCHP/HMO
Category Em +State
Contribution
    $/mo $/mo $/mo
NMR + 1 Dep 10,580 $1,449 $1,599 $535
NMR only 26,661 $745 $758 $515
State’s Premium Cost $35,177,995 $37,120,500 $19,390,715

State’s Total $/
  $131,137,046 $148,770,157 $66,487,094
month

State’s Total $/year   $1,573,644,551 $1,785,241,880 $797,845,130

 Page 17 of 26

Appendix B. Supplementary Material

Graphic 16. QCHPs Replaced with State Funding HSAs at 15 Percent of

Maximum Contribution and Employees Pay 30 Percent of CDHP Premium
1,000

Savings
available for
800
Deficit

845
Reduction
Total State
1,000,000 $/year

600
Option 1 Funds to
Taxpayers Avoid HSAs
400 $4.9
Billion in Taxes CDHP
Premiums
114 107 100 $/yr
269

200
169 164 160 155 150 145 139 133 127 121
18 18 18 18 18 19 19
17 17 17 17 17 18

151
143
2020 130

2021 137
2019 124
Total QCHP
2018 118
2017 112
2015 102

2016 107
2014 97
2012 88

2013 92
2011 84

0 Prem in 2011
2011

2022

2023

2023
& Est. 2023

Graphic
IL State17. IL State
Employee withEmployees
2 Dependentswith 2 Dependents
Average Average
Cumulative HSA Savings Cumulative HSA
Savings Over
Over 10 years10
vs.years vs.
Savings to Savings to Statefrom
State of Switching of Switching
QCHP from QCHP
toHSA/CDHP
to HSA/CDHP and Employees
and Employees Pay 30% ofPay 30%
CDHP of CDHP Premiums
Premiums
$150 $50,000
Bigger Savings for State
and Taxpayers in 2020 $45,000
Bigger $43,163
Win - Win
Incentives
State Savings in 2020 $/yr x (000,000)

Target Zone $40,000

for $121
Avg. Cum. in HSAs in 2020 ($)

$35,584 $35,000
Employees
$100
$28,005 $103
$30,000
$90 EM +2 Deps
$25,000
$20,426 $78 Savings to State

$66 Less Incentive $20,000

$50 for employees
$54 $12,847 $15,000
$42
State and $10,000
$29 Taxpayers
$5,268 $5,000 Option 1
Save Less in 2020
$17
$341 $0 $0 HSAs
$0 $0
% State contributes to HSAs Funded
100% 90% 80% 70% 60% 50% 40% 30% 15% at 15%
Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0 0
Deps

While Graphic 16 makes Option 1 look promising for savings to the state budget, Graphic 17
demonstrates that there is no incentive for employees with QCHPs to buy into Option 1. After 10
years of medical expenses (from age 55 to age 65), employees with 2+ dependents are projected to
have a $0 balance in their HSAs.
 Page 18 of 26

Graphic 18. QCHPs Replaced with State Funding HSAs at 65 Percent of

Maximum Contribution and Employees Pay 20 Percent of CDHP Premium
1,000

Savings
available for
800
Deficit

845
Reduction
Total State
1,000,000 $/year

600
Option 2 Funds to
Taxpayers Avoid HSAs
400 $3.9
Billion in Taxes CDHP
15 Premiums
71 64 57 49 41 33 24
101 95 90 84 77 $/yr
269

200 79 80 81 82
75 76 77 78 79
72 73 74 75

172
164
156
149
142
2018 135
Total QCHP

2017 128
2015 116

2016 122
2014 111
2013 106
2012 101
2011 96

0 Prem in 2011
2011

2019

2020

2021

2022

2023

2023
& Est. 2023

Graphic 19. IL State Employees with 2 Dependents Average Cumulative HSA

Savings
IL State Over 10 with
Employee years vs. Savings
2 Dependents to State
Average of Switching
Cumulative HSA Savingsfrom QCHP
to HSA/CDHP
Over 10 years vs.and Employees
Savings to State of Pay 20%from
switching of CDHP
QCHP Premiums
to HSA/CDHP and Employees Pay 20% of CDHP Premiums Option 2
$150 $50,000
Bigger Savings for State HSAs
and Taxpayers in 2020
Bigger $43,163
$45,000 Funded
Incentives at 65%
State Savings in 2020 $/yr x (000,000)

$40,000
Win - Win
for
Target Zone

Avg. Cum. in HSAs in 2020 ($)

$35,584 $35,000
Employees
$100

$28,005 $30,000
EM +2 Deps
$84 $25,000
Savings to State
$20,426
$72
Less Incentive $20,000
$50 State and $60 for Employees
Taxpayers $47 $15,000
Save Less in 2020 $12,847
$35
$10,000

$23 $5,268 $5,000

$341 $0
$0 $11
$0 $0
% State contributes to HSAs

100% 90% 80% 70% 60% 50% 40% 30%

Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0
Deps

Graphic 18 makes Option 2 look promising, with savings of $41 million per year in 2020 to the state
budget. And Graphic 19 demonstrates that there is some incentive for employees with QCHPs to
buy into Option 2. After 10 years of medical expenses (from age 55 to age 65), employees with 2+
dependents are projected to have an average balance of about $16,000 in their HSAs.
 Page 19 of 26

Graphic 20. QCHPs Replaced with State Funding HSAs at 90 Percent of

Maximum Contribution and Employees Pay 10 Percent of CDHP Premium

1,000

Savings
available for
800
Deficit

845
Reduction
Total State
1,000,000 $/year

600 Option 3
Funds to
Taxpayers Avoid HSAs
$3.3
400
Billion in Taxes CDHP
0 0 0 Premiums
10 1 0
61 55 48 41 34 26 18 110 111 112 113 $/yr
269

109
200
104 106 107 108
100 101 102 103

194
184
176
167
159
152
144
138
2015 131

Total QCHP
2014 125
2013 119
2012 113
2011 108

0 Prem in 2011
2011

2016

2017

2018

2019

2020

2021

2022

2023

2023
& Est. 2023

Graphic 21. IL State Employees with 2 Dependents Average Cumulative HSA

Savings Over
IL State 10 years
Employee with 2 vs. Savings
Dependents to State
Average of Switching
Cumulative HSA Savingsfrom QCHP
to HSA/CDHP
Over 10 years vs.and Employees
Savings to State ofPay 10% from
Switching of CDHP
QCHP Premiums
to HSA/CDHP and Employees Pay 10% of CDHP Premiums Option 3
$150 $50,000
Bigger Savings for State HSAs
and Taxpayers in 2020 $45,000
Bigger $43,163 Win - Win Funded
Incentives Target Zone at 90%
State Savings in 2020 $/yr x (000,000)

$40,000
for $35,584 Avg. Cum. in HSAs in 2020 ($)
Employees $35,000
$100

$28,005 $30,000
EM +2 Deps
$25,000
$20,426 Savings to State

65 $20,000
$50 $12,847
State and $53 $15,000
Less Incentive
Taxpayers $41 for Employees $10,000
Save Less in 2020 $17
$29 $5,268
$4 $5,000
$0 $0 $341 0
$0 $0
% State contributes to HSAs

100% 90% 80% 70% 60% 50% 40% 30%

Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0
Deps

Option 3 for QCHPs shown in Graphic 20 looks somewhat less promising, with savings to the state
ending in 2020. However, Graphic 21 demonstrates that there is increased incentive for employees
with QCHPs to buy into Option 3. After 10 years of medical expenses (from age 55 to age 65),
employees with 2+ dependents are projected to have an average balance of over $35,000 in their
HSAs.
 Page 20 of 26

Graphic 22. HMOs Replaced with State Funding HSAs at 15 Percent of

Maximum Contribution and Employees Pay 30 Percent of CDHP Premium

3,000

Savings

2,769
2,500 available for
Deficit
Reduction
2,000 Option 1 Total State
1,000,000 $/year

Taxpayers Avoid Funds to

1,500
$15.3 HSAs
Billion in Taxes
1,000 CDHP
Premiums
331 306 280 253
882

509 492 475 458 439 419 399 377 355 $/yr
500 67 68 68 69 70
65 66 66
62 62 63 64 64

560
533
508
484
461
439
418
2016 398
Total HMO
2015 379
2014 361
2012 327

2013 344
2011 312

0 Prem in 2011
2011

2017

2018

2019

2020

2021

2022

2023

2023
& Est. 2023

Graphic 23. IL State Employees with 2 Dependents Average Cumulative HSA

Savings
IL Over 10
State Employee years
with vs. Savings
2 Dependents to Cumulative
Average State of Switching
HSA Savingsfrom HMO
to HSA/CDHP
Over and Employees
10 years vs. Savings Pay 30%
to State of Switching ofHMOs
from CDHPto Premiums
HSA/CDHP and Employees Pay 30% of CDHP Premiums
$500 $50,000
Bigger Savings for State
and Taxpayers in 2020 $45,000
Bigger $43,163
Incentives Win - Win
State Savings in 2020 $/yr x (000,000)

$400 $40,000
for Target Zone

Avg. Cum. in HSAs in 2020 ($)

$35,584 $35,000
Employees
$28,005 $331
$300 $30,000
EM +2 Deps
$25,000
$20,426 $263 Savings to State

$200 $218 Less Incentive $20,000

State and for Employees

$173 $15,000
Taxpayers $12,847
$100Save Less in 2020 $128 $10,000

$83 $5,268
Option 1
$5,000
$0 $0 $38 $341 $0 $0 HSAs
$0 $0
% State contributes to HSAs Funded
100% 90% 80% 70% 60% 50% 40% 30% 15% at 15%
Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0 0
Deps

While Graphic 22 makes Option 1 look promising for savings to the state budget, Graphic 23
demonstrates that there is no incentive for employees with HMOs to buy into Option 1. After 10
years of medical expenses (from age 55 to age 65), employees with 2+ dependents are projected to
have a $0 balance in their HSAs.
 Page 21 of 26

Graphic 24. HMOs Replaced with State Funding HSAs at 65 Percent of

Maximum Contribution and Employees Pay 20 Percent of CDHP Premium
3,000

Savings

2,769
2,500 available for
Deficit
Reduction
2,000 Option 2 Total State
1,000,000 $/year

Taxpayers Avoid Funds to

1,500
$11.6 HSAs
Billion in Taxes
1,000 CDHP
0 0
93 66 36 6 Premiums
258 237 216 194 170 146 120 293 296 299
302
882

287 290 $/yr

279 282 285
500 268 271 273 276

640
609
580
553
526
501
478
455
433
412
2013 393

Total HMO
2012 374
2011 356

0 Prem in 2011
2011

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023
& Est. 2023

Graphic 25. IL State Employees with 2 Dependents Average Cumulative HSA

IL State
Savings OverEmployee
10 yearswith 2vs.
Dependents
SavingsAverage
to StateCumulative HSA Savings
of Switching from HMO
Over 10 years vs. Savings to State of
to HSA/CDHP and Employees Pay 20% of CDHP PremiumsSwitching from HMO
to HSA/CDHP and Employees Pay 20% of CDHP Premiums
Option 2
$600 $50,000 HSAs
Bigger Savings for State
and Taxpayers in 2020 $45,000
Funded
$500
Bigger $43,163
Win - Win at 65%
Incentives
State Savings in 2020 $/yr x (000,000)

Target Zone $40,000

for
$35,584 Avg. Cum. in HSAs in 2020 ($)
Employees $35,000
$400

$28,005 $30,000
EM +2 Deps
$300 $25,000
Savings to State
$20,426
$194
$20,000
$200
$12,847 $149 $15,000
State and Less
Taxpayers $104 Incentive
$10,000
$100 Save Less in 2020 for Employees
$5,268 $5,000
$0 $0 $59 $341 $0
$0 $14
$0 $0
% State contributes to HSAs

100% 90% 80% 70% 60% 50% 40% 30%

Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0
Deps

Graphic 24 makes Option 2 for HMOs look promising, with savings of $36 million per year in 2020
to the state budget. And Graphic 25 demonstrates that there is some incentive for employees with
QCHPs to buy into Option 2. After 10 years of medical expenses from age 55 to age 65), employees
with 2+ dependents are projected to have an average balance of about $16,000 in their HSAs.
 Page 22 of 26

Graphic 26. HMOs Replaced with State Funding HSAs at 90 Percent of

Maximum Contribution and Employees Pay 10 Percent of CDHP Premium
3,000

Savings

2,769
2,500 available for
Deficit
Reduction
2,000 Option 3
Total State
1,000,000 $/year

Taxpayers Avoid Funds to

1,500 $9.4 HSAs
Billion in Taxes
0 0 0 CDHP
1,000
0 0 0
0 0 414 418
110 86 62 36 9 398 402 406
410 Premiums
386 390 394
882

371 375 379 382 $/yr

500

720
686
653
622
592
564
537
512
487
464
442
421
2011 401

Total HMO
0 Prem in 2011
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023
& Est. 2023

Graphic 27. IL State Employees with 2 Dependents Average Cumulative HSA

Savings Over 10with
IL State Employee years vs. Savings
2 Dependents to State
Average of Switching
Cumulative from HMO
HSA Savings
to HSA/CDHP and
Over 10 years vs. Employees
Savings to State ofPay 10% of
Switching CDHP
from HMO Premiums
to HSA/CDHP and Employees Pay 10% of CDHP Premiums Option 3
$500 $50,000
Bigger Savings for State HSAs
and Taxpayers in 2020 $45,000
Bigger $43,163 Win - Win Funded
Incentives Target Zone at 90%
State Savings in 2020 $/yr x (000,000)

$400 $40,000
for $35,584

Avg. Cum. in HSAs in 2020 ($)

Employees $35,000

$300 $28,005 $30,000

EM +2 Deps
$25,000
$20,426 Less Incentive Savings to State

$200 for Employees $20,000

$12,847 $125 $15,000
State and
Taxpayers $80
$100 $10,000
Save Less in 2020 $5,268
$5,000
$0 $0 $0 $0 $0 $35 $341 $0
$0 $0
% State contributes to HSAs
100% 90% 80% 70% 60% 50% 40% 30%
Estimated Average Cumulative $ in Employee's HSA in 2020
EM +2 $43,163 $35,584 $28,005 $20,426 $12,847 $5,268 $341 $0
Deps

Option 3 for HMOs shown in Graphic 26 looks somewhat less promising, with savings to the state
ending in 2015. However, Graphic 27 demonstrates that there is increased incentive for employees
with HMOs to buy into Option 3. After 10 years of medical expenses (from age 55 to age 65),
employees with 2+ dependents are projected to have an average balance of over $35,000 in their
HSAs.
 Page 23 of 26

Graphic 28. HMOs Replaced with State Funding HSAs at 90 Percent of

Maximum Contribution and NMRs Pay 10 Percent of CDHP Premium

1,500

Savings
available for

1,325
Deficit
Reduction
1,000 Option 1 Total State
1,000,000 $/year

Taxpayers Avoid Funds to

$7.2 HSAs
Billion in Taxes
500 CDHP
Premiums
158 145 133 119 105
422

237 229 220 211 201 191 181 169 24 24 25

$/yr
22 23 23 23 23 24 24 24
22 22

293
279
265
253
241
229
218
208
2015 198

Total
2014 189
2013 180
2011 163

2012 171

0 CQHP/HMO
2011

2016

2017

2018

2019

2020

2021

2022

2023

2023
Prem in 2011
& Est. 2023

Graphic 29. IL State Non-Medicare Retiree +1 Dependent Average

Cumulative HSA Savings
IL State Non-Medicare Retiree +1Over 10 years
Dependent vs.
Average SavingsHSA
Cumulative to State
Savingsof Switching
from QCHP/HMOs
Over 10 Years vs. Savings to State of Switching from QCHP/HMOsof
toHSA/CDHP and Retirees Pay 30% to CDHP Premiums
HSA/CDHP and Retirees Pay 30% of CDHP Premiums
$150 $60,000
Bigger Savings for State
$56,445
and Taxpayers in 2020 $145
Bigger
$50,000
Incentives $48,866
State Savings in 2020 $/yr x (000,000)

for $41,287 $121

Avg. Cum. in HSAs in 2020 ($)

Retirees
$100 $105
$40,000
Win - Win $33,708
Target Zone
$73 $89 NMR +1 Dep
$30,000
Savings to State
$57 $26,129
Less Incentive
$50 $41 for Retirees $20,000
State and $18,550
Taxpayers $25
$10,971
Save Less in 2020
$10,000
$9 $3,392
Option 1
$0 HSAs
$0 $0
% State contributes to HSAs Funded
100% 90% 80% 70% 60% 50% 40% 30% 15% at 15%
Estimated Average Cumulative $ in NMR's HSA in 2020
NMR +1 $56,445 $48,866 $41,287 $33,708 $26,129 $18,550 $10,971 $3,392 0
Dep

While Graphic 28 makes Option 1 look promising for savings to the state budget, Graphic 29
demonstrates that there is no incentive for non–Medicare retirees to buy into Option 1. After 10
years of medical expenses (from age 55 to age 65), non-Medicare retirees with one dependent are
projected to have a $0 balance in their HSAs.
 Page 24 of 26

Graphic 30. HMOs Replaced with State Funding HSAs at 65 Percent of

Maximum Contribution and NMRs Pay 20 Percent of CDHP Premium

1,500

Savings
available for

1,325
Deficit
Reduction
1,000 Option 2 Total State
1,000,000 $/year

Taxpayers Avoid Funds to

$5.7 HSAs
Billion in Taxes
500 CDHP
0 Premiums
58 44 29 14 0
141 131 120 109 97 85 72 102 103 104 105 106 107
422

$/yr
99 100 101
95 96 97 98

334
318
303
289
275
262
249
238
226
215
2012 195

2013 205

Total
2011 186

0 CQHP/HMO
2011

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023
Prem in 2011
& Est. 2023

Graphic 31. IL State Non-Medicare Retiree +1 Dependent Average

Cumulative HSA Savings Over 10 years vs. Savings to State of Switching
from QCHP/HMOs
IL State toHSA/CDHP
Non-Medicare Retiree and
+1 Dependent Retirees
Average Pay 20%
Cumulative HSAof CDHP Premiums
Savings
Over 10 Years vs. Savings to State of Switching from QCHP/HMO
to HSA/CDHP and Retirees Pay 20% of CDHP Premiums
Option 2
$150 $60,000 HSAs
Bigger Savings for State
$56,445
and Taxpayers in 2020 Funded
Bigger
Win - Win $50,000 at 65%
Incentives $48,866
State Savings in 2020 $/yr x (000,000)

for Target Zone

Avg. Cum. in HSAs in 2020 ($)

Retirees $41,287
$100 $40,000
$33,708 $85

$69 NMR +1 Dep

$30,000
Savings to State
$26,129
$53

$50 $20,000
$37 $18,550
State and
Taxpayers $10,971
$21
Save Less in 2020 $10,000
Less Incentive
$5 $3,392
$0 $0
for Retirees
$0 $0
% State contributes to HSAs
100% 90% 80% 70% 60% 50% 40% 30%
Estimated Average Cumulative $ in NMR's HSA in 2020
NMR +1 $56,445 $48,866 $41,287 $33,708 $26,129 $18,550 $10,971 $3,392
Dep

Graphic 30 makes Option 2 look promising, with savings to the state budget of $29 million per year
in 2020. And Graphic 31 demonstrates that there is some incentive for employees with QCHPs to
buy into this Option. After 10 years of medical expenses (from age 55 to age 65), non-Medicare
retirees with one dependent are projected to have an average balance of about $30,000 in their
HSAs.
 Page 25 of 26

Graphic 32. HMOs Replaced with State Funding HSAs at 90 Percent of

Maximum Contribution and NMRs Pay 10 Percent of CDHP Premium
1,500

Savings
available for

1,325
Deficit
Reduction
1,000 Option 3 Total State
1,000,000 $/year

Taxpayers Avoid Funds to

$4.8 HSAs
Billion in Taxes
500 0 0 CDHP
0 0 0 148
16 2 0 146 147 Premiums
81 69 57 44 30 141 143 144
137 138 140
422

$/yr
132 133 134 136

376
358
341
325
309
295
281
267
255
242
231
220
209

Total
0 CQHP/HMO
2011

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2023
Prem in 2011
& Est. 2023

Graphic 33. IL State Non-Medicare Retiree +1 Dependent Average

Cumulative HSA Savings
IL State Non-Medicare Retiree Over 10 years
+1 Dependent vs. Savings
Average Cumulativeto State
HSA of Switching
Savings
from QCHP/HMOs toHSA/CDHP and Retirees Pay 10%
Over 10 Years vs. Savings to State of Switching from QCHP/HMOs of CDHP Premiums
to HSA/CDHP and Retirees Pay 10% of CDHP Premiums Option 3
$150 $60,000
$56,445 Bigger Savings for State HSAs
and Taxpayers in 2020
Bigger $48,866 Funded
$50,000
Incentives at 90%
State Savings in 2020 $/yr x (000,000)

for
Avg. Cum. in HSAs in 2020 ($)

Retirees $41,287
$100 $40,000
$33,708
Win - Win
Target Zone NMR +1 Dep
$26,129 Less Incentive $30,000
Savings to State
for Retirees
$49
$18,550
$50 $20,000
State and $33
Taxpayers
$10,971
Save Less in 2020 $17 $10,000
$3,392
$0 $0 $0 $0 $1
$0 $0
% State contributes to HSAs
100% 90% 80% 70% 60% 50% 40% 30%
Estimated Average Cumulative $ in NMR's HSA in 2020
NMR +1 $56,445 $48,866 $41,287 $33,708 $26,129 $18,550 $10,971 $3,392
Dep

While Graphics 32 and 33 show there would be no savings to the state in 2020 compared to its 2011
budget for Non-Medicare retirees, those retirees with one dependent would have accumulated an
estimated average of over $48,000 in their HSAs over 10 years, from age 55 to age 65.
 Page 26 of 26

Endnotes 15 http://www.eHealthInsurance.com. HSAs-

1 The Segal Company,“2011 Segal Health Plan CDHP Premiums accessed on July 26, 2010 for zip
Cost Trend Survey,” September 16, 2010. code 60068.
2 Ibid.
3 Commission on Government Forecasting and
Accountability, “State Employee’s Group Insurance
Program Projected FY 2011 Liabilities Report,”
March 16, 2010, http://www.ilga.gov/commission/
cgfa2006/Upload/fy2011stateemployees’groupinsuran
ce.pdf.
4 CMS Group Insurance Division, Analysis and
Resolution Unit.
5 Commission on Government Forecasting and
Accountability, “State Employee’s Group Insurance
Program Projected FY 2011 Liabilities Report,”
March 16, 2010, http://www.ilga.gov/commission/
cgfa2006/Upload/fy2011stateemployees’groupinsuran
ce.pdf.
6 Internal Revenue Service, http://www.irs.gov/
formspubs/article/0,,id=178009,00.html
7 AHIP Center for Policy & Research, “January
2010 Census Shows 10 Million People Covered by
HSA/High-Deductible Health Plans,” May 2010,
http://www.ahipresearch.org/pdfs/hsa2010.pdf.
8 Robert Hopper and Debra Hopper, “Healthcare
Happily Ever After: A Friendly Little Tale of the
Health Savings Account and How It Won the Heart
of a Nation,” Special 3rd edition (Overland Park, KS:
A.D. Banker & Company, May, 2007).
9 Ibid.
10 Ibid.
11 Mitch Daniels, “Hoosiers and Health Savings
Accounts,” Wall Street Journal, March 1, 2010,
http://online.wsj.com/article/SB100014240527487
04231304575091600470293066.html.
12 U.S. Office of Personnel Management, “High
Deductible Health Plans (CDHP) with Health
Savings Accounts (HSA),” http://www.opm.gov/
insure/health/hsa/index.asp.
13 The Segal Company, “Study of State Employee
Health Benefits,” Summer 2009, http://www.segalco.
com/publications/surveysandstudies/2009statestudy.
pdf.
14 Illinois Taxpayer Action Board, “Report of the
Taxpayer Action Board,” June 2009, http://www.
illinois.gov/PressReleases/Documents/TAB%20
Report%20FINAL.pdf.