As part of his State of the Union address, President Bush proposed boosting tax breaks for Americans who open Health Savings Accounts, or HSAs.

Established by the 2003 Medicare bill, these accounts work like tax-free savings accounts for medical care. They let people with high-deductible health insurance plans save money tax free for health expenses.

The yearly contribution limit for HSAs is the health plan's deductible or the legal cap, whichever is lower. The current cap is $2,700 for one person and $5,450 for a family.

Bush would boost those limits to $5,250 for one person and $10,500 for a family, which equal the yearly out-of-pocket spending maximums for most HSA plans. The higher caps would make the plans more attractive to people with big medical bills and allow thousands of dollars more in tax-free savings.

Businesses also should benefit by shifting the financial risk from employers' balance sheets to those of workers. It would give workers more options, but they'd have to pay for more of their medical care. Some liken it to the past shift from pensions to 401(k) plans.

The changes proposed by Bush are of particular interest to John Graham, director of Health Care Studies at the Pacific Research Institute, a San Francisco think tank.

He recently spoke with IBD.

IBD: What makes Health Savings Accounts appealing?

Graham: With high-deductible health plans, insurers (can) offer lower premiums for the plans. So that will save the employer money.

You're also seeing employees in most cases improving their behavior. They're engaging in more preventive health care . . . because if they reduce health costs, they directly benefit.

Most of the existing studies on this topic are actually on what are called Health Reimbursement Accounts (HRAs).

Those are slightly different because if you don't use up your money at the end of the year, you lose that money. HSAs, in contrast, allow you to keep your money year after year.

IBD: What are some examples of savings?

Graham: Again, these are not Health Savings Account-specific studies, because they're too new to have conclusive aggregate data. But they are on related Health Reimbursement Accounts and other consumer-directed plans.

In January 2006, the Deloitte Center for Health Solutions reported that the cost of consumer-directed health plans rose by 2.8% in 2005. In contrast, PPO costs increased by 7.2%, and HMO's by 8%. This was a survey of 152 major employers, so that gives a good handle on it.

EHealthInsurance, a large insurance broker, reported last June that premiums for HSA-compatible plans dropped by 15% in the first half of 2005.

I like this survey, but it covers only eHealthInsurance's customers, so I don't consider it a fully satisfactory aggregate measure of randomly selected insurance plans.

IBD: What about company-specific experiences?

Graham: Companies with HRA-type, consumer-directed health plans have had positive results.

For example, Owens-Corning offered two somewhat different HRA-type consumer directed plans, as well as a PPO in 2004. They continue to do so.

In 2004, Corning saw 71% of its employees enroll in its consumer-directed plans, and this rate remains steady. The number of doctors' visits among people in these plans was 9% lower than among employees in the PPO plan. The number of emergency room visits was 24% lower.

Overall, Corning's health costs dropped 15% in 2004 and rose just 5% in 2005. Corning's cost per employee last year was lower than its cost in 2001.

IBD: Doesn't this shift financial risk to employees?

Graham: Of course it shifts risk to employees. People don't think about the shift, but they should. It shifts the monetary costs to the individual, but that's a good thing because it will motivate people to make better health care decisions.

IBD: In which states are HSAs not available?

Graham: Bush wants to make the high deductible health plan available across all states and also make them exempt from state regulation.

Currently if you're a large employer and you can self-insure (meaning that you directly fund your employees' medical costs and you hire an insurer only to administer your health plan), you are exempt from state regulation.

But individual consumers and small businesses don't get that benefit. In New Jersey, for example, your small business employer is required to insure your single children up to the age of 30. So your deadbeat son who's still living at home has to be covered by your small employer's insurance policy.

New York also has a lot of mandates. In these states, the employer can't define its own insurance plan. The state commissioner does, and often these plans are very expensive with lots of bells and whistles.