Guest Article

(From the September 25, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Early Findings on Consumer Directed Health Plans from GAO

In 2005 only about one-half of all individuals enrolled in high-deductible health plans (HDHPs), and thus eligible to contribute to health savings accounts (HSAs), actually contributed to HSAs. By contrast almost two-thirds of employers offering HSA-eligible plans contributed to their eligible employees' HSAs, according to an August 2006 U.S. Government Accountability Office (GAO) report. Given the heavy focus on HSAs, this may be the most surprising finding in this report on consumer-directed health plans (CDHPs).

In constructing the report, the GAO analyzed HSA data from national employer health benefits surveys, three selected employers, and a national broker of health insurance. In addition, the GAO compared IRS 2004 data reporting HSA contributions with corresponding data for all tax filers under 65 years old and 2005 data from employer surveys and three large employers. GAO also conducted focus groups with employees of the three employers.

Not surprisingly, since HSAs must be coupled with HDHPs, the GAO data found the HSA-eligible plans offered services similar to those offered by other health plans, but their financial features were very different. The GAO cited a national employer health benefits survey, showing monthly premiums for HSA-eligible plans averaged $225 for single coverage and $659 for family coverage in 2005, or about 35 percent less than surveyed employers' traditional plan premiums for single coverage and 29 percent less than surveyed employers' traditional plan premiums for family coverage. But surveyed employers paid about the same percentage of the premiums for both types of plans. Monthly premiums for the HSA-eligible plans offered by the three employers GAO reviewed ranged from $231 to $319 for single coverage and from $612 to $995 for family coverage in 2005. These HSA-eligible plan premiums were 13 to 27 percent less than the employers' traditional plan premiums for single coverage and 18 to 23 percent less for family coverage. As would be expected both out-of-pocket spending limits and deductibles were higher for the HDHPs.

The individual market for HDHP/HSA plans followed similar patterns for both premiums. These HDHP/HSA plans also offered similar care and provider choices as the traditional plans.

HDHP/HSA Plan Participants' Incomes Higher, But Withdrawals Common

As might be expected, the income demographics showed HDHP/HSA plan holders had higher incomes than other groups of insureds. However, data on age differences between traditional and HDHP/HSA plan enrollees were inconclusive. About 45 percent of HSA holders reported withdrawing amounts from their HSAs, which on average in 2004 amounted to $1,910 (or about 70 percent of a single person's maximum permitted HSA contribution and about 37 percent of a family's maximum permitted HSA contribution in 2004). Based on IRS data, GAO estimated about 90 percent of those withdrawals were spent on eligible medical expenses. (Recall that employers or other HSA custodians are not responsible for how the individual uses money withdrawn from an HSA. However, HSA amounts used for non-covered expenses are subject to income tax and substantial penalties. But on such issues the IRS deals directly with the individual HSA-owner, not the employer or other institution holding the HSA.)

The GAO cautioned that not all of the data presented can be generalized to all HSA-eligible plans, because the IRS tax data on HSA contributions cannot be compared with those in high-deductible plans that did not also have HSAs. Although GAO did not mention this fact, it is unlikely that many individuals in HDHPs did not also set up an HSA, given the HSA tax preferences and the likely out-of-pocket spending required by most HDHPs.

Focus Groups

The GAO found HSA participants in focus groups generally understood the key attributes of their plan, but were confused about certain other features. In addition, most participants did not exhibit the "consumer behavior" CDHC proponents hope for and is required to maximize the cost control and efficacy of CDHC. For example, few participants researched the cost of hospital or physician services before obtaining care, although many participants researched the cost of prescription drugs. Most participants reported satisfaction with their CDHC plan and HSA. But participants said they would not recommend these plans to everyone. Focus group participants specifically noted they would not recommend the plans to people who use maintenance medication, have a chronic condition, have children, or may not have the funds to meet the high deductible.

Participants also focused on many of the same issues health professionals decry. These include the lack of -- or at best limited -- information available on key quality measures for hospitals and physicians, such as the volume of procedures performed and the outcomes of those procedures. Nevertheless, most participants did report that they researched general information on health care issues, such as on health conditions or treatment options.

Not surprising (indeed somewhat gratifying) to those who consult on HDHPs, focus group participants were confused about the interaction of HDHPs and other health benefit arrangements. They cited confusion about what is and is not a "preventive service" that HDHPs can cover below the deductible, how health flexible spending accounts (FSAs) under a traditional IRC ? 125 plan can be used, and what these plans can and cannot cover when used in conjunction with an HSA. Given the complexity of these interacting rules, such confusion seems justified.

GAO's Reporting on CDHC

This GAO report was requested by Senator Max Baucus (D-MT), ranking minority member on the Senate Finance Committee. That Committee has jurisdiction over several health-related issues, including HSAs. The report is titled "Consumer-Directed Health Plans: Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans," GAO-06-798, August 2006. It is available at: www.gao.gov.

Three other GAO reports on CDHC are available there:

Consumer-Directed Health Plans: Small but Growing Enrollment Fueled by Rising Cost of Health Care Coverage. GAO-06-514 . Washington, D.C.: April 28, 2006.

Federal Employees Health Benefits Program: First-Year Experience with High-Deductible Health Plans and Health Savings Accounts. GAO-06-271 . Washington, D.C.: January 31, 2006.

Federal Employees Health Benefits Program: Early Experience with a Consumer-Directed Health Plan. GAO-06-143 . Washington, D.C.: November 21, 2005.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.