HSAs - Political Hype?

[Locust]

Pres. Bush is touting HSAs as a solution to our health insurance problems, and it is expected that legislation will be proposed that will increase the limits on contributions.

What do you think?

Personally the whole thing bothers me. It seems to be another political band aid that the politicians put together to avoid having to make hard decisions.

I admit that what also bothers me are the "true believers" out there who think that the free market will cure everything if it is just allowed to function.

An article recently in the Washington Post gave described an HSA participant who said he couldn't and didn't try to bargain with health care providers when his son had to go to the hospital - something to the effect that you can't bargain when a loved one is in an emergency situation. Doesn't this illustrate the fallacy of HSAs? Will anyone ever bargain on life or death decisions?

Aren't the major costs of the system in serious illnesses, end of life, coverage of the uninsured, and the adminstrative costs of the system (the costs of paperwork and administration by providers and insurance companies). Do HSAs do anything about these costs?

[QDROphile]

One thing can be said without qualification: HSAs are a very good thing for wealthy people, so much the better if they are also healthy.

[leevena]

Good question. After 25 years in this business I start to wonder myself.

My opinion is that consumer driven plans (HSA, HRA) are the first attempt in a long time to address some, not all, but some of the structural problems in our health care system. To begin with they bring the economics back into line and as a result start to chip away at the "womb-to-tomb" mentality that we have. The second issue is it should start to make enrollees more responsible for their health care, which should start to eliminate some wasteful spending.

There are a whole set of other problems that these plans cannot address. The limited amount of slots available at medical schools keep the pool of physicians limited, thus raising their costs. To some extent, the same could also be said for the other providers in the system. The raw prices for medical services are driven by our society's want of only the very best, especially technology and drugs.

Administrative costs are high. Years ago with the old indenmnity plans most admin costs were 5-7%. Now health plans are in the 15-20% range. Some of these additional costs are not their fault. Think of all the regulations that were put into place that they need to spend dollars on. What about the need for multi-lingual materials/staff. What about the need to go out and get NCQA approved? Many large employers demanded this, and then would leave a NCQA carrier for a non-NCQA carrier simply because of lower rates.

Our system is broke and I don't know what the next steps will be, but for the time being the consumer driven plans seem like the best route.

Just my thoughts.

[JanetM]

I totally agree with QDROphile. How can someone making $7.50 an hour (like many of our folks due in rural areas) save for retirement and HSA? They're only making $15,600 and we expect them to sock away over half. Ain't gonna happen unless the wages in this country significantly increase, which will cause inflation, which will cause health care costs to increase.

These are only good for the upper income bracket, not the bulk of the country.

[Don Levit]

This is a very worthwhile discussion.

I share all of your concerns, but I do have a couple of positive points about HSAs.

First, all bleeding stops, at some point.

We are fast approaching the time when medical costs will have to start leveling off.

We have fewer participants being covered, and have reached near the breaking point on affordability.

Second, HSAs do address the issue of accruing "reserves," in order to help pay future expenses.

This is very important in getting some control over medical costs, for we normally don't get healthier as we age.

Pay-as-you-go funding does not work in health care.

Reserves will accumulate, only for those having lower medical expenses.

Fortunately, that should be the vast majority each year.

By raising the deductible to match the amount in savings, we will keep the lower claimants in the pool, and total medical costs will be more affordable.

The system is skewed presently toward the higher claimants.

We must make the environment more friendly for the lower claimants, for indeed, they make the system work for all.

Don Levit

[david rigby]

... unless the wages in this country significantly increase, which will cause inflation, which will cause health care costs to increase.

Econ 101. That is not what causes inflation.

[JanetM]

Higher wages can lead to higher demand..... which can lead to demand-pull inflation. Isn't that Econ 101?

[leevena]

I totally agree with QDROphile. How can someone making $7.50 an hour (like many of our folks due in rural areas) save for retirement and HSA? They're only making $15,600 and we expect them to sock away over half. Ain't gonna happen unless the wages in this country significantly increase, which will cause inflation, which will cause health care costs to increase.

These are only good for the upper income bracket, not the bulk of the country.

Your point about low incomes does not make much sense to me. We all agree that consumer driven plans are usually considerably less than other plans. If a low income person cannot afford the lower cost consumer driven plan, how can the afford the current, higher cost plans? What a consumer driven plan does is lower premium to get more insured, not all insured.

[jmor99]

I recently saw a presentation by a local carrier that showed that 45% of all their paid claims dollars came from the "worried well" category, in other words, people who think they're sick or afraid they might get sick. If those people start having to spend their own money (via HSAs) maybe over utilization will slow down. Initial surveys by another carrier that's been doing HSAs for 2-3 years now shows that inflation is being held to what it is in the rest of the economy, which maybe we can live with for the long term. One thing is certain: we can't continue to live with 10-15% inflation in the health care sector.

The problem I see with HSAs is that the chronically ill and the low income are going to take a beating. They're going to fall thru the cracks. A person making 7.50/hr is barely surviving. They're living day to day. Long term (which for them means maybe a month) planning is not an option. Every day contains a money crisis. Most of these have already dropped out of the insurance game and have their fingers crossed. Their thinking is that "I'll just show up at the county hospital emergency room where they have to take care of me." (That's where all the uninsured emergencies get sent in our area--and by the way, it's amazing how quickly and efficiently those folks get processed vs. people who have insurance.)

The thinking that HDHPs are now more affordable to lower income people is ludicrous. All it is, is cost shifting. The individual now keeps that part of the premium that would have bought a lower deductible plan and puts it in his HSA. HELLO!? He couldn't afford it to begin with! I recently saw an article that stated that although HSAs seem to be gaining penetration, only 1/3 or less have actually been funded.

Regarding Locusts point on catastrophic /emergency costs, HSAs can't have much impact there from a consumer standpoint. An emergency is no time to shop. (I saw that article--and that's an ignorant or intentionally biased slant on what HSAs are intended to do.) But long term, as people become more educated about who charges what, it might make a difference in which emergency room they choose.

[leevena]

jmor99--I may not have been as clear as I could with my comments about HSA's being more affordable for more people, which you stated was "ludicrous" on my part. My comment was that the lower premiums offered by consumer driven plans will not insure all the uninsured, but rather, it will allow more people to buy insurance who in the past could not afford it.

You say that the poor will take "a beating" from these plans. How do you see that occuring? We are not moving to an all HSA market, so they have the choice to not enroll in an HSA, and keep the plan they have now.

A second point you raise about the unaffordability of these products is that an article you read said that only 1/3 of all HSA's have been funded. So what? You do not need to fund an HSA until either a claim is incurred or by April 15th of the following tax year. How many of these enrollees are waiting to fund when they need to fund?

As I mentioned before, these products are not the cure all, but they are a step in the right direction. Let me lay out another scenario that I see occuring over the next 10-15 years. As people enroll in these products, some of them will be able to save significant amounts of dollars into a fund. As the HSA fund grows the enrollee can select a higher deductible/larger out-of-pocket exposure plan becasue they have funds on the side to cover that exposure. As the enrollee selects higher out-of-pocket plans, their premiums will decrease. The decrease in premiums will allow the enrollee to contribute more to the HSA fund. Imagine what a $15,000 deductible plan in your state would cost. I would imagine a family could get it for peanuts as compared to now.

[Don Levit]

Leevena:

When you write about increasing the deductible along with the savings, this could reduce the premiums, based on one's attained age, and the amount in savings.

The way individual policies are priced today, particularly on renewals, the deductible may have to rise higher even than $15,000, depending on how long the person has held the policy, and his age at issue, to lower his premiums.

For example, I had an individual policy for 11 years.

In year 11, the premium was 60% higher than the initial premium in my state's high risk pool.

Don Levit

[leevena]

Don.

I agree wholeheartedly. There needs to be a few changes made, such as tax laws in some states, higher deductible amounts for enrollees with significant hsa funds, maybe debit cards with cash advances, consumer decision tools and more.

The difference between what I am saying and your individual policy rising 60% is that enrollees will be able to select policy's with significantly less coverage, say 20 or 25 thousand dollar deductibles.

[Don Levit]

Leevena:

My research and experience tells me that if you can increase the deductible between $25,000 and $50,000, you can reduce the premium from a low deductible policy by 60-70%.

The problem, of course, is accumulating that much money in an HSA.

As you know, with limited exceptions, one cannot have another policy, in addition to the HDHP to qualify for an HSA.

However, with or without an HSA, if a person had a savings plan to offset the deductible, this scenario could work.

Instead of accumulating $25,000 in savings, one could look at another option: The savings/insurance combination plan. Of course, this option will require an additional insurance premium.

Here, an insurance trust could match the savings balance, in the event of a qualified claim.

If the match was $4 for every dollar in savings, then $5,000 in savings could produce a $20,000 match; thus, providing total coverage of $25,000.

Don Levit

[Guest mjb]

The HSA will never be a practical option for providing health care as long as hospitals can charge HSA participants with high deductible health ins. for services as if they are uninsured. It has been documented that persons who not covered by insurance are charged 4 to 5 times what the hospital bills insurance co/HMOs for the same treatment. Having $25,000 in an HSA account doesent mean much if the hospital will charge $25,000 for surgery which is not covered by a high deductible policy for which it will bill $5,000 for an insured patient.

[jmor99]

Leevena--my apologies for being so blunt. But here are additional responses:

There are 35 to 40 million uninsured America (a significant portion of that in the last 5 years). HSAs will allow those at the borderline income thresholds to come back into the insured game. But I doubt that will have any impact on these numbers.

The poor aren't going to take a beating. The poor and the wealthy have relatively equal access to health care although the form differs. It's those who are trying to work and play the game that are going to take the beating, i.e., the low income. How is a 2-75 man group able to offer 2 health options? Most carriers in this market won't do it. The employers are jumping into HSAs with no other offerings because it's not available, and it's their only hope just to be able to keep group health ins.

What difference does it make when the account is funded if you don't have the money either time?

HSAs offer hope. But I remember when PPOs first came out and the hope they offered (there were 30-45% rate reductions and everybody said hallelujah). It lasted about 18-24 months in this part of the country. And look where we are now. The one "hopeful" difference this time is that there's an anti-consumption incentive. We'll see.

[leevena]

I have to admit, this is a good series of questions and comments.

Don...I don't disagree with most of what you say. However, the ability to accumulate large sums in a HSA is not that difficult. Over the past 10 years or so, my family has incurred maybe $10,000. As a family I could have funded my HSA by significantly more than that. I will grant you that there will be some who cannot.

MJB...your comment does not make sense. You are suggesting that enrollees in HSA plans are required to pay the non-preferred rates to hospitals. Why? If I purchase a Blues HSA plan, I get the PPO rates at their providers. And, even if I purchase an insurance plan without a ppo network, I can still purchase a seperate ppo network to do the same. As for your comments about "hsa's never being a practical option", wake up, it's here. That was the same comment many people made about HMO's when they began to take off in the early 80's.

JMOR99--don't worry about being blunt...I'am from Jersey were we take blunt to a whole new level. The level of uninsured is high, but not the 40 million or so. If you review those studies you will find that those numbers contain some "inaccurate" numbers. For example, if someone is uninsured for a short period of time, say two months because of change of job, they are listed as uninsured for the year. Additionally, it contains many who could have coverage, but choose not too enroll or spend money. But be that as it may, we still have too many uninusred. As for your comment about 2-75 life groups, here in San Diego we have Aetna, Blue Cross, PacifiCare, HealthNet, and Blue Shield that will all allow multiple plans, in fact, Aetna and Blue Cross allow 18 options. It may not be in your area, but it will soon.

[Mary C]

I have to agree that these plan do not offer hope to the working poor.

In the past few years, we have offered a lower priced consumer driven plan with an FSA to help defray the higher deductible and coinsurance. After the first year, we have had miserable participation from our lower paid employees. They can't afford the deductions for the insurance AND a deduction to fund an FSA. They live paycheck to paycheck and would rather go uninsured than pay for a plan where they do not reach the deductible in a normal year. They view it as a waste of money.

We will be changing to a HDHP with HSA's along with two PPO options at annual enrollment. I don't forsee our lower paid population taking advantage of an HDHP for the simple reason they can't fund the account that is supposed to help out with meeting the deductible and co-insurance percentages. They live paycheck to paycheck as it is. They need help with getting their everyday office visits for flu or maintenance medications not having these expenses apply to a $5,000 deductible.

These are also people who do not have the sophication or knowledge to "negotiate" to find a lower priced doctor or hospital, especially in an emergency which is predominantly the only time these people seek treatment. Who is going to shop around when your child is in an accident?

[leevena]

Mary C---I don't disagree with everything that you said. The take-up rate of your lower paid employees should not be totally unexpected. Not knowing exactly what you are doing and why, I would say that the new option you are offering should help greatly. By offering the cd plan alongside traditional PPO, employees can choose what fits their needs, so someone who needs office visits, rx, etc can enroll in the PPO for that level of coverage. For those who don't they can try out the cd plan and see how it works. This all happened 20 years ago with the intro of HMO's, slow acceptance, slow take-up rates.

There are a few keys to making your program work, including, good products, employer contribution levels, communication, education, and long-term thinking. If your employee benefit goals are short-term, cd plans are not always going to show the best results.

As for your comment about them lacking the sophistication or knowledge to negotiate, so what? Your cd plan should have ppo discuounts built into them, and if not, you can purchase it. What they really need is a tool that will allow them to become more informed about health care.

[Locust]

I'll admit that I already have an opinion about HSAs, and that nothing I've read changes my mind.

It's interesting that except for leeveena to some extent (and he/she seems to be focused on larger groups where there are other choices), no one here is really saying that HSAs are great. I think this says something about our little benefits group and about the HSA promoters, which is: 1. Our group is a more technical group, and we haven't really seen anything about HSAs that just makes us say "Wow what a great idea!" Maybe because we are technicians, and technical people tend to be more critical (sometimes we focus too much on the trees). But more likely I think it's because we are more discerning, knowledgeable and experienced, and when we hear the hype from the promoters we tend to say "Whoa - I've heard this pitch before, let's see if it really works" and so far it doesn't really work. 2. The promoters are not active participants in this forum, either because the technical side of things doesn't appeal to them ("details, details") or they've found that they've been dinged when they make a claim that doesn't hold up to close scrutiny.

Actually, this is what I find appealing about this forum - people seem to care about the "details" and you don't just get the standard promotional big company marketing pablum - people think, they bring their experience into play, they argue, they get annoyed.

BTW - Here's my real opinion on HSAs. They are a good deal for some people, but they won't solve any of our health system problems. They're a good lever for some insurance consultants to get in the door and to make a sale (mostly to smaller companies at this point). They're a distraction from dealing with the real issues of health care for employees and for the country; that's partly why I think the Pres. likes them. I don't think they are worth the additional complexity that they add to the tax code.

Boy, I sound old and grizzled

Locust

[leevena]

By the way, I am a male. My comments are not about large groups, rather small. I am in San Diego and we have many carriers that will offer multiple plans to the 2-50 market. Aetna and BC will allow all of their prouduct line in at a group, which is upwards of 18 options.

The larger market is a little more difficult to make a go at offering multiple plans. This is due primarily to the segmenting of the risk among different plans. It's not impossible, but you need to do some good homework and look for a group who has a long-term strategy.

Since entering the field in 1982 I too have heard many new ways to solve our problem, and none seemed to work in the long-term. I do believe that cd plans do attack some of the problems, not all, but some. Of course in 10 years we may all be hearing about the next new thing.

[Don Levit]

Folks:

I can sense a feeling of disillusionment after all these years of "solutions" being put forth.

We are living in very cynical times, and for good reasons.

Too many times we have experienced people saying things, in which they were either lying or ignorant.

Occasionally, I will fall into that snare also.

Cynicism is nothing but frustrated idealism.

I have been working on the affordability/portability/permanency issue for 9 years.

Many times I have thought about doing something else more "practical," in which the results can be more quickly seen and appreciated.

However, if we don't get this issue straightened out, the failure will have dramatic consequences in all phases of our economy.

Do any of you have any suggestions about products for the working poor?

As many of you know, the CHIP program is designed for children of the working poor, who earn too much for Medicaid.

The last time I looked at this program, the premiums per child was around $100 per month.

If we are looking at subsidizing insurance for the working poor, why not subsidize a product that is less costly?

Don Levit

[Guest David Lacy]

An article recently in the Washington Post gave described an HSA participant who said he couldn't and didn't try to bargain with health care providers when his son had to go to the hospital - something to the effect that you can't bargain when a loved one is in an emergency situation. Doesn't this illustrate the fallacy of HSAs? Will anyone ever bargain on life or death decisions?

It doesn't illustrate the fallacy at all. What percent of medical care is life-or-death? 1% at most. Usually there is a lot of discretion. Even in some serious areas like gall bladder (my last problem) you can go quite a ways with gall bladder trouble. I can assure you, if my share of the cost of having the gall bladder out is $3500 I will wait longer than if it is $1200. I pulled the tendon off the bone in my middle finger. I could wear an uncomfortable splint for 8 weeks with 5 or so $30 copay trips to the doctor, or have a $2600 operation and be fixed in a week. My choice, the final results were about the same. So there is a lot of choice that goes on in medical care.