The HSA Cure
Can Health Savings Accounts curb the rising cost of healthcare?
By Bridgete Lynch
is one of those things that people don’t particularly like. It’s
expensive, they say. It’s bureaucratic. It’s a necessary evil.
It’s a card that one carries in one's wallet and using it precedes
an avalanche of paperwork and more often than not, a lighter wallet.
is health insurance the bad guy? Car insurance and homeowners insurance,
though not generally loved, are not nearly as reviled as health insurance.
What’s the big difference? It all seems to stem from the advent
of the third party payer.
payments to physicians and hospitals are made, not by the patient but
by their insurance companies. In many, if not most instances, the patient
has no involvement in or knowledge of the actual cost of their care. Therein
lies the rub. Without any information about cost and a framework in which
to evaluate it, patients are no longer acting as consumers. People who
would never buy anything without thoughtful consideration of its price
accept immunizations and medical tests without a question about cost.
Back to Basics
As a way to allow people to have more information and make better decisions
about their health-care spending, Congress envisioned the Health Savings
Account (HSA) and its accompanying high deductible health plan. They rolled
it out in 2004 and tens of thousands of Americans have purchased them.
But has there been a revolution in health insurance in the past 18 months?
The experts say no, but a shift is likely coming. As they say, Rome wasn’t
built in a day.
in the United States is a relatively recent phenomenon. The first health
insurance plans, dating back to the Civil War, were just that: insurance.
They provided coverage against catastrophes. Specifically, accidents related
to travel by rail and steamboat. In the 1930s and 40s, several large life
insurance companies began offering health insurance. Non-profit organizations
called Blue Cross (for hospital services) and Blue Shield (for physician
services) first offered group health plans in 1932.
In the years
following World War II with labor shortages, wage freezes and strong unions,
health insurance morphed into employee benefit plans and that evolution
changed the way Americans viewed healthcare. Instead of covering and individual
against a catastrophe, health insurance became an employee benefit and
a cost-sharing mechanism between employers and their workers. Insurance
companies administered those plans and became third party payers.
Milton Friedman? put it this way: “Employer financing of medical
care has caused the term ‘insurance’ to acquire a rather different
meaning in medicine than in most other contexts. We generally rely on
insurance to protect us against events that are highly unlikely to occur
but involve large losses if they do occur – major catastrophes,
not minor regularly occurring expenses. We insure our houses against loss
from fire, not against the cost of having to cut the lawn. We insure our
cars against liability to others or major damage, not against having to
pay for gasoline. Yet in medicine, it has become common to rely on insurance
to pay for regular medical examinations and often for prescriptions.”
“The system doesn’t work very well for the average person
out there,” says Cary Badger, Vice President of Customer Marketing
for the Regence Group. “It’s expensive and complex. In order
to fix that effectively you have to give control back to the consumer.
Give them information and take the complexity out of benefit designs and
give them real time information about how to make decisions.”
behind the HSA is simple. Put the money into the individual’s hand
and she will make better decisions with it. Here is how it works: an individual
or employer purchases a high-deductible health plan and then funnels money
into a HSA account at a financial institution. Under a typical arrangement,
an individual might buy a $1500 high-deductible plan and deposit $500
into an HSA account. The first $500 of medical expenses is paid from the
HSA, the next $500 is out of pocket and expenses above $1000 are paid
by the insurer with a copayment from the consumer until the annual out-of-pocket
cap is reached.
in some respects, hearken back to the day when policies were made for
unexpected illness or injury – people didn’t think much about
paying to go to the doctor’s office,” says Mark Charpentier,
CEO of Lifewise Health Plan of Oregon. “A good analogy is buying
a car. People pay for routine oil changes, pay for tires and even often
pay out of pocket for a fender bender. And a car tune-up at 30,000 miles
is much more expensive than a visit to a doctor’s office.”
attracting people who want more control over their health care and its
financial implications, Badger says.
take charge kind of people,” Badger says. “They research information
on the web – they are already well-informed patients. They want
control over their health care destiny and that is a powerful emotion
in the marketplace. If you put the money in the control of the consumers
it will evolve the market into a consumer or market-responsive environment
in terms of costs and control.”
some people are intimidated by the idea of a high-deductible heath plan.
In the past, plans with a high deductible were used as cost-shifting mechanisms
by employers. But when coupled with the HSA, people are realizing that
it is an appealing combination, Badger says.
The accounts are managed by a financial institution and funds are invested
in mutual funds, similar to 401(k) plans. The key feature is that the
account belongs to the individual rather than the employer, said Joel
Levi, Vice President of Business Development for Wells Fargo Health Benefits
are almost like an IRA,” Levi says. “The employer has no access
to the account other than to contribute. There is no vesting.”
can take the account from job to job and contribute up until retirement.
has entered into joint marketing agreements with The Regence Group, ODS
and Kaiser Permanente. They began marketing HSAs in July 2004 and have
35,000 accounts nationwide, Levi says.
level of adoption has been in the small group segment – companies
with 2-50 employees, says Marty Stewart, Vice President for Sales and
Marketing for ODS.
seems to be the most distress in that group size because of the sheer
cost of health care,” Stewart says. “That group size is more
willing to try possible solutions because they have been subject year
after year after year to fairly significant increases in the cost of their
benefits and that gets closer to the bone with smaller groups.”
Choices, Different Results
Originally, it was projected that the self-employed and professionals
with mid- to higher-level income would purchase HSAs, says Charpentier.
And that is happening but they are also seeing people who were previously
uninsured buying HSAs, he says
are looking for coverage that is catastrophic in nature – a level
of coverage that a major event won’t break the bank for them,”
an affordable option for coverage was one of the main reasons that Kaiser
Permanente also entered the HSA field in May.
believed we needed to move in this area,” says Susan Pozdena, Director
of Product and Benefit Management for Kaiser Permanente. “We had
some anecdotal information as well as some quantifiable information that
indicated that certain groups of the population who were price sensitive
simply weren’t able to afford the richer Kaiser benefits. Our mission
is to address the needs of the community and without these kinds of plans
were didn’t feel like we were doing that.”
for Kaiser as an HMO to offer deductible plans is a recent change and
has been a learning experience both for its members as well as staff,
unlike many of its Portland counterparts, Kaiser is not working on a marketing
or education push for their HSAs.
jury is still out,” Pozdena says. “We’re watching the
market uptake. So far there hasn’t been a tremendous response. We’re
at not quite 100 yet. We hope it will pick up.”
however, is seeing its best sales in their HSA product, Charpentier says.
adoption rate surprised us,” Charpentier says. “The whole
company is now converting to an HSA and PPO option for our employees.
We’re going to walk the talk and see how that goes.”
come a long way very quickly, Stewart says.
seen the most adoption in the small group segment,” he says. “Thirty
percent of every piece of business that we sell on the medical side is
an HSA-style product.”
has received several requests for presentations about HSAs for large employers,
think 2007 will be the big push for larger employers,” he says.
“There is a lot more involved with a rollout for a large company
– the education for a 20 person group is fairly simple but a 100,000
person group is much more difficult.”
the public about HSAs is at the top of most insurance company’s
goal now isn’t to sign as many people up as possible but to get
the word out about the advantages, let people learn about it so there
not so frightened by the high-deductible health plans and then they will
adopt faster,” Badger says. “We think it is a hockey stick
adoption rate, and it will really pick up in three to five years.”
Society: Consumers In Charge
HSAs seem to be just the tip of the iceberg in the evolution of the health
insurance market. A whole new concept of consumer-driven health care is
emerging as a leading trend in the industry.
health plans are one component of the consumer-driven model,” says
Stewart. “The whole idea is to get people to take more ownership
of their health – get them to eat healthy, take up healthy hobbies
and think about what’s going on instead of going home and having
a six-pack of beer and a bag of pork rinds.”
end many companies are rolling out companion products and services that
are intended to help their members obtain more information about their
are enhancing our web experience for our consumers to include more information
in the future about cost and quality of health care to support HSAs and
other programs,” Regence’s Badger says. “It will be
available to all members but those with HSAs might realize the benefits
earlier because they are more attuned to the consumer mindset.”
implemented eDoc, a program that connects members to a board certified
and credentialed doctor via email with a guaranteed response within 24
hours, Stewart says.
people are able to get what they need through that email conduit,”
he says. “Twenty-five percent of the people who use it avoid an
ODS offers a 24 hour nurse line, an employee assistance program for mental
and behavior health issues and an online medical library, Stewart says.
Health Care Owners
“Education is the single biggest factor in making HSAs successful,”
ODS’ Stewart says. “Too often people zero in on high-deductible
health plans because it is an obvious way to save money but they ignore
the other resources available or they use one and not the others and they
are all intended to work together.”
also offers its members a nurse line and has web capabilities as well.
have an online health advisor,” Charpentier says. “If for
instance, you were going to have rotator cuff surgery, you would go through
an online questionnaire and find out information about what hospital would
be the best match. You could look at data about the number of surgeries
they performed last year, the number of readmits, whether the hospital
is in the plan our not, close to you or not. All these different statistics
to learn more and move more and more toward being a consumer.”
added that the process is not unlike online car shopping.
groups, Lifewise has set up a mechanism to help employers entice their
employees into using the web capabilities to their fullest advantage.
Some employers will offer an additional contribution to an employee’s
HSA if they fill out a completely confidential health risk assessment
online. The questionnaire helps identify areas where a member might be
at risk and can assist in identifying those who need follow-up care, Charpentier
about changing the patient’s mindset and making them be more of
a consumer,” Charpentier says.
are our best-selling product and they are exceeding our expectations but
they are not the silver bullet,” says Charpentier. “It’s
a step in the right direction. We need to figure out a funding mechanism
for people to afford insurance because deductibles are going to increase
and we want to be able to cover people adequately.