Success for consumer-driven healthcare means more than simply reassigning payment responsibility from the employer/health plan to the employee/consumer via greater cost sharing and deductibles -- which is exactly what HMOs and PPOs have done in the past few years. A true healthcare transformation means consumer-driven plans must become flexible enough to accept a wide range of customers, based on their needs, income and health conditions.
HSAs -- newly minted by the Medicare Modernization Act of 2003 -- are the most liberal of consumer-directed options, which also include flexible spending accounts and health reimbursement accounts. Individuals contribute to HSAs on a tax-free basis on both ends, meaning putting money in and taking it out -- a new Internal Revenue Service twist. Employers also can contribute and employees can roll any unused money into retirement accounts.
The HSA requires the purchase of a high deductible health plan -- $1,000 for individuals and $2,000 for families -- some of which is recouped by savings on premiums. Consumers use HSA account money to pay for medical services up to the deductible limit.
The key drawbacks, however, are affordability and limitations on yearly investment, as well as the government's rules about what medical expenses can qualify for HSA dollars.
Aside from expenses that would be covered under a health plan, the IRS has ruled certain preventive care services also can be covered with HSA money and counted toward the plan's deductible. For example, the agency is expected to rule soon on whether some prescription medicines used in disease prevention efforts can be included.
For the HSA to be a healthcare mover and shaker, however, Congress must give it more flexibility, according to Paul Ginsburg, president of the non-partisan Center for Studying Health System Change.
He told a recent conference, sponsored by the bipartisan Alliance for Healthcare Reform, the best fix would be to "define the cost-sharing requirements in terms of actuarial value." In other words, Congress should limit what can be paid per insured person, but allow greater flexibility in structuring benefits, to include more people who now do not fit into the HSA mold.
Giving people control over their healthcare dollars, HSA proponents argue, should make them better shoppers.
No one knows, however, how consumers will react over time. Will they make better decisions with HSA dollars coming directly out of their pockets, selecting more-efficient or better-quality-rated healthcare providers? Or, will they be stingy with themselves, foregoing needed preventive healthcare to save money?
If a lot of people travel the second path, it ultimately will cost the healthcare system more, because they ultimately will end up in hospitals with serious ailments that might have been mitigated by early detection and treatment.
Early indications are consumers will make good choices, but these questions will not be answered fully for months or even years, until data on HSA usage can be compiled.
The early take on HSAs is "good but not convincing yet, because it's still too new," said Tom Miller, senior health economist with the Joint Economic Committee in Congress. "(But) it's a ripple that's not going to stop," he added.
Gary Claxton, a vice president of the Kaiser Family Foundation, told the conference that HSAs, much like HMOs, could have some growing pains.
"The first people who move (to an HSA) are the people who aren't experiencing a lot of health problems and it's going to take a while before we know how it is the experience of the people who take these products vs. the experience of the people who don't really plays out and how effective they are at saving money," Claxton said. "How much of it is really about just offering fewer benefits or different benefits, how much of it is really changes in behavior."
Dr. Michael Parkinson, the chief medical officer of Lumenos Inc. in Alexandria, Va., one of the largest offerers of consumer-driven health plans, told the conference he is convinced the changes brought by HSAs will be the real deal.
"I believe this is a transformational event, because for the first time in 70 years, this model realigns the incentives in a sector of the economy that makes up 15 percent of the GDP (gross domestic product)."
The five-year-old Lumenos firm has generated more than $130 million in venture capital on this premise. It has 65 clients nationwide, 25 of which have chosen HSAs to fully replace their group health plan option. That eliminates one criticism of HSAs -- that they would result in adverse selection.
The fear is the healthy, wealthier and younger workers would opt for the HSA because of the tax benefit and lower premium cost, leaving the group health plan with the lower-income, older and sicker workers. This could, potentially, destabilize its risk structure and cause a spike in premiums. Some health plans have produced small participation numbers that do show a wider cross-section of employees are buying into the HSA concept but overall, it still is too early to tell overall.
Parkinson said the HSA option has been very popular -- with 35 percent to 65 percent enrollment in the first year when banked up against HMO and PPO options.
The chronically and seriously ill that make up about 20 percent of the healthcare system use up about 80 percent of the healthcare dollars. HSA-only employer options would include everyone in the company, but could create serious troubles for the chronically ill -- such as an HIV/AIDS patient.
Triple-drug cocktails keep many HIV/AIDS patients fairly healthy and in the workforce, but their high cost can send a patient quickly to the maximum limits -- and beyond -- of even the most generous group health plan. The stricter limits of a high-deductible plan, usually associated with consumer-driven healthcare products, simply may not work with HSAs.
Parkinson recognizes the chronically ill and low-income workers as challenges. Lumenos is talking with three state Medicaid programs, he said, pushing the HSA concept into the public sector.
Among the chronically ill, such as diabetics, Medicaid may be interested in the idea of putting money into an HSA account for these clients, along with giving them assistance with a healthcare coach, to see if the program could save money while providing better care.
Low-income workers who earn too much to qualify for Medicaid cannot afford either group coverage from their employer or individual coverage if health benefits are not offered at work. How much money would they realistically have to put toward an HSA?
"The family deductible is a much bigger obstacle than people perceive," Ginsburg noted.
Another hurdle for HSAs to overcome is the limitation on how much a person can contribute each year. The big hype is people will use their HSA to save money they can roll over each year into a tidy nest egg for healthcare costs associated with their retirement -- Medicare co-payments and deductibles, along with long-term care and supplemental insurance costs. It might depend on how much HSA money is spent each year on healthcare costs toward the plan deductible, but policy analysts have done the math and Congress will have to do a bit more than tweak the numbers to make that retirement dream a reality.
The IRS rule for calendar year 2004 puts the maximum possible monthly contribution at $2,600 for individuals and $5,150 for families. The amount also varies by plan type and deductible.
An Employee Benefit Research Institute study just out finds this concept might work for a twenty-something -- but the baby boomers are not likely to pull it off.
Paul Fronstin of EBRI found a 55-year-old individual could save as much as $44,000 in an HSA before retirement at 65. If that person lives to age 80, however -- which with today's medicine is more likely than ever -- he or she will need about $137,000 to pay premiums and out-of-pocket medical expenses. Crank that up to $250,000 at age 90.
Younger workers, however, could save more than $300,000 over a 40-year career -- but even that might not be enough, given the rate of healthcare cost inflation, the study suggested.
The dramatic downfall of managed care, a la 1990s, left the insurance industry struggling to come up with a solution to lower costs for employers. It came up with the HSA and the Bush administration bought into it. The challenge now is to make it inclusive and affordable.
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