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Diagnosing effects of health savings accounts

Health Savings Accounts, the newly minted government program designed to maker consumers more discriminating about their medical outlays, aren’t likely to hold down healthcare spending as much as first hoped.  -- By Vanessa Richardson
/ Source: contributor

Health Savings Accounts, the newly minted government program designed to maker consumers more discriminating about their medical outlays, aren’t likely to hold down healthcare spending as much as first hoped.

That’s according to a study published in this month’s issue of Health Affairs, a healthcare policy journal. The authors found that HSAs and the high-deductible health-insurance plans they’re paired with can reduce the cost sharing for enrollees who spend the most and the least on healthcare, but increase it for the majority of people who fall in the middle.

The Bush Administration and the healthcare industry have been pushing HSAs as a way to cut healthcare costs, one reason being that people will think twice before spending their own money on pricey treatments and remedies. Another HSA benefit is meant to cut people’s financial exposure by imposing lower out-of-pocket maximums than those for traditional comprehensive plans.

But in terms of  transforming the healthcare industry by reducing total medical costs, HSAs are not the change agent to do it, said study co-author Dahlia Remler, an associate professor at Baruch College’s School of Public Affairs thee City University of New York. “You may get modest savings, but they won’t have an enormous effect. “

HSAs were established in 2004 as part of a law that created the Medicare prescription drug benefit. They offer tax breaks for people not eligible for Medicare who buy insurance policies with high deductibles. To qualify, the policy must have a deductible of at least $1,000 for an individual and $2,000 for a family.

HSA deposits are tax-deductible, up to a maximum of $2,600 for an individual and $5,150 for a family, and the withdrawals are used to pay approved out-of-pocket healthcare costs are tax-free. Unlike previous health-savings plans offered by employers, account balances not used in one year can be carried over to the next, as well as from job to job. And like an individual retirement account, the funds can be used for any purpose when the account holder enters retirement, although the withdrawals are considered taxable income at that time.

More “skin” in the game
The study found that the lowest healthcare spenders, typically the young and the healthy, saw reduced co-payments, or cost-sharing, because of HSAs’ tax breaks.  The main problem is that a very small number of very sick people spend the most on health care. Only 7 percent of people are responsible for half of all medical spending, but they would see either no change or an actual decrease in cost sharing with an HSA and a high-deductible plan. However, cost sharing would rise for the majority of consumers, whose out-of-pocket health spending ranges between $700 and $6,100.  About 30 percent of people in the study’s analysis saw their cost-sharing go up.

HSAs aren’t living up to their reputation of having people spend more of their money, or, as the healthcare industry calls it, ‘putting more skin in the game”. As a result, HSA proponents’ expectations of substantial cost savings may be overblown, according to the study’s other co-author, Sherry Glied, Professor and Chair of the Division of Health Policy and Management at Columbia University’s Mailman School of Public Health

“Most healthcare costs go to treating serious problems like cancer and heart attacks,” said Glieb. “Since those costs are well above the out-of-pocket maximum amount, the very ill face little to no cost-sharing. Since that’s where are the costs are, how much savings can you achieve?”

She also dismisses the view of HSAs making consumers more cost-conscious, saying they don’t improve healthcare decision-making choices. “It’s hard to shop on price because the information currently available isn’t set up that way.  You can know the cost of a doctor’s visit but if something is wrong and you must be treated, the costs for a course of future events is hard to assess ahead of time. It’s not like buying a car or a house.”

According to the trade group America’s Health Insurance Plans, approximately 3 million Americans are enrolled in HSA-eligible plans. More people will continue to be steered to these high-deductible plans by their employers, said John Nelson, formerly president of the National Association of Health Underwriters and a principal of Warner Pacific Insurance which sells health insurance plans to small businesses. “Companies can’t continue to sustain these rate increases, so employees will have to bear out the risk.”

A survey by Mercer Human Resource Consulting found that 73 percent of employers were more likely to consider offering HSAs to their employees this year.

Ironically, HMO plans, which were shunned just a few years ago, are becoming more popular — albeit reluctantly. Kathleen Stoll, director of Families US, a healthcare consumer advocacy group, is seeing a rising trend of consumers moving to the tighter managed-care plans that put a limit on patients’ visits to specialists and treatment costs. “People are saying, ‘I can live with some of that if costs come down and I can lower my premiums.’”

So can the healthcare industry be reformed to bring down costs for everyone? Gleib and Remler’s thoughts are to add more “bite” to HSA, either by increasing cost-sharing or adding more coinsurance. However, that would put consumers at more financial risk.

"It’s a trade-off between more cost-sharing and less insurance protection," said Remler. The more you move away from insurance funding, the more vulnerable people are because they’ll be spending more out-of-pocket costs. That means less protection for people who get unlucky and end up having serious illnesses.”

Even though HSAs may just be the current flavor of the month, they and other reform vehicles attempting to lower costs will have the long-term effect of making the healthcare industry more transparent, said Nelson.  "As people spend more of their own money on procedures, they’ll be asking more questions, and doctors and hospitals will have to learn how to answer them. It’s amazing that $1.7 trillion is spent on healthcare every year, but few people know how much it will cost to see a doctor and get their flu taken care of. So high-deductible plans and HSAs will ultimately revolutionize this business."