The 111th Congress and President Barack Obama have decided to make health reform a major legislative priority in 2009. Despite a flagging economy and a severely challenging fiscal climate, many politicians (and citizens) believe that the time has arrived to change the way our nation finances health care.

Absent in the current discussion regarding reforming our ailing healthcare system is a serious discussion on a key issue overlooked by many: cost. There is a bright spot in this area that has been largely ignored by the mainstream press and print media: HSA’s, or Health Savings Accounts. These tax advantaged plans have quietly performed better than expected in reining in runaway costs, while giving employees the incentive and ability to save money for the future, especially for medical expenses when they retire. Where did HSA’s come from, anyway?

HSA’s were signed into law by President George Bush on December 8th, 2003, as a mere footnote of the Medicare Modernization Act (MMA), which brought us prescription drugs for seniors. Conservative Republican lawmakers, who strongly opposed the MMA due to the costs involved, negotiated for the establishment of HSA’s, and held out their support of the bill until they were included in the legislation.
In order to open a Health Savings Account, an individual must open an HSA compatible High Deductible Health Plan, or HDHP. An employee covered under this arrangement may use funds in their HSA to pay for current medical costs, and if unused, the funds begin to accrue and are carried over into the next year.

HSA’s are the purest form of the consumer directed movement in healthcare, often referred to as the CDHC movement. The hope and intent behind these plans is to change constituent behavior, and drive people towards making better decisions by giving them financial incentives to take better care of themselves, and give them ownership of the funds so that they can become stewards of their own healthcare dollars.

Insurance companies and broker advisors have been a bit subdued about discussing these new plans. For insurance companies, they will see a 25-40% erosion in their “top line” revenues when one of their members switches from an anachronistic, low deductible/high premium plan to a high deductible plan that may allow for an HSA to be established. Not all high deductible plans are HSA compatible, however.

Insurance brokers in Southern California have generally deemphasized these plans with their current clients. For them, they will see a serious decline in their commissions if their clients all moved to these type of plans. As such, it is a key part of a client’s discovery process to ask their current insurance broker to explain an HSA, ask how often they sell them and to whom, and ask them for the pro’s and con’s of such an approach. If an advisor is unwilling to respond, it might be time to look for more open and forthright representation.

Data that is being presented by some of the nation’s largest health insurers suggests that we may want to look at HSA participants and their behaviors in a very serious manner. A 5 year study from AETNA showed some promising findings:

• HSA participants spent 20% more on preventive care;
• Maintained their utilization of drug therapies for chronic conditions, such as asthma, and their levels of diabetic testing;
• Use generic drugs more frequently;
• Are twice as likely to explore online information;
• 95% of HSA members carried over some or all of their fund into the next year.

Critics of HSA’s have attempted to marginalize their impact, charging that they are merely a cost shift and that they won’t work for the rank and file employee. While it is true that the tax advantages of an HSA are profound to higher wage earners, the underlying behavior change is what holds the most promise for reforming our current system. And employers who save money by convertin their plan to an HDHP that allows for HSA’s may be able to fund a part of the account on behalf of the employee.

HSA’s give employees a multitude of advantages. The plans are more tax advantaged than any other plan in the market today, even an IRA. Funds can be used to pay for Long Term care insurance, or COBRA if the account holder is laid off or loses their job. Additionally, HSA funds can be used for a host of other items, including chiropractic care, acupuncture, LASIX surgery, orthodontia, and dental care, to name only a few of the items.

There are compelling case studies from large employer groups varying in industry, as Wendy’s Restaurants, Northrup Grumman, Intel, Amazon, and Whole Foods are just some of the companies who have implemented HSA’s with success.

While an HSA may not yet work for everyone, we should develop a consensus that these types of plans should be promoted and encouraged in order to create and develop a consumer mindset amongst our workforce. I have seen people pore over minutiae provided to them by Consumer Reports in order to buy a stereo system or DVD player, but they won’t apply that same mindset towards a far more critical item: their own health care. We have built a system based on a perverse, third party payor protocol, where an indifferent consumer shrugs as an insurance company foots the bill. We need to get the consumer to become engaged and begin questioning the costs and necessity of certain tests and procedures. Only then will we see a response from the provider side of the equation, as doctors, hospitals, and administrators begin to vie for health care dollars from empowered consumers.

We need greater transparency throughout the entire system of medical care and prescription drugs. Hospitals need to share both costs AND outcomes regarding common procedures. Pharmaceutical companies need to provide generic alternatives to their most expensive drugs sooner, and if they fail to do so, we should demand that our politicians finally stand up to Big Pharma and write laws that will restrict their abilities to promote their products by advertising on radio and television, and restrict the practice of “detailing” doctor’s offices, by sending in young drug representatives with samples of the latest expensive offerings from the various pharmaceutical companies.

If we can rein in the powerful interest groups that are currently benefiting from the status quo, we may be able to provide a health care system that is commensurate with our values and ideals as a nation. Until then, any government solution will continue to fail as it ignores the critical item missing from the equation today: consumer engagement and a realistic discussion regarding cost. The current fiscal state of Medicare is well documented (and lamentable), and is further proof of the danger in allowing the federal government more responsibility and control in managing the costs of providing healthcare to its citizenry.

Kevin Carlin
Houska Insurance Services
(310) 297-2700 x222
Email: kcarlin (at) houskainsurance.com