After being re-elected in 2004, President Bush began touting an ambitious social policy platform, the so-called “ownership society.” Part of this agenda was a strong push for high-deductible health plans (HDHPs) coupled with health savings accounts (HSAs)—tax-free savings accounts to pay for health care expenses.
Like so much else that the Bush Administration attempted, the ownership society flopped, in large part because it called for the privatization of Social Security. With this failure, HDHPs and HSAs fell out of the public spotlight. To the casual observer, the question of whether or not health care reform should move in this direction seemed to have been put to rest.
But even though they are no longer in the political spotlight, HDHPs and HSAs are actually thriving—and in fact penetrating our health care system at a relatively brisk rate. This is problematic. Not only are HDHP/HSA plans poor policy, but their proliferation also weakens the political viability of the health care reform we really need.
Here are the numbers: at the end of last month, the Associated Press reported that the number of Americans enrolled in HDHP/HSA plans has nearly doubled from 2006 estimates, to around 6 million. Admittedly, these plans still have a long way to go before they become a force to be reckoned with. America’s Health Insurance Plans estimate that enrollment in HDHP/HSA plans comprises just 3.4 percent of the private insurance market in the U.S., and in March, Employee Benefit Research Institute (EBRI) estimates that 42 percent of people who have HDHPs and are eligible for HSAs don’t even use the accounts.
Nevertheless, a doubling of enrollees over two years is nothing to scoff at. And while national rates of enrollment are still meager, the picture’s somewhat different at the state level. The AP reports that in Minnesota, the state with the highest percentage of HDHP enrollees, “about 9.2 percent of the state’s total enrollment in private health insurance comes through high-deductible plans. Following closely behind [are] Louisiana, [at] 9 percent and the District of Columbia, [with] 8.7 percent.”
State governments are also beginning to turn to HDHPs and HSAs as models for reform. Last week, Georgia passed a law—with the support of Newt Gingrich—that will give insurers $146 million in tax breaks for selling HSA plans. In Indiana, Health Affairs reports that HSAs are being coupled with Medicaid to provide high-deductible health insurance to low-income citizens.
In practice, the HSS/HDHP combination makes little sense for families
poor enough to qualify for on Medicaid. The $1,100 deductible is more
money that most impoverished families have lying around, and the
requirement that they contribute 2 percent to 5 percent of their income
to the HSA each month ignores the fact that families on Medicaid live
paycheck to paycheck and often run out of groceries before the end of
the month. They don’t have a 2 percent to 5 percent cushion to deposit
in an HSA.
Yet while Bush was unable to broadly institutionalize HDHPs and HSAs in
one stroke, it’s clear that the two still have made major inroads into
our health care system—and into policymakers’ thinking on reform. With
so much activity surrounding HDHP/HSA plans, projections for growth are
optimistic: the U.S. Treasury Department estimates that there will be 14 million HSA policies in place across the U.S. by 2010.
Despite this healthy forecast, HDHPs and HSAs aren’t the answer to America’s health care problems. As I’ve noted in the past,
consumer-driven health plans require a lot of out-of-pocket spending
(even in the Indiana Medicaid/HSA program, the annual deductible is a
not-cheap $1,100). Big expenses at the point of service encourage
patients to forego necessary care—including patients with chronic
conditions, who often end up needing more costly and extensive
catastrophic care down the line. With HDHPs, patients save now, and
pay—a lot—later.
HDHPs and HSAs also do little for the uninsured, since most families
without health insurance are low-income won’t be able to afford health
coverage that asks them to pay $4,000 out of pocket before their
insurance kicks in. (In 2005, $4,000 was the average HDHP deductible
for a family). No wonder EBRI found that in 2007 only 7 percent of people enrolled in
HDHP with HSAs were uninsured before they got their current plan, and
just 15 percent of those in HDHPs without HSAs had no insurance before
enrolling.
Asking people to pay more is not the way to expand health insurance to
those without it—especially since the higher out-of-pocket spending of
HDHPs is often coupled with increasingly expensive premiums. In April, the Minneapolis Star-Tribune reported
the story of John Gruber, a 63 year-old man who has an HDHP/HSA plan
and who has continually seen his health care costs increase. Even
though Gruber’s medical bills have never exceeded his deductible, his
insurer Blue Cross Blue Shield upped his monthly premium from $337.50 a
month to $470.50 in 2007, a 39 percent increase. His annual deductible
also increased from $3,500 in ’04 to $4,100 in ’07.
Gruber’s case is not unique: the Star-Tribune quotes Blue Cross Blue
Shield as admitting that HDHP premiums are increasing just like those
for traditional insurance plans. Patients are paying more out-of-pocket
and more in premiums. And don’t count on HSA savings to soften the blow
of high health care costs, which have been growing faster than
investment returns.
The only folks who can really benefit from HDHPs and HSAs are
high-income earners. When you have enough money to pay for your health
care expenses, high-deductible plans aren’t a problem; and if you are
wealthy, you also have more money to save, making HSAs more useful.
Finally, HSAs offer a way to permanently shelter you income. Like an
IRA, or a 401-k, an HSA gives an employee a chance to squirrel away
pre-tax dollars—you don’t pay any income tax on the money the year you
put it into the
tax shelter.
But with the HSA, the deal is even sweeter: when employees withdraw
money from the HSA to cover medical expenses, they still don’t have to
pay any taxes on the either the principal or the dividends and capital
gains that have compounded over the years. Moreover, “medical expenses”
include items often not covered by health insurance including contact
lenses, in vitro fertilization, psychoanalysis and dental work.
As a tax shelter, the HSA has no peer, at least for healthy, wealthy
Americans. Today, a family with cash to spare can sock away up to
$5,800 a year, tax-free, sign up for high-deductible policy that will
cover catastrophes—and then pay for check-ups, flu shots, mammograms,
eye exams and the occasional childhood accident out of a separate
account.
Why not use the $5,800 in the HSA to cover the medical expenses?
Because if you don’t touch the HSA you can carry it over to the next
year, contribute another $5,800 and watch the account compound,
tax-free, for decades.
As a gift from the government (actually a remarkably generous present
from other,less fortunate taxpayers), the HSA can’t be beat. A family
that tucks $5,800 into an HSA for 30 years, and earns 7 percent a year
on their investments, will wind up with a nest egg worth well over half
a million dollars—tax free. You can then leave the HSA to a spouse,
again without paying taxes. (If your spouse happens to be, say, 20 or
30 years younger than you are, he or she can look forward to continuing
the family tradition of contributing to an HSA, and watching it grow,
tax-free, for another few decades).
A GAO report
from last week suggests that families have caught on to the benefits of
using HSAs as tax shelters. In 2005 contributions to HSAs totaled $754
million, more than double the $366 million in withdrawals. This
disparity between what people put in and what people take out of HSAs
suggests that there’s a certain degree of money hoarding at work, with
folks taking advantage of the opportunity to stash big bucks away in a
tax-free haven. This has nothing to do with promoting healthcare or a
healthier America.
Given the advantages for the wealthy, it should come as no surprise
that taxpayers with HSAs earn almost two-and-a-half times as much as
the average American, with an average adjusted gross income of
$139,000—compared to $57,000 for all other filers.
Besides the basic injustice of a health care policy that so explicitly
favors the rich and the healthy, there’s another reason to be concerned
over the high-income bias of HDHPs and HSAs. Maggie has written a lot
about how meaningful, system-wide health care reform is going to
require a high degree of unity, and she’s right. But HDHPs and HSAs
undermine this unity by giving high-income Americans the opportunity to
“check out” of health care reform.
Think about it. HDHP/HSA plans are a sweet deal for the rich. They pay
for care only when they need it—a risk that they can afford thanks to
their deep pockets—and they have a new tax shelter to boot. How on
Earth are we going to convince the rich to pay higher taxes to fund
universal health care if they settle into this cushy situation?
Unfortunately, HDHPs and HSAs are indeed becoming the pet policy of
high-income earners. According to a March Employee Benefits Research
Institute/Commonwealth Fund report,
31 percent of households that held these plans had incomes of $100,000
in 2007—up from 22 percent in 2005. In contrast, just 19 percent of
households with high-deductible plans made under $50,000 in 2007, down
from 33 percent in 2005. The demographics of HDHP/HSA plans are
becoming more uniformly high-income. (Meanwhile, there was little
change in income distribution of people enrolled in traditional
insurance).
HDHPs and HSAs run the risk of dividing our commitment to health care
reform by fragmenting interests—and not just for rich people. Like
high-income Americans, employers have a vested interest in exploiting
HDHPs and HSAs. In this case, the appeal lies in the offloading of
responsibility. Premiums tend to be lower for HDHP plans than for
traditional health insurance, which means that employers contribute
less to them. Further, employers are not required to contribute to
employees’ HSAs—and in fact there’s a legal limit to how much an
employer can contribute if it chooses to do so.
This is good news for employers, who are eager to minimize their health
care responsibilities. Indeed, the proportion of U.S. workers covered
by employer-based coverage fell
from 51.1 percent in 2000 to 48.8 percent in 2006. HDHP/HSA plans might
be a happy surprise for the rich, but for employers, they are a
long-awaited backdoor exit. So it’s no surprise that firms are
increasingly offering HDHPs and HSAs to their employees. The Kaiser
Family Foundation reports that in 2003
less than one percent of firms offered HDHP plans with HSAs; in 2007,
the share rose to 4.2 percent. Once again, this is not a whopping
number, but it’s a rapid increase.
Here we have the same problem that surrounds high-income earners: how
do you get an interest group to think of the greater good once they
catch wind of an immediate alternative that furthers their own
self-interest? Can we really expect employers to embrace health care
reform that might require mandates or some form of employer-based
coverage once they succeed in disengaging from health insurance? Once
they’re out of the health care business, it won’t be easy to pull them
back in—even as an intermediary step to universal coverage.
It’s important to note that neither high-income earners nor employers
are officially “out”—at least, not yet. HDHPS and HSAs make up only a
tiny part of our system. But as these policies continue to gain ground,
the fracturing of health care interests will become more and more of a
problem. Wealthy Americans and businesses are two of the most
influential lobbies in U.S. politics, let alone health care. If they
feel that their self-interest is being served without broader systemic
change, then reform is going to be that much more of an uphill battle.
Ultimately, we should be concerned about HDHPs and HSAs not only
because they’re bad policy—which they are—but also because they get in
the way of good policy. And we should get moving on meaningful,
universally beneficial health care reform before it’s too late.
Not only are HSA’s bad policy – the policies themselves are bad. The ROI is even worse than traditional plans. The insurers are raising the premiums just as much or more and they cover even less. Not to mention that insurers are cherry-picking applicants – and this is usually for a last-ditch effort by the applicant for a catastrophic plan.
Sensible, but I find it a bit of a stretch to argue that these tax breaks actually slow progress toward real health reforms, except insofar as they eat up revenues better used elsewhere. in fact, the rich are not a constituency for health reforms because the system generally works well for them. they’re not being lured away from the health reform army because they were never there – or even attractive potential recruits.
There must be different versions of HSAs. A previous employer of mine offered them. However, the deal was that whatever we had put away had to be spent by the end of the year or it was gone. I didn’t like the idea that *my* money could just disappear b/c I didn’t correctly estimate how much I would spend in a year so I didn’t sign up. I remember asking for clarification — and HR confirmed that the funds do not roll over.
Sorry, Maggie, you are off base on this one. Consumer Driven Health Care is the best thing that has happened in health care in 40 years. People are using them intelligently — getting generics instead of name brand meds, avoiding hospital ERs, doing more prevention, complying better with treatment programs, demanding information and patient support services.
As a result costs are stabilizing. Rates for CD Health plans are rising at less than half the rate of PPOs and HMOs. Look at the recent Mercer study.
HSAs are only one form of consumer driven health plans. There are also HRAs and high deductible plans without a savings account component. Taken together, these plans represent about 10% of the benefits market, as even EBRI has found. And, as you say, they are growing fast — because they have been proven to work well.
There will always be some people who prefer the one-stop-shopping aspect of an HMO and they should be free to choose that if they wish. But a lot of us are not thrilled to be in an HMO prison and would prefer to make more of our own decisions, thank you.
Greg Scandlen
HDHP’s are a Short term solution for a long term problem. There is no such as Consumer Directed Healthcare, even the examples they give are misleading. Yes you can find out how much the Surgeon will charge, But what about the Anesthesiologist, or pathology and Radiology. Don’t forget that New Breed Hospitalists.
Kelly & Jim Jaffe
This is Niko’s post, but let me weigh in on a couple of points–
Kelly– I’m not sure what your employer was offering. You were wise not to take it.
Here are the official rules for HSAs–they definitely do roll over if you don’t use the money:
http://www.health–savings–accounts.com/hsa-tax-deductions.htm
Jim–
I hear you when you say that the rich never were going to be in the vanguard of health care reform.
But there is a pretty large upper middle class (say households earnings between maybe $80,000 and $200,000) who, if they are liberals, are probably in favor of health care reform and are just beginning to figure out what a good deal the HSA could be . .
(It took a suprisingly long time for people to figure out what a good deal IRAs are. People’s eyes just glaze over when they hear about changes in tax law.)
So I think the health reform movement could lose
some folks in that group if HSAs continue to catch on.
And if McCain is elected, there will be a big push to get everyone to open up an HSA.
Greg–I think we’ll have to agree to disagree on consumer-driven plans.
The consumer-driven model works best if you are well-educated, making a fairly simple medical decision, and are neither elderly or very, very sick. Even then, many physicians feel that the consumer vs. seller model undermines the patient doctor relattionship.
And when it comes to reining in health care spending, most (80 percent) of our heatlh care dollars are spent when people are very, very sick; and often they are older and not well-educated.
Some of you may be interested in what I wrote here about consumer-driven healthcare:
http://209.85.215.104/search?q=cache:XK8kDI7ym-8J:www.thehealthcareblog.com/the_health_care_blog/2006/06/policy_consumer.html+%22consumer-driven+care%22+and+critics+and+2008&hl=en&ct=clnk&cd=9&gl=us
Wow. Alot of opinion there. I have many comments, too many too post here. So instead I put my counterpoint comments at the following.
http://doctorsh.blogspot.com/
“Like so much else that the Bush Administration attempted ..”
.. has been as failure-prone as Clinton as a moral leader, Carter with the economy, and LBJ and the African-American family.
And the public knows it. No matter what the Michael Moore Fan Club thinks.
Maggie,
Thanks for the link to your post. It was a thoughtful piece, and I appreciate that.
I would never say that CDHC is “the answer” to the problems in the health care system. It is only a step in the right direction. We have all been fretting for decades over how to get patients more involved in understanding and buying-in to their health care needs. CDHC is the most effective means to that end that has ever come along.
Certainly you are right that very often the optimal treatment is unknown or ambiguous. But isn’t that precisely when the patient should be making the final decision? Who else should do it?
That does not mean the patient is playing doctor, only that patients will consult with physicians they respect for the best recommendation and will decide on what course of treatment they are most comfortable with. It is, after all, the patient’s life and health that is at stake.
CDHC is not the answer to really big, high cost procedures. Those conditions need other solutions. But CDHC does not detract from those other solutions, either.
IMO, we all have to stop searching for the One Big Solution that will solve all our problems. It doesn’t exist, and shouldn’t exist, in a complex society
And, btw, the Cash & Counseling programs in Medicaid have shown that you don’t have to be a well educated yuppie to make these decisions. People with limited educations and limited finances are capable of controlling the resources available to them and making decisions that are best for their own circumstances.
“the policies themselves are bad”
The Washington Checkbook Magazine concluded this year that an Aetna CDHC policy was the best value available in the Federal program.
And it’s important to realize that the poor cannot afford any insurance, comprehensive or consumer-directed high deductible, without a government subsidy.
Government subsidy and CDHC are not mutually exclusive. See, for example, my website:
http://www.plan.bipartisanhealthplan.com
I would like to know how I can earn 7% on my HSA, as your article proposes.
Greg, Alan, Robert and Happy Hospitalist–
Greg and Alan–
I suspect that when you talk about “consumer-driven medicine” you are talking about what I would call “patient centered medicine” with “shared decision-making.
I’m going to write a post about the differences.
Happy Hospitalist– I’ve written a book about the Bull market of 1982-1999, and based on research I did for the book, and what I learned while working at Barron’s, I would say:
You can’t be guaranteed 7 percent but you can be pretty sure of earning an average of 7 percent long term if you a)diversify and b)look at long term trends c)are patient and buy when prices are down.
When I finished that book in 2002, I recommended thar readers buy commodities (especially oil and gold) because they were due for a long-term bull market and because world supply was not meeting growing global demand for oil. I thought the dollar was overvalued, and so recommended gold as an alternative. I also recommended that people buy mutual funds investing in Asia (primarily China, SE Asia and India) that had a good long-term track record (10 years or more).
I also said, look for funds or stocks paying dividends.
This worked out pretty well.
Today, I’d say go to a site like Morningstar, pay to become a member so that you can get detailed information and look for mutual funds that have a very good long-term track record (10 years or more) with the same person managing the fund. Look for consistency. You’re looking for someone who does well both in good markets and in bad markets. Look at charts of the funds’ returns. Look at “total return” which includes dividends.
Don’t buy a fund when it’s at a five-year high. Even consistent funds have dips.
Buy when it’s down 10 percent. (But make sure you understand why its’ down 10 percent. If it’s because someone is down spreading a rumor that China is about to attack Taiwan, that’s fine. Probably won’t happen. If it’s because the fund manager with the great record just died, it’s not.)
Robert–
The WAll Street Journal and the Employee Benefit Research Institute recently put out a report on CDHC.
Here is what they said:
“Advocates say these plans ultimately will help to decrease the number of uninsured, encourage cost-consciousness among consumers and increase the amount of information on the cost and quality of providers.
“Critics say they do little other than shift costs from employers to workers, and favor wealthy and healthy participants at the expense of those with lower incomes and poorer health.
“The latest of three annual surveys released last month by the nonpartisan Employee Benefit Research Institute (EBRI) and the Commonwealth Fund produced mixed results that amount to neither a ringing endorsement nor a total denunciation of consumer-driven (and high-deductible) plans. Among its major findings:
“in all three annual EBRI/Commonwealth surveys, people in these plans were more likely to skimp on needed medical care or medications because of cost than were those in more comprehensive plans.”
This, to me, is the main problem with these high-deductible plans. Reserach shows that consumers with a high deductible are just as likely to defer needed care as unnecessary care.
Also, the Wall Street Journal notes: “Consumer-driven plan participants continue to be less satisfied with various aspects of their health plan than those with more comprehensive insurance. However, the EBRI/Commonwealth survey found they were somewhat more satisfied with their plan in 2007 than they were in the two previous years. ”
Finally, the WSJ noted: ” a new report by Milliman and the National Business Group on Health (NBGH), looking at six employers’ plans with 30,000 workers, found that consumer-directed plans created a “modest” 1.5 percent savings for employers. Higher cost-sharing by workers discouraged utilization, accounting for the savings. ”
Maybe if consumers had better information they could make better choices and experience better savings.
But the fact is that medicine itself is shot through with ambiguity and uncertainties which makes “transparent information” impossible in many, many areas.
If I have a mole, should I go to the doctor to check to see if it’s skin cancer?
Maybe, maybe not. Going online really isn’t going to answer my question. Someone who has seen a lot of moles –cancerous and not cancerous needs to look at it . . .and even then, he’ll take a sample
On the one hand, my chances of getting skin cancer aren’t that high. On the other hand, if it’s the “wrong kind” of skin cancer I could die.
But I really can’t afford the $2000 deductible. So I don’t go. Or I could afford it, but if I spend the $1,000 on health care this year (in addition to my premiums) I can forget about a vacation this year . . .
As for information telling me whether a doctor is giving me good value for my dollars– The “rogue doctor” that my friend Tom went to is very highly rated on report cards. (See that post and the most recent comment.)
Allan–
Here’s the other view on CDCH and some pretty good evidence (see links)
:Consumer-Driven Health Plans Prevent Prevention
By Jeanne Lambrew
The biggest threat to the nation’s health is not avian flu, AIDS, or bioterrorism. It is preventable, chronic disease. Roughly 70 percent of health costs and deaths are attributable to smoking, obesity, and health problems that could be prevented.
Most Americans do not know about or value prevention. One out of five diabetics and one out of three hypertensives are unaware of their condition. Those that do know what they should do often skip treatments or steps to improved health. Prevention’s perceived value is low since its potential benefits are distant.
The answer, according to conservatives, is increased individual “ownership” of health care dollars. Our failure to promote prevention, they reason, lies in government mandates and over-insurance that de-emphasize personal responsibility. Why diet when insurance pays for gastric bypass surgery? Why exercise when you can take a pill to lower your blood pressure? When people can be treated for any problem with first-dollar coverage, goes the reasoning, they may not prevent those problems in the first place. As one conservative says, the incentives are upside down. Therefore, if individuals reap the financial as well as the health rewards of prevention, they may be motivated to action. In policy terms, this means replacing traditional insurance with health savings accounts linked to high-deductible health plans.
Problem is, this “solution” has not seemed to work in reality. Information provided to enrollees in these consumer-driven health plans is infrequent and inadequate to help consumers make smart decisions.
Even Americans who know about preventive medicine tend to use it less when it costs them money. One study showed that even $10 co-pays caused a significant reduction in the use of mammograms among seniors. http://content.nejm.org/cgi/content/abstract/358/4/375This is why effective health insurance plans often make prevention free or linked with some monetary benefit.
High deductibles also appear to harm efforts designed to forestall or prevent complications of an established disease as well: People with arthritis, heart disease, high cholesterol, and asthma were two to three times as likely to not fill a prescription due to cost when enrolled in a high-deductible plan versus a traditional insurance plan.
Even the insurance industry doesn’t stand behind the belief that consumer-driven health plans drive improved prevention. It recently issued a report focusing entirely on how high-deductible health plans are increasingly waiving deductibles for preventive care. http://www.ahipresearch.org/pdfs/HSA_Preventive_Survey_Final.pdfThis is more than an exception to the rule: It repudiates the theory behind these plans.
There is a better way. Prioritizing prevention means paying for services wherever, whenever, and for whoever needs it. It means investing in communities, schools, and workplace wellness efforts. And it means moving beyond private insurance as the sole solution: those companies simply have no incentive to invest in prevention today that benefits others later.
For additional reading:
Elise Gould, “Consumer-Driven Health Care is a False Promise,” Economic Policy Institute, October 11, 2006.
Marjorie Ginsberg, “Rearranging The Deck Chairs: Consumer-directed health care confronts the problems of health insurance,” Health Affairs- Web Exclusive, October 24, 2006.
This is outstanding news. Those who fear what will happen when the government allows American patients the right to control their own health dollars are scared about the penetration of consumer-directed health care. When President Bush Signed the Medicare Modernization Act of 2003, I was concerned that it did too little on the consumer-directed front, as HSAs are over-regulated just like the rest of health insurance. It’s good to see that even a tiny bit of freedom can significantly change things – like when communist China allowed peasants to take individual ownership of small plots and farm a little there, instead of on the collective farms. People stopped starving!