The Coming Perfect Storm in Healthcare

We are in the midst of significant healthcare change that rivals the introduction of Medicare.  Not only are we about to insure 20 million people for the first time, but the role of hospitals is moving towards being the center for wellness in the community.  Further, Accountable Care Organizations (ACO) are mushrooming and is the impetus for hospitals buying physician practices by the boatload.  Current operating hospitals have the lead in benefiting from this shift but it is not clear whether or not they can drive costs down.  Up to this point many medical prices have risen when a hospital takes over a medical practice.

There is a provision in the Accountable Care Act that is not receiving much press.  There is a provision for Direct Primary Care and Patient Centered Medical Homes which have been created as an option in the Medical Insurance Exchanges.  This approach is in direct competition with the ACO. It is based on the concept where a person purchases a large deductible health insurance plan.  With the savings, one contracts directly with a primary care physician for a monthly fee ($75-$150 per person) which covers all primary and limited secondary services which are needed.  This approach creates a win/win for the patient and the physician.  The physician is motivated to provide longer patient visits aimed at prevention and wellness.  It is a more personal service as the patient and physician relationship is emphasized.  You see the same physician and over time this provides better primary healthcare. In addition, it can work with a Healthcare Savings Account (HSA) and catastrophic insurance that provides further incentive for the patient to take heed to the wellness directives of his physician.  This approach is not overly publicized and is not currently backed by large equity capital.

Another emerging trend is the continuing growth of the so-called Minute Clinics.  These providers are usually located in large chain drugstores.  They emphasize fast low cost episodic primary health care. They use physician extenders and emphasize low cost and value. They are well capitalized and have become very successful.   They currently are expanding their range of services to wellness and managing chronic illness. They are a strong competitor.

Perhaps the biggest development is the increasing attention being paid to Certificate of Need (CON) laws. These laws date way back to the period of the 1970’s when central planning for healthcare programs was initiated.  These laws unfortunately often protect the status quo and those facilities that are already operational. In South Carolina the CON law has not been funded this year and is beginning to become clear that a CON will not be required to build and operate health care facilities and programs.  This development will allow for new arrangements in health care delivery and most importantly new competition into the existing mix of providers.

Everyone agrees that health care costs are too high. We are either going to head down the central planning road toward socialized medicine as a way to control costs, or down the free market direction that will allow competition and free market forces to help control costs.  These new programs and trends seem to be leading us down the road of competition and free markets.  The insurance exchanges and the trend of employers dropping healthcare coverage will allow individuals to purchase their own healthcare and will help drive patients into the Direct Primary Healthcare option.

Of course the approaching clouds could be diverted and politics as usual could prevail.  However, now is the time to look for great change in healthcare.  These changes may very well surprise us.

When you have an ethical dilemma…

I came across a guide for ethical behavior published by International Paper.  I thought it would be helpful.

When in doubt, ask yourself…

  1. Are my actions legal?
  2. Am I being fair and honest?
  3. Will my actions stand the test of time?
  4. How will I feel about myself afterwards?
  5. How will it look in the newspaper?
  6. Will I sleep soundly tonight?
  7. What would I tell my child to do?

If you are still not sure what to do, ask….and keep asking until you are doing the right thing.

Comparative Effectiveness Research

Powerful forces continue to propel our national health care costs upward.  One such force is unrealistic expectations. We often expect too much from our health care system. We find it easier to depend on the healers rather than do the things that we know will prevent illness. The number of people reporting serious illness episodes has increased over 150% from 1920 to 1980. This attitude is firmly entrenched and has helped lead to an explosion in health care costs.

In addition, a further factor in the increasing health cost dilemma is the fact that health care costs and utilization differ markedly across the country. For example, one study showed that in the last 2 years of life patients used 10.6 hospital patient days in Bend, Oregon compared to 34.9 days in New York City.  In the last 6 months of life patients visited a doctor 15.5 times in Ogden, Utah and 59.2 times in Los Angeles. Further, a recent study in the Journal of Health Affairs found that more intense and costly care does not necessarily provide better quality treatment. How can we address this dilemma and develop better decision making tools for patients and providers?  On what basis can we change our reimbursement systems from payment for expensive procedures and services to payment for value and wellness?

One tool that addresses these issues is Comparative Effectiveness Research (CER. Our current Federal budget allocates over one billion dollars to fund CER.  The goal of CER is to provide tools for better decision making by patients and providers.  The Institute of Medicine clearly explains the concept. The medical field is founded upon an inherent trust placed by the patient in their doctor. Often the doctor and the patient must make decisions in the absence of complete information.  CER offers the opportunity to address these challenges by demonstrating the effectiveness of one strategy over the other for a certain condition.  This results in the ability of patients and doctors to make smart health decisions founded on sound scientific evidence.

It has been suggested in a report by the Congressional Budget Office that by using the results of CER, Medicare spending–and perhaps all health care spending in the country–could be cut by about 30%. Other estimates offered are much less; however, most everyone agrees that by utilizing CER we could reduce unnecessary health care costs and utilization significantly. There is a growing trend toward high deductible health insurance that is coupled with a Health Care Savings Account.  These patients would be an ideal user of CER information as a tool to control costs and become wise shoppers for health care services.

A common criticism of CER is that it will become a back door leading to rationing health care.  The out of control spending on Medicare and the health care system in general would be a driving force that would promote it. CER without proper safeguards of patient and physician involvement should not be the final basis for determining proper medical treatment.

The ethical issues of any limits placed on healthcare services are very complex. Pope John Paul II in his “Evangelum Vitae” stated that we must never give in to the culture of death.  However he also stated that “life does not require using every available means to postpone death but what is always wrong is direct and intentional killing.”  John Frame, a professor at Reformed Theological Seminary in Orlando, Florida writes that “we can let a patient die when we lack in some way the resources to save his life, whether they are time, technology, or skill.

The ethical use of CER will be necessary if we are to retain the excellent attributes of our present system. Current reform proposals are being hotly debated in Washington.  Our complex health care system is already scheduled for significant change. Any utilization of CER must maintain the central role of the physician and insure that the patient is at the heart of health care. We must insure that CER will not become politicized and that a permanent bureaucracy not be allowed to prescribe patient care. Unfortunately we are dependent on the stated objectives of CER by Washington. Hopefully there will be an improvement in the ability to match words and actions. Life is full of trade-offs and hopefully CER will be a positive tool that will become available to all of us as we approach the end of life here on earth.


Consumer Directed Healthcare – Requirements For Success

A recent article in the Wall Street Journal got my attention.  It was about a Chinese prevention-oriented physician, Dr. Hu.  His practice was very effective in treating hypertension, one of the largest killers in China.  He gave free advice and low-cost generic drugs to treat hypertension which proved to be effective and resulted in his popularity among the people.  However, the hospital and its related physicians became very upset with Dr. Hu because his methods negatively affected their income which is based to a high degree on the utilization of high-tech drugs and expensive testing in the hospital.  One third of the population in China has access to the healthcare system with health insurance.  Two thirds of the population have no health insurance and must pay for their services out of their pocket.  Hence they look for the best value in medical services available.  Dr. Hu is continuing his practice of prevention in spite of the “frosty” relationship with the hospital and other physicians.

This story about healthcare in China illustrates the problems and opportunities of Consumer Directed Healthcare (CDH).  When people spend money out of their pocket they tend to shop for healthcare services more like they would for food or other consumer services. They look hard at the price and quality of the service.  Our system is currently based primarily on third parties who insulate the consumer from the true cost of healthcare services. In spite of the number of uninsured, those with insurance are often over insured.

Our healthcare system continues to grow with no end in sight.  The per capita healthcare costs in 2005 were $6,697 and accounted for one sixth of GNP, while in 1980 it was only one tenth of GNP.  At the same time, last year 61% of businesses offered health benefits to at least some employees down from 69% in 2000.

There are several critical changes that must occur in our present healthcare system if we are to capitalize on the Consumer Directed Healthcare movement and make healthcare more available to all in a more cost effective manner.  They are the following:

1. We need to take personal responsibility for and a more preventive approach to our health. The Center for Disease Control has stated that preventable illness and medical conditions comprise approximately 80% of the burden of illness and 90% of all healthcare costs and account for 8 of 9 leading causes of death.  More than half of all Americans are obese, a number that has grown dramatically over the last decade.  Researchers say that obesity poses a major threat to public health due to the clear association between obesity and a variety of chronic diseases such as Type II diabetes, heart disease and cancer.

The concept of a high deductible health plan (HDHP) coupled with a Healthcare Savings Account (HSA) must become more understood.  However, HDHP’s are off to a good start.  A Goldman Sachs study recently reported that 6.7 million lives were covered in 2006 and projected it to grow to 49 million by 2010.  Medicare now offers an HSA alternative but very few know about it.

2. Price and quality information must become ubiquitous.  Currently this information is very difficult for the average citizen to obtain.  Most information is by word of mouth and haphazard at best.  Hospital information is available and easier to obtain than physician information.  Most of the sources are private and charge for data access.  A new website committed to providing transparent pricing information to consumers for free is  A visit to the site will reveal the significant range of prices for the same procedure at different hospitals.  For example, according to a recent study it cost $91to treat a patient for strep throat in a doctor’s office and $310 in a hospital ER. They are working on providing physician data sometime later this year.

3. Physician malpractice reform must become reality.  The direct costs of the mal-practice system are about $28 billion annually in addition the amount spent on misplaced or lost information.  But this is only the tip of the iceberg.  Defensive medicine, such as extra tests are currently necessary which adds a significant additional amount to the cost of healthcare.  Meaningful reform in the mal-practice arena must be made.  Trust must be restored to the legal system and become able to fairly assess good care from bad care.

A reasonable reform is the development of specialized healthcare courts which would have no juries.  Specially trained administrative judges would receive advice from neutral experts who would make decisions and write opinions on standards of care.  More information on this concept can be obtained at

4. Limit and equalize the tax deductibility between employer based healthcare insurance and non-employer based individual insurance. Currently, tax law favors third-party insurance over individual self insurance and favors employer-provided insurance over individually purchased insurance. It will be necessary to develop some kind of community rating and insurance risk pools for health plans so that premiums become affordable to all regardless of their health. Subsidies should be available to those with low income.

In conclusion, we have a very sick healthcare system and the wrong people are being rewarded. We need a fully informed patient with choices.

Routine and minor care should be provided by HSA’s. Catastrophic care and long term illness would be covered by traditional private insurance. More freedom in the healthcare market place will offer new opportunities. The fact of the matter is the system will change.  How will it change?  Will it be primarily consumer controlled or government controlled?


Direct Primary Care as an Option

A new study by the Harvard Medical School entitled Health Insurance and Mortality in U.S. Adults was recently published in the American Journal of Public Health. It found that 45000 deaths each year are linked to those without health insurance.   The study found that uninsured, working age Americans have a 40% higher risk of death than their privately insured counterparts. This is up about two and a half times from the estimate in 2002 by the Institute of Medicine. Andrew Wilper MD the lead author of the study stated that “limited access to primary or preventative care likely explains a lot of this.”

This study keeps in front of us the reason for the heated discussion of the healthcare issue, which has been hotly debated since the time of William Jennings Bryan. Both sides of the current debate agree on our dilemma. There is wide agreement that we need to reform the incentives, make the consumer accountable for health care spending, make price information transparent, and reward healthcare, not services. However, there is wide disagreement over the size of the problem and the role of government in its solution. Common sense solutions should be the basis of our discussion and utilize the strengths of our current system. Many approaches should be considered.

There is currently a new approach to primary care that builds on our strengths as a nation and unleashes the entrepreneurial spirit and creativity based on the American genius.              This primary care model helps improve the original concept of a family doctor, which better enables the practice to become a “medical home” The current system of reimbursing the physician by procedure often limits the time that is spent with the patient, and often creates a merry-go-round for the physician as he balances the desire to spend more time with the patient while confronting economic realities.

This new approach is becoming more popular as a way to have a win-win between the patient and the provider. The Direct Primary Coalition explains the plan. The patient pays a low monthly fee – sometimes as low as $49 – directly to the Primary Care facility for all of their everyday health needs. Like a health club membership this gives patients access to unrestricted access to visits. The patient can use the services as much or as little as they want.  Secondary and Tertiary health care services are often covered by high deductible health insurance policy and a Healthcare Savings Account. Members go to their primary care providers for everything from regular check-ups, women’s health exams, sprained ankles, broken arms, and flu shots, to arthritis or diabetes management.

It has been estimated by the Direct Primary Care Coalition that the direct and indirect insurance costs in a typical primary care practice consume more than 40 cents of every healthcare dollar. Eliminating insurance from primary care through a direct-membership-based practice, allows the saved insurance dollars to be used by the physician to spend more time with the patient, and provide more extensive office hours. Further, more on-site services and diagnostics, more emphasis on health education that promotes wellness, and more technology that creates more efficiency can also be provided. This approach allows physicians to concentrate on patient needs rather than the requirements of health insurance. Although this system can work for employer sponsored health insurance it is maximized when used in conjunction with a high deductible individual insurance policy and an HSA.

The direct primary approach provides different levels of service plans. The consumer can choose the level of care they desire.  This method is different than the concierge style which is a high-end plan that provides an exclusive arrangement. The direct primary care style provides incentives to work better with their physician to change their lifestyle and achieve the benefits of early detection of illness and avoid some of the diseases that are a result of lifestyle choices.  This slant to primary care is similar to an HMO except that the physician and patient are more in control. The insurance company takes a back seat.

As we debate the role of government in health care we should be aware of the benefits of competition.  The direct primary care model can provide a very effective alternative.  The high deductible health insurance policy with an HSA has become very popular since their inception a few years ago.  It should definitely remain as an alternative in any health care bill that is adopted. Hopefully the changes being considered will not be a cookie cutter approach and will include incentives to innovate further in the development of private sector alternatives.

Healthcare Reform and Early Retirement

Healthcare reform has once again emerged as one of our nation’s top priorities during this election year, and those who are planning an early retirement are giving special attention to this issue. A recent study by the Urban Institute states that currently 2.8 million “boomers” are preparing to retire by age 62.  Typically, people are increasingly taking early retirement in their 50’s or early 60’s, thus making them ineligible for Medicare.  Unfortunately, non-group health insurance coverage often is prohibitively expensive for those who retire early.  Although being uninsured is risky because serious health problems expose the uninsured to catastrophic health care costs, many early retirees are compelled to be uninsured or marginally insured until they reach 65 years of age.  In fact, approximately 16% of those in the 50-64 age category are currently uninsured.

If you are planning an early retirement, developing a plan now is extremely important as illustrated by a lawyer friend of mine who was offered early retirement from his county government employer.  It was a good deal because full retirement was offered at the age of 57.  In considering the opportunity, a few barriers popped up. It turned out that the biggest obstacle to the opportunity was the availability of health insurance.  Taking advantage of COBRA (a federally mandated requirement to offer health insurance for up to 18 months) would solve the problem short term. However, this left a balance of 6 years before he was eligible for Medicare.  He then went to the private insurance market to find equivalent health insurance.  The plan would not include pre-existing conditions and the cost turned out to be over $2000 per month which was totally un-affordable. Fortunately there was a good ending to the story.  He was offered part-time work with benefits from the same employer.  He was able then to plan a partial early retirement for himself.

This happy ending is not available to many people who are considering early retirement. If you are planning an early retirement, what are some additional practical steps you might take to avoid the dilemma faced by my lawyer friend?  One option is to look at individual insurance as opposed to family coverage.  This would allow certain family members to fit into younger age grouping and lower prices for their health insurance.  Make sure if you do go with family insurance it is in the name of the younger spouse.  This will help when the older spouse qualifies for Medicare.  Another alternative is to negotiate with your employer for some financial assistance since he will be saving a large sum of money for the premium he no longer pays after you leave.

These practical steps are limited in their success.  Real reform and the corresponding solutions must be long term oriented.  There are two basic approaches through which long term healthcare reform can take place.  One approach involves an increased role of the government in the provision of healthcare services, and the subsequent rise of regulations to try and direct it.   The expansion of Medicare or a plan similar to the universal national health insurance in Canada, are examples of how the government would attempt to reform healthcare. The other approach relies on the free market in solving the problems. Individual health insurance that is owned by the individual is an example of this approach. Both approaches address the problem of health insurance for retirees who have not reached the age of 65 as well as the concerns of all the other consumers of the healthcare system.

One free market solution  referred to earlier is Consumer Directed Health Care (CDHC).  It draws upon our long track record of ingenuity and creativity. The CDHC plan combines a high deductible health insurance plan with an HSA (Health Savings Account). These HSA’s can be used for health expenses and are owned by the individual or family.  Balances can accrue tax free over time. The introduction of the CDHC alternative has already spawned many creative solutions. For example, limited primary health care services are now available in grocery stores, drug stores and other convenient locations.  This development makes primary health care more accessible, affordable, and convenient as they usually have extended hours.  Also, new information on the pricing and quality of health care services is becoming increasingly available. This helps make patients more knowledgeable hence wiser consumers of health care services. Examples of new resources on the internet for information on medical pricing and quality of care are and

As we attempt to find solutions to providing health care insurance for early retirees there will be much debate. The increased availability and popularity of Consumer Directed Health Care will be at the center of the debate as well as a larger role for government. This election will likely determine what approach we will take towards allowing one to have health insurance that is portable; allowing more people to take advantage of early retirement.

Redesign of Healthcare for the End of Life

The unfunded liabilities of Medicare ($30 trillion), dwarfs that of Social Security which is projected at $12 trillion.  This compares to our “official” national debt of $7 trillion. This year the Federal government will have to transfer 3.6% of Federal tax receipts to the Social Security and Medicare Funds, as they will for the first time spend more than they will receive in tax receipts.  Projections show Medicare eating up 35% of the Federal budget within 25 years.  This trend is due primarily to the large number of baby boomers who will retire shortly, and will continue until reforms are adopted and enacted into law.  Simultaneously, health care costs are rising at an annual rate well above inflation. The collision course of available funds and need is going to test our social contract resolve, and will create tremendous pressure on our current system of resource allocation and our moral commitment to the sanctity and dignity of life.  It is time to face reality.  Unprecedented challenge requires perspective and good judgment, and we must find solutions quickly.

Consider the stark math. In 1900 the average life span was 47 years; today it is 75 years.  Many have forecast that the average life span will continue to increase and will likely reach 100 in the near future.  Currently, 75% of the people who live to be 100 are active at 95.  Older people can live quite well with serious chronic illness. Medicare pays for most physician and hospital expenses at the end of life, which comprises the majority of all health care expenses, expenses that, in the past, were largely the responsibility of families.  About 20% of Medicare enrollees account for 80% of the total amount spent.  (In an analogous situation in the non-Medicare population, one-half of all health costs related to obesity are borne by the taxpayer.)

Society struggles to address the issue of how to maintain end of life care with dignity in a new economic landscape where rationing currently exists.  Nurses are often pressured to discharge patients as soon as possible and sometimes prematurely.  Also, the present reimbursement formula, and a fragmented health system often result in pressure on families to let the patient die with less medical intervention.

If Americans are living longer, it is no thanks to a health care system that has questionable priorities and provides little incentive or reward for conscientious individual efforts to improve personal health habits.  The Surgeon General has recently stated that 50% of the variance in individual life expectancy is due to lifestyle. Nevertheless, though the facts are in about the manifold benefits of controlling high blood pressure, diabetes, and high cholesterol in avoiding expensive hospitalizations, these strategies are not emphasized.  Consequently, the health care professional is endowed with almost talismanic powers by a populace inbred with the cult of healers rather than the ethos of healthy living.  Renowned health economist Rene Dubois has stated, “to ward off disease or recover health, man as a rule finds it easier to depend on healers than to attempt the task of living wisely.” Moreover, when the individual is removed from direct financial responsibility by a third party dominated health care structure; the tendency is to consume more resources and services.

Practical solutions that could be explored by health care policy makers include the following:

  1. Provide incentives and motivation in the areas of prevention, and self-management of disease.  Self-management would involve the ability to mange symptoms, treatment, physical and social consequences, and lifestyle choices that go with chronic conditions.  Disease management would begin to heal the problem of our fragmented system of care.
  2. Explore Healthcare Savings Accounts as a means to solve the shortfall of funds in Medicare for the younger population.  A Healthcare Savings Account would allow younger people who live a healthy lifestyle to accumulate considerable funds over their lifetime.
  3. Further develop programs designed to manage chronic illness more efficiently.  Find additional ways to balance curative treatment with palliative measures.
  4. Develop creative programs involving all parts of our pluralistic healthcare system.  Realize that our physical health is interdependent with our spiritual, emotional, and mental health.  Encourage the development of programs like church based parish nursing to help better navigate through the fragmented healthcare system.

All Americans are stakeholders in the issues surrounding end of life health care.  We all want a system that allows the elderly to count on living comfortably and meaningfully in their last years.  Urgent changes need to be made to avoid a collision between that goal and the reality of the resources to meet that goal.

Bending the Cost Curve in Healthcare

A lot of attention has recently been given to the slope of the health care cost curve and how to bend it down. There is really only one way to bend the healthcare cost curve down; people must make a choice to spend designated healthcare dollars on something other than healthcare. A major barrier to making these choices is that too many healthcare dollars are paid by a third party. Therefore, all too often, the perceived cost of healthcare to the consumer is unrealistically low. For example, ten dollar co-pays are an unrealistic price to pay for a common office visit to a doctor. As a general rule, we are unaware of the true cost of healthcare.  If we bought food the way we buy health care we would have a run on filet mignon.

It is well known that many chronic health care diagnoses like diabetes, high blood disease, or heart disease, can be greatly affected in a positive way by lifestyle choices such as diet or exercise. How can an individual make the difficult choice of changing his diet or going through the hard work of exercise if the options for spending his money are basically out of his control due to the presence of a third party? He would not benefit from the choice but the third party would.  These third parties where originally started as a tool for the provider rather than the consumer. What would happen if the consumer could use the savings from making and following through on the hard choice to exercise and eat better for themselves? These benefits could include spending money on a better education for his children, deciding to help the low income without health insurance, or just save the money to better prepare for an increasingly unpredictable future.

In addition to private third parties, the government also insulates the patient from the true cost of healthcare. A recent story in Business Week told the saga of a patients’ illness.  Over four years, the total charges for the care were over $600,000.  The patient responsibility was less than $10,000. Unfortunately we are all on the federal dole in some way or another and no one wants to give up his benefits such as tax deductibility, tax credits, or other programs. It is not easy to take individual responsibility and make difficult choices once you have been shielded from true economic reality.  However, if we want to bend the health care cost curve downward , the most helpful path involves individuals stepping up to the plate and make individually responsible intelligent economic choices.

Recent experience in the State of Indiana is an example of such a move.  They have proven that the cost curve can be bent down.  They have offered to all state employees the choice of a high deductible HSA option.  This year over 70% of state employees have selected the HSA option and the states health care costs have been reduced by 11% solely due to the HSA option.

Can the American people who want free market capitalism accept the responsibility to take fewer government benefits and take the hard road to individual choice and personal responsibility? A personal tale illustrates how hard the task is. Many years ago I fulfilled my military obligation by serving in the commissioned corps of the Public Health Service within the bureaucracy of HEW.  The job was interesting and I stayed on past my required tour of duty. However, I was increasingly concerned about the reality of our Federal debt and the harmful effect it would have on our future.  Experienced federal workers referred to the massive government buildup of the HEW bureaucracy in the 1970’s as the gravy train.  I experienced generous federal employee benefits.  I saved up 60 vacation days.  Further each year I was given an additional 30 days or 6 weeks. If I was creative, I could use these 30 days in combination with the numerous federal holidays and take over 7 full weeks off during the year.  In addition I had unlimited sick leave, flexible station leave, and retirement in only 20 years. In light of these excessive benefits and the financial plight of our country, I wrote a letter of resignation and asked the President to abolish my position certain that there was plenty of excess capacity to absorb my work.  Since then, I have worked in the private sector. To my surprise our Federal financial plight has only gotten worse. This story reminds me of how hard it is to bend the cost curve.   The only way to turn the cost curve down, is by making difficult economic tradeoffs, and live in financial reality. Now is the time to ask ourselves these hard questions. It’s the spending, stupid!

HSA\’s and Small Business



The debate on whether or not consumers are able to make wise choices in health care has been raging for many years, especially since the enactment of Medicare in 1965. The Healthcare System today seems to be locked in a struggle between consumer directed health care (CDHC) and a federalized form of bureaucratic health care.  The recent passage of welfare reform, the new HSA (Health Care Savings Account), and HDHP (High Deductible Health Plan) legislation, have brought CDHC front and center. A recent survey by Mercer Human Resource Consulting has projected that 73% of US employers will be offering HSA’s to their employees by 2006.  The Defined Contribution approach which limits the employer responsibility to the least costly plan offered will also increase awareness of the value of the HSA and HDHP approach. The rise of consumerism in health care is based on the following developments:

  1. The de-mystification of the physician.
  2. Consumers are demanding a fundamental reform of the system.
  3. Consumers increasing ability to manage their own health.
  4. The complexity of insurance rules.
  5. Employees currently have higher deductibles and pay more for health care.
  6. The dissatisfaction with managed care.
  7. Uncontrollable Healthcare Costs

The big question is will HSA’s slow medical inflation or harm patients by making them skimp on needed health care. There are clearly two sides on the issue.  The more conservative assert that the consumer with adequate knowledge and freedom of choice can make decisions that are effective in making wise health care decisions.  They say that consumers want choice, control, convenience, and good value for their money. Conservatives hope that, ultimately, HSA’s will entice consumers to abandon the employer based system all together.  The larger goal is to change the relationship between providers and patients, create more choice, and reduce the cost of healthcare.

The other perspective seems to represent our current system.  This side believes that people are limited in their ability to make appropriate decisions in the complex health care environment.  This latter group continues to promote universal healthcare coverage provided by third parties and the government.

Most everyone agree that the current system has produced a large oligopsonistic bureaucracy, excessive regulation, and widespread dissatisfaction with the economic organization of health care.  It is inflexible, inefficient, and does not adequately allow for creative forms of private insurance.  The spending by US Business on healthcare took 14% of profits in 1965 and has risen to 108% of profits in 1990.  Third party payments for healthcare services have risen from 48% of the total in 1965 to over 80% today, primarily because they insulate employees from the true cost.  It is preoccupied with consumption rather than investment.  The promised benefits of managed care to reduce costs have been unrealized as patients continue to demand more care as the traditional right they have been used to.  Today managed care in one form or another comprises 95% of all health care insurance. HSA’s could save the consumer 5-10% over the long haul for their current health care per capita tab of ±$8000. The present system drives employee’s nuts as they are afraid to lose healthcare coverage when they change jobs.  It is heavily waited towards providers.



The subject of consumer health care is a major paradigm shift for most employees.  Employees since World War II have associated health care as a benefit of employment costing them very little and providing almost limitless choices, reimbursed by insurance.   Only recently has the cost of health insurance risen to the extent where cutting back on the employer part of the subsidy requires passing more costs onto the employee.   This trend is just starting and will inevitably continue until some kind of equilibrium is obtained.  Currently the benefits from higher deductibles and curbing the use of health care services go only to the insurer or the employer.  On the other hand, HSA’s allow the consumer to benefit from wise choices and accrue over time a large percentage of the savings from their choices.  Physicians would vie for the consumer business with programs based on prevention and treatment that don’t exist now. The Consumer healthcare movement will encourage open information which will eliminate the cost shifting which has had a pernicious affect on the system. This accumulation of funds by consumers can be rather significant over one’s lifetime and can be used for long term care and other health care expenses.

Many diseases such as obesity, diabetes, high blood pressure, depression, chronic pain, insomnia, and some heart disease can be avoided when one improves their diet and gets involved in exercise.  79,000 people die each year because they do not receive proper treatment for common conditions.  Currently, cash incentives are given to providers to change their practice style. Most of the benefit from practice change, however, goes to the insurance company. HSA’s would reward both providers and consumers together.  HSA’s would increase the availability of Disease Management programs which are proven to lower the cost of care and reverse the course of chronic disease.  HSA’s can break the trend of patients being dependent on others and creates the power and motivation to reap the benefits from good choices in health care.  They promote the natural tendency to learn and make wise choices even though human nature seems to promote status quo. There will be more choices for everyone.  Increased competition in primary care would immediately produce services that are not currently available.  Providers would develop creative ways to provide the consumer preventive services and the information necessary to make wise choices.

Sufficient health care information on price, quality, and effect is currently not available.  The lack of information is partly due to there being no incentive to provide the information.  We depend on Insurance Companies for negotiating discounts. The HSA movement will grow rapidly as the initial pioneers demonstrate the benefits of a preventive “consumer in charge” approach to health care.  This growth will fuel the demand for providers to provide information that is needed by wise consumers.

However, HSA’s are not a silver bullet, and they are not for everyone.  As the concept becomes more popular, the issue of community rating, and the ability to purchase insurance on a national basis, and the role of government in the movement will be debated.  Private insurance for example could be creative in providing products if catastrophic insurance could be provided by the Federal government beyond a reasonable limit. Current medical studies suggest that as much as one half of health care is unnecessary. Preventive care and healthy living could greatly reduce traditional services for much chronic disease. Consequently, there would be an increased demand for alternative services and coaches that would guide one through the maze of available health care services.  This would produce healthy competition in the area of price, quality and results. The Internet and electronic medical records will provide a free-flow of necessary information.

HSA’s will also be a significant contributor to the reduction of the uninsured population.  A change in the current income tax legislation needs to occur that will equalize the tax subsidy of employer- based insurance with individual policies.  The increasing popularity of HSA’s will bring about this change. However, the big challenge of providing resources for the lower income to purchase insurance and fund an HSA will still remain. Actions must be taken to assure a two tier medical system and adverse selection does not develop.  These changes will allow more individuals and families to obtain health insurance.


1.  HSA accounts funded with tax-deductible funds and work with a HDHP.  The insurance premiums for the HDHP are low and the difference in premium is used to fund the HSA account.

2.  Funds in the account can be used for any IRS approved medical expense and at the end of the year will roll over and accumulate over time.

3.  The HAS account is similar to a 401k account and can be invested in mutual funds.  The balance can accrue from year to year.

4.  Providers are free from third party insurance regulation and can be creative to meet the needs of the newly empowered consumer. Patient can choose any providers for service or stay in a network

5.  In 2004 the maximum amount for a single HSA account is $2100.  The maximum for a family is $5100.

6.  The minimum deductible HDHP for singles is $1000, and the minimum for a family is $2000.  Out of pocket maximum (deductibles and co-insurance) is $5000 for individuals and $10000 for families.

7.  No amounts from the HSA can be used to pay insurance premiums.

8.  Preventive services are sometimes provided to encourage proper care and begin the process of developing a baseline as a starting place in making wise consumer healthcare choices and habits.

9.  HSA’s are offered in group plans or individually.  The advantage of the individual plan is that it is portable throughout a lifetime.



  1. A tax credit for low income individuals and families to purchase low premium, high deductible health plan and an HSA.
  2. An HSA tax credit for employers who fund an HSA for their employees.
  3. Provide an above the line tax deduction for individual health insurance premiums in addition to the current deduction for HSA’s.

Allow shopping for health insurance across state lines.  This will allow for wise consumer shopping over the internet, and obtain the best price available for insurance.


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