HSA’S AND SMALL BUSINESS
INTRODUCTION and BACKGROUND
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:
- The de-mystification of the physician.
- Consumers are demanding a fundamental reform of the system.
- Consumers increasing ability to manage their own health.
- The complexity of insurance rules.
- Employees currently have higher deductibles and pay more for health care.
- The dissatisfaction with managed care.
- 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.
WHY EMPLOYEES and SMALL BUSINESS SHOULD BE INTERESTED
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.
ESSENTIAL COMPONENTS OF AN HSA
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.
EXAMPLES OF POLITICAL CHANGE TO ENHANCE THE HSA CONCEPT
- A tax credit for low income individuals and families to purchase low premium, high deductible health plan and an HSA.
- An HSA tax credit for employers who fund an HSA for their employees.
- 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.