Myth Buster #21: HSA Round Up
While politicians and policy wonks are obsessed over the latest to-ing and fro-ing in Washington, in the real world Health Savings Accounts continue to grow as the future of health care financing. To wit –
Milford, Indiana switched to an HSA program for the town’s nine employees effective July 1. An article in the Mail-Journal reports, “The change will nullify a 12 percent increase in the town’s cost for the next fiscal year and improve preventative coverage. In fact, the town will see a four percent — or $6,000 — yearly decrease in premium rates under Medical Mutual of Ohio. Covered employees will see their deductible rise by $500, but their post-deductible, out-of-pocket expenses will be covered at 100 percent — an improvement over the current plan.” The town will also contribute $200 to the HSAs of single employees and $400 to families.
And the Caston school board in Fulton, Indiana, also switched to HSAs on July 1. The Pharos-Tribune reports that the plan will go from the current $200 deductible for individuals to $1,500, but that will be offset by a $1,500 one-time HSA contribution. The new plan will also save individuals $360/year in premiums and families $1,600. The change affects 35 to 40 classified employees and will also be available to teachers who decide to switch.
The Bloomfield Hills, Michigan, Board of Education expects to save $2 million over the next two years by installing an HSA program. The local paper reports, “Under the plan, teachers will pay a $1,250 deductible for individuals or $2,500 for family for services with in-network physicians. They will still have 100 percent of preventative care paid for, and can qualify for money back by participating in a health-risk assessment program. Frank Laurinec, the outgoing president of the BHEA, said the teachers overwhelmingly approved the proposal during a meeting on June 14 and encouraged board members to approve it.”
The Society for Human Resource Management’s annual survey indicates HSAs are growing across America. A press release from the organization says –
Use of HSAs Growing in Popularity Among Employers, SHRM Survey Finds.
July 9 (BNA – Health Care Policy Report) — The growing popularity of health savings accounts (HSAs) was reflected in the Society for Human Resource Management’s annual employee benefits survey as 43 percent of employers said they offered HSAs in 2012, up from 35 percent a year earlier and 29 percent in 2008.
An increasing number of employers also indicated that they made contributions to HSAs in 2012, according to SHRM’s 2012 Employee Benefits report, which was released June 25 at the organization’s 2012 Annual Conference and Exposition in Atlanta. A quarter of employers said they were making such contributions in 2012, up from 20 percent in 2011 and 13 percent in 2008.
And then there is the annual AHIP census of HSA plans, which finds qualified HSA insurance has grown 18 percent since a year ago, and now cover 13.5 million people, according to the Heartlander. PDF of the survey.
Yet, in spite of all this, HSAs may be on the ropes in Washington. Tom Purcell writes in the Tribune Review, “It figures. Health Savings Accounts, or HSAs, have been so successful at reducing the cost of health care, the ObamaCare people are out to get them.”
He talks about his own experience with an HSA, and how it prompted him to ask questions about the cost of the services he was getting. No one seemed to know and said they had never been asked before — “That, in a nutshell, is what is wrong with our health insurance and health care systems: Consumers are completely divorced from costs. Massive inflation has been the result.”
But ObamaCare’s benefit requirements will not consider the HSA-funded part of his coverage as meeting the actuarial minimum. Only the insured portion of the coverage will count. He concludes, “Which is precisely what the ObamaCare folks want. Your ability to choose goes down, your costs go up — as happens every time government’s powers expand and individual freedoms are taken away.”
Welcome to the world of politicized healthcare: if it doesn’t mesh with the ideology then throw it out, even if it works.
Good post.
It’s a mystery to me why HSAs are even controversial. After the RAND Health Insurance Experiment, all health insurance arrangements should have been structured like HSAs or HRAs.
Roughly speaking, there are about as many HRA accounts and there are HSAs. So combining the two, there must be about 27 million people managing some of their own health care daooars at this point.
Then, there are about 35 million people in FSAs. Althought these accounts are flawed — they are los-it-or-lose-it — there are still as additional 35 million people who have a self interest in shopping for care.
This could be just the beginning.
This is good news. Give it time, and with the eventual end of Obamacare, HSA’s will be the model for the future.
It’s funny to hear the so called experts talk about healthcare and reform when none of them understand the animal. Most politicians know what a HSA is but can tell you why it works or how it works.
Obama will be creating a 2 tier system in the healthcare system even if he does mean to. The so called experts need to spend sometime in insurance field on the front lines. Its always easier to be a arm chair general.
HSAs and HRAs MAY help end the trend toward Socialism in this country. Of course, a Romney victory and a takover of the Senate by Republicans is a must too!
In a nutshell, this election will be about the “American DNA, American Dream, etc versus government takeover thru Socialism. It should be a no-brainer! Socialism is a disease that, like polio, must be eradicated.
One of the more important factors in determining the actuarial value of an insurance product is its deductible. Whether health expenses paid before the deductible is met come from an HSA or from other personal funds does not change the actuarial value of the stand-alone insurance plan.
Imagine an HSA that is fully funded one year which is then used to determine actuarial value. Then imagine the funds being depleted by the end of the year, and the account remains empty the next year. The HDHP remains the same, but if the HSA is considered to be an integral component of the HSA, the the actuarial value has changed and may no longer meet the minimum requirements.
The Obama administration is correct. HSA accounts should not be used to game actuarial values of plans.
Question: Will the loss ratio rules in the affordable care act make it impossible to sell high deductible policies? With a high deductible policy there will be much lower payout from the insurance company, and I believe that they will then violate the loss ratio.
This is assuming the republicans can at least add authorization for HDHP into the monstrosity, because at present I believe the minimum benefit requirements eliminates HDHP’s.
All of this is why the Obama Adminstration and its HHS should be treated like a foreign invader, not our current government.
All of this is why the Obama Administration and the HHS should be treated as a foreign invader, not as our current government. We should all adopt the “Don’t Tread on Me!” attitude.
Dr. Kellen:
The essential health benefit requirement refers to the health services and products to be covered. The actuarial value refers to the percentage of services that will be paid for. The most common plans purchased in the exchanges will be silver and bronze plans with actuarial values of 70% and 60% respectively. In order to achieve that low of an actuarial value while still including the minimum essential benefits, most plans in these categories will have high deductibles.
For lower income individuals, the income-related premium subsidies and subsidies for out-of-pocket spending will have the effect of reducing the actuarial value for those who qualify, though the high deductibles nominally will still be a part of those plans.
Unfortunately, although the subsidies appear to be generous, they are not adequate to prevent financial hardship for those who need health care. These lower income individuals who can’t meet their share of the premiums and out-of-pocket expenses could never be expected to fund HSAs.
HSA’s should have the age restrictions removed – and the contribution amount raised. They are an important part of healthcare cost reduction.
health care consumers aren’t going to want to turn over their health care to the government!
Of course insured payouts and thus the actuarial value for a high deductible health plan by itself are much less. Duh! That’s why HDHPs cost much less. What Dr. McCanne and other single payer advocates reliably fail to include in their analyses is the cumulative savings on premium that become the source of the tax free HSA contributions, used to pay tax-free for day-to-day care. In fact, even if they don’t make the contribution in advance of the illness, as long as the HSA is already open they can pay their expenses tax-free after-the-fact by running the dolars thru the HSA.
And, of course, then there is the clear behavioral reduction in health care spending that are PROOVEN consequences of people spending their own money on health care v. OPM. Moreover, HDHP owners have access to in-network discounts. See http://www.cdhcinc.com/Presentations/CDHC.pps and http://www.pnhp.org/facts/singlepayer_vs_hsa_exchange.php
Ultimately the philosophical question becomes which is better, the government rationing health care for us, using our own tax dollars; or being allowed to keep our money and make our own health care decisions with protection from catastrophic financial consequences of major illness or injury. Why not be in charge of our own health care – most of us are currently responsible for rearing and educating our children, managing our personal finances and we are allowed to drive 2-ton vehicles at Mach 2 no more that 3-feet away from each other?
With $16 trillion of debt and $37+ trillion dollars in near term unfunded entitlement obligations, I certainly prefer to take care of myself versus rely on an already insolvent and soon to be even more bankrupt government to provide care for my family. Moreover accumulate HSA savings are nearly twice as useful as monies in 401Ks, IRAs, etc. because they are available untaxed to pay for the estimated $250+ thousand dollars of out-of-pocket retirement health care expenses for a couple under current medicare and social security benefit structures, which are surely to be reduced due to the pending collapse of the nation’s finances.
Sorry for the long-windedness!
No doubt Dr. McCanne, who is an ardent supporter of single-payer government-run health care, sees the increase in HSA market penetration as an existential threat to his ideologic objectives. Three hundred million personally vested health care consumers aren’t going to want to turn over their health care to the government!
Of course insured payouts and thus the actuarial value for a high deductible health plan by itself are much less. Duh! That’s why HDHPs cost much less. What Dr. McCanne and other single payer advocates reliably fail to include in their analyses is the cumulative savings on premium that become the source of the tax free HSA contributions, used to pay tax-free for day-to-day care. In fact, even if they don’t make the contribution in advance of the illness, as long as the HSA is already open they can pay their expenses tax-free after-the-fact by running the dolars thru the HSA.
And, of course, then there is the clear behavioral reduction in health care spending that are PROOVEN consequences of people spending their own money on health care v. OPM. Moreover, HDHP owners have access to in-network discounts. See http://www.cdhcinc.com/Presentations/CDHC.pps and http://www.pnhp.org/facts/singlepayer_vs_hsa_exchange.php
Ultimately the philosophical question becomes which is better, the government rationing health care for us, using our own tax dollars; or being allowed to keep our money and make our own health care decisions with protection from catastrophic financial consequences of major illness or injury. Why not be in charge of our own health care – most of us are currently responsible for rearing and educating our children, managing our personal finances and we are allowed to drive 2-ton vehicles at Mach 2 no more that 3-feet away from each other?
With $16 trillion of debt and $37+ trillion dollars in near term unfunded entitlement obligations, I certainly prefer to take care of myself versus rely on an already insolvent and soon to be even more bankrupt government to provide care for my family. Moreover accumulate HSA savings are nearly twice as useful as monies in 401Ks, IRAs, etc. because they are available untaxed to pay for the estimated $250+ thousand dollars of out-of-pocket retirement health care expenses for a couple under current medicare and social security benefit structures, which are surely to be reduced due to the pending collapse of the nation’s finances.
MR. McCanne:
I thought the ACA required insurance companies to pay out at least 80% of premiums for covered services.
Dr. Kellen,
True. Besides the requirements for essential health benefits and for tiered actuarial values, the plans are also required to maintain medical loss ratios of 80% for individual and small group plans and 85% for large group plans. That means that they can use 15% or 20% of the premiums for their own administrative costs and profits. Private health plans are really not a good deal for patient/consumers, and that includes the HDHPs associated with HSAs.
(Incidentally, I’m also a physician – senior health policy fellow for Physicians for a National Health Program.)
Drs. Kellen and McCanne — Both the “Loss Ratio” and the “Actuarial Value” rules ignore any employer contribution to the HSA. This makes no sense. I illustrated the problem in an earlier blog at http://healthblog.ncpathinktank.org/new-regulation-threatens-agents-hsa-plans/#more-22996
— I buy an insurance policy with no deductible that costs $5,000.
— I have $4,000 in medical expenses.
— That is 80% of my premium, so the health plans is in compliance.
However:
— If I buy a policy with $1,000 deductible for $4,000 in premium,
— And still have $4,000 in medical expenses.
— I pay the first $1,000 directly to meet my deductible.
— The health plan pays the remaining $3,000
— That is only 75% of my $4,000 premium, so the plan is not in compliance.
Exact same total cost of coverage. Exact same medical expense. But one design complies and the other does not.
The actuarial rules double up on this problem.
—
Don, for the life of me I can’t understand why you are so eager to pay for all health spending through insurance and only through insurance. Your experience with insurance companies must have been terrific.
My point in asking the questions was to be certain I understood the concept of loss ratio. I have had my HSA since 2004 and it is the greatest thing I have done from an investment stand point. Instead of sending money to third parties, I keep it and invest it with much smaller premiums for the catastrophic parts. I now have ample resources for medical care. Health care is diet and exercise, which does not need a physician. The distinction seems to be lost on socialists.
This means that there are 2 reasons why obamacare destroys HDHP’s and HSA’s. Minimum benefit rules and loss ratios.
Dr. McCanne, the primary reason that medical care is expensive in America is due to excessive government regulation, not any fault of private enterprise. The ACA will be an unmitigated disaster for the American public. If unchanged it will lead to lines, shortages, and care mostly for the politically connected.
” expects to save $2 million over the next two years by installing an HSA program. ”
I think expects is the operant word here. Will be interesting to see if the savings occur, and if they persist.
Steve
Greg, without getting into the multitude of other problems with HSAs such as the regressive tax policies and the fragmentation of the risk pool that pays for health care, it is still inappropriate to consider the HSA to be an integral part of the insurance product since the majority of HSAs are underfunded (under $1000) or not funded at all. The only way in which it would be legitimate to include HSAs in the calculations for loss ratios and actuarial values would be if the funds in the HSAs were fully restored each year on the first day of the policy anniversary. But then you no longer have a high-dedcutible plan because the HSA has displaced the deductible. Besides, far too many individuals no longer have adequate incomes and resources to fund HSAs, even if the employer is nominally making the payments since such contributions are actually made by the employees in the form of forgone wage increases.
Dr. Kellen, our respective organizations, PNHP and AAPS, have incompatible ideological goals for reform. We at PNHP would remove financial barriers to care for everyone by establishing a single payer national health program, obviously involving a major role of government in the financing of health care, with a much lesser role in health care delivery. Those at AAPS reject a major role of government, supporting instead free market approaches such as consumer-directed health care (HSAs being one tool to engage the consumer), even though the free market leaves millions of patients suffering and broke. It is unfortunate that you frame the debate over the intrusive role of government whereas we frame the debate over how to get absolutely everyone the health care that they need. We will never agree.
AAPS and other who reject a major role for government are smarter than the average bear. I can’t see why ANYONE should want the government playing a central role in anything important to our families and ourselves. What a marvelous job they have done with Amtrak, FEMA and other programs that could have been done better if operated by the private sector!
I’m excited to see HSA-eligible plans continue their march, especially amongst government workers. However, as I read Roy Ramthun’s previous analysis I am concerned.
I think that HSAs will continue to exist, but because Obamacare demands 3rd-party coverage of “preventive care” and the “metallic” actuarial standards (bronze, silver, gold, platinum) inhibit innovation in plan design, high deductibles will increasingly be used to churn expensive patients out of coverage, not to allow individuals more control of our health dollars.
Writing in this blog, Linda Gorman has discussed evidence that the risk-adjustment system for Medicare Advantage is inadequate, and that Medicare Advantage plans shun expensive patients in favor of healthy ones. In the future, plans participating in Obamacare Health Benefits Exchange will face the same incentives. They will use high deductibles as a way to attract healthy patients and cause sick ones to avoid them. Combine this with annual contracting and we have a real problem.
WLP’s acquisition of 1-800 Contacts is, IMHO, a canary in a coal mine. 1-800 Contacts is a great example of consumer-driven health care. It is the easiest thing in the world to order contacts delivered in the mail via the phone or website. Soon we are going to have to navigate a health-insurance bureaucracy to order our contacts?!?!?
We need to get Obamacare repealed and replaced with reform that restores HSAs to their rightful role and improves their flexibility.
The free market does not leave “millions of patients suffering and broke.” Excessive government interference in markets leaves people suffering and broke.
We have not had a free market in medical care for 100 years. The government throughout the 20th century set up all sorts of monopolies which greatly increased the cost of medical care and continues to prevent innovative individuals from providing the medical care people need and want at far lower price.
If PHNP wants to get people healthcare, they should concentrate on programs to teach diet and exercise. If they want to get medical care to the population, then why pursue a strategy (single payor national health care) which clearly leads to rationing and interminable waits for needed medical care. In addition, advances in medicine are greatly impaired.
Lastly, as is being demonstrated in europe at present, and will soon be coming to America, welfare states collapse, and take the medical systems down with them. Look at Greece; they presently cannot even afford to wash the hospital linens. They are receiving medicines as charitable donations.
“Socialism always fails because eventually you run out of other peoples money.”
The rational can never agree with the irrational.
I am a little upset at present, because just recently the state of illinois medicaid program (single payor government medical care) unilaterally declared that chronic opioids were unnacceptable therapy for chronic pain. Now a state pharmacist, with no training in diagnosing and treating disease, decides who can possibly get a waiver to the above new rules. This person practices medicine without ever talking to my patients or examining them.
I now deal with crying and miserable medicaid patients in my pain practice who wonder why they were abandoned.
When you rely on third parties for basic care (government or private) you can and will be abandoned.
There’s some great policy discussion here, interspersed with some ideological yammering. If we could have more of the former and less of the latter (especially the “government wants to control everything” platitudes), we could have even more productive discussions.