Do the WSJ editors really understand HSAs?
The Wall Street Journal
December 23, 2003
Teddy’s Nightmare
The new year will bring something of a revolution in American health care. Insurance companies such as Golden Rule, Fortis and Aetna will soon be marketing Health Savings Accounts (HSAs), which promise a new era of individual choice for health insurance.
HSAs, the saving grace of the Medicare prescription drug bill, are the new and improved version of Medical Savings Accounts. They promise individuals and employers relief from spiraling health costs, and without the need for restrictive HMOs.
The basic idea is to pair an inexpensive insurance policy that has a high deductible — $1,000 or more for an individual, $2,000 for a family — with a tax-free savings account.
After the Mandela government deregulated South Africa’s private insurance market in 1994, HSA-type plans quickly captured about two-thirds of it.
That’s precisely the kind of success that Senator Kennedy and friends fear could happen here. Democrats know that a reinvigorated private health insurance market will end their dream of a Canadian-style health system.
“Once millions of HSAs are established, it will be almost impossible to reverse this program,” says the Web site for Physicians for a National Health Program, which also urges visitors to “CONTACT YOUR REPRESENTATIVES AND SENATORS IMMEDIATELY AND DEMAND THE URGENT REPEAL OF TITLE XII OF THE MEDICARE ACT!” Good to see they’re calm about the whole thing.
Critics have been making a number of dire predictions about the effects of
HSAs, none of which stand up to scrutiny. The most common is that HSAs would
attract a disproportionate number of “healthy and wealthy” individuals, “fragment the risk pool,” and drive up the cost of insurance for those who need it most.
http://online.wsj.com/article_email/0,,SB107214365174988600-H9jeoNmlah2op2vZ32Ib6iBm4,00.html
And…
eHealthInsurance.com
Frequently Asked Questions
What is an Indemnity Plan?
An indemnity plan is commonly known as a fee for service or traditional plan. If you select an Indemnity plan you have the freedom to visit any medical provider. You do not need referrals or authorizations; however, some plans may require you to precertify for certain procedures.Most indemnity plans require you to pay a deductible. After you have paid your deductible, indemnity policies typically pay a percentage of “usual and customary” charges for covered services; often the insurance company pays 80% and you pay 20%. Most plans have an annual out of pocket maximum and once you’ve reached this they will pay 100% of all “usual and customary” charges for covered services.
Many health insurance companies have moved away from indemnity plans and are instead offering managed care plans such as HMOs and PPOs. You may have few or no indemnity plan choices in your area.
http://www.ehealthinsurance.com/ehealthinsurance/FrequentlyAskedQuestions_1.html
And…
Internal Revenue Service
Notice 2004-2
This notice provides guidance on Health Savings Accounts.
Q-3. What is a “high-deductible health plan” (HDHP)?
A-3. Generally, an HDHP is a health plan that satisfies certain requirements
with respect to deductibles and out-of-pocket expenses. Specifically, for
self-only coverage, an HDHP has an annual deductible of at least $1,000 and
annual out-of-pocket expenses required to be paid (deductibles, co-payments
and other amounts, but not premiums) not exceeding $5,000. For family coverage, an HDHP has an annual deductible of at least $2,000 and annual
out-of-pocket expenses required to be paid not exceeding $10,000.
Q-4. What are the special rules for determining whether a health plan that
is a network plan meets the requirements of an HDHP (high-deductible health
plan)?
A-4. A network plan is a plan that generally provides more favorable benefits for services provided by its network of providers than for services provided outside of the network. In the case of a plan using a network of providers, the plan does not fail to be an HDHP (if it would otherwise meet the requirements of an HDHP) solely because the out-of-pocket expense limits for services provided outside of the network exceeds the maximum annual out-of-pocket expense limits allowed for an HDHP. In addition, the plan’s annual deductible for out-of-network services is not taken into account in determining the annual contribution limit. Rather, the annual contribution limit is determined by reference to the deductible for services within the network.
http://www.irs.gov/pub/irs-drop/n-04-2.pdf
Comment: The health policy literature is replete with studies describing the “death spiral” of skyrocketing premiums that result from drawing healthier beneficiaries out of risk pools, leaving higher-cost patients behind. The WSJ editors have exceeded their editorial prerogative when they state that the “dire prediction” of fragmenting the risk pool “fails to stand up to scrutiny.” The editors are entitled to their opinions, but not to their facts.
But it is not only those with current needs who will be exposed by widespread use of HSAs. Healthy individuals purchasing the high-deductible plans will find that they do not provide adequate financial protection should they later have major health care needs. It is important to realize that the traditional high-deductible indemnity plans essentially no longer exist, as indicated on the HealthInsurance.com website. No longer can you buy a plan that has only a 20% coinsurance for all services, and full, 100% coverage after an out-of-pocket maximum.
Currently available and HSA-qualified high-deductible plans are primarily PPO plans with restricted benefits, significant coinsurance, and limited provider lists. Current trends suggest that these restrictions will increase as efforts are made to keep the premiums affordable.
The IRS notice confirms that the maximum out-of-pocket expense of $5000 for individuals and $10,000 for families applies only to care provided under the plan. There is no stop-loss protection for care obtained from non-contracted physicians and hospitals, not to mention the very heavy financial penalties that are assessed for receiving care out of the network of providers.
Thus the only individuals who will be exposed to financial disaster are those with health care needs who are left with the death spiral of premiums, or those with needs who will find that their high-deductible PPO will leave them financially exposed. But those of us who are healthy and who will remain healthy will do just fine. Just don’t get sick.
At least the WSJ editors were correct when they facetiously noted that I was
not calm in my response to Title XII, the HSA provision of the Medicare bill. My histrionics are still applicable:
“CONTACT YOUR REPRESENTATIVES AND SENATORS IMMEDIATELY AND DEMAND THE URGENT REPEAL OF TITLE XII OF THE MEDICARE ACT!”
Don McCanne