Stop the HSA Tsunami!!
Galen Institute
Consumer Choice Matters, #41
11/25/2003
HSA TSUNAMI
By Greg Scandlen
The new Health Savings Accounts (HSA) provision included in the Medicare bill just passed the Senate 54-44 and soon will be signed by the President. The new law will go into effect January 1, 2004. All 250 million non-elderly Americans will now have access to a Medical Savings Account, and one that is far more attractive than the Archer MSAs that were enacted in 1996.
Market analysis
- There will be a rush of banks, insurance companies and third-party administrators (TPAs) to develop products. The previous restrictions on
Archer MSAs have been removed. There is no longer a sunset provision,
there is no limit on employer size or total enrollment.
- All these development efforts will lead to far greater public awareness of the product.
- The individual market will convert to HSAs in droves.
- The small group market will be slower. Small employers are not benefits innovators.
- The fully-insured mid-market is a different story. Companies with 100
to 1,000 employees are more likely to have staff that concentrates on
benefits options and has the time to investigate new products. These companies
have been raising cost-sharing requirements anyway, so the prospect of
employee responsibility for funding part of the HSA is less of a stretch in this
segment.
- Self-insured large companies will likely stay with Health Reimbursement
Arrangements (HRAs). Companies that pay directly for the services consumed
are unlikely to be attracted to HSAs, which expect an up-front contribution
of money for all employees whether they are using services or not. HRAs
have the considerable advantage of not requiring pre-funding.
- The uninsured should find it easier to gain coverage. HSAs will be available to everybody - especially those workers whose employers provide no coverage at all, and who make up the vast majority of the uninsured.
Prospects
The market is ready for this. All of the discussion about consumer directed
health care in the last few years has sensitized corporate decision makers
to the advantage of putting more control in the hands of employees. HSAs
provide them with the perfect opportunity to do exactly that. The year 2004
will probably not see massive enrollment because vendors will need to
work on developing new products and marketing strategies. But by mid-year
there will be an enormous push to gain an early position in this new market
and become the recognized “industry leader.”
The timing couldn’t be better, with an improving economy and widespread
gains in the equities markets. Venture capital will be in great demand
to get the new products off the ground. Get ready for a twelve month race
to the finish line of 12/31/04 and the first-year enrollment numbers.
http://www.galen.org/ccbdocs.asp?docID=569
Comment: The Galen Institute… is a “free-market research organization”
that “was founded in 1995 by Grace-Marie Turner to promote a more
informed public debate over individual freedom, consumer choice, competition,
and diversity in the health sector” (Mission statement, Galen Institute).
Anyone following the health care reform debate recognizes the rhetoric of the
advocates of “consumer-directed,” “free market” health care. Galen has
strongly supported medical savings accounts (now health savings accounts, or
HSAs) as a tool to achieve consumer independence in the free marketplace.
What Galen fails to point out is that HSAs fragment the insurance pools. The
tax advantages accrue to the wealthy, and a tax-favored personal account
appeals to those who do not expect to have high health care bills. By removing the large sector of the healthier and wealthier from the traditional insurance risk pools, the higher-cost individuals remaining drive up premiums making traditional coverage unaffordable for those with the greatest health care needs. HSAs are both regressive tax policy, and cruel health policy which rations care by erecting financial barriers for those with the greatest needs.
For those of us who are healthy, HSAs with catastrophic coverage would serve our purposes well. But those of us who later develop significant disorders will discover why we should all have comprehensive coverage using a common risk pool. Many of us would decide in advance that we want that degree of security and would want to purchase traditional coverage. But we’ll find that traditional coverage will have left the market because of the death spiral of unaffordable premiums.
This fundamental flaw in dividing the risk pool into segregated accounts, favoring the wealthy while penalizing the sick, alone is enough to disqualify HSAs as a rational model of reform. But there are a great many other problems, only a few of which are listed here.
HSAs must be matched with high-deductible insurance. Insurers offer primarily managed care PPOs as the high deductible or “catastrophic” option. PPOs are undergoing transformation in order to keep their premiums affordable. They are using methods often lacking transparency to reduce benefits and increase out-of-pocket cost sharing. Tighter provider lists decrease choices. Greater penalties for using non-providers are now standard. Tiering rates for services shift costs to beneficiaries.
Individual PPO plans often exclude essential benefits such as obstetrical services. Deductibles have become the norm in PPO plans. The cost savings by using a high deductible plan theoretically funds the HSA. But, in fact, the savings now is usually so small that it could not be considered as a major source for HSA funding. When pricing different plans, you will find that the moderate deductibles have very little effect on the premium. Rather, the premium differences are due more to other factors such as the richness of the benefit package, other cost sharing measures, and the differences in competitive pricing in the various service areas.
In the individual market, most insurers will not sell plans to individuals with significant preexisting disorders, often for even simple problems such as allergic rhinitis. The uninsured will be able to access this market only if they have no current or expected needs for health care. Creating an insurance market for the healthy, and letting those with needs fend for themselves, is inhumane health policy at best.
A major flaw in our health care system is the profound administrative waste that diverts funds from patient care. HSAs add a very significant administrative layer and interject more middlemen into the process. Insurers sell administrative services, and HSAs will expand their market. Not only will insurers be involved but bank trustees, third party administrators, various investment managers, and others will all be there quite willing to divert to themselves their unfair share of the health care dollar. And the providers of care will have added to their administrative burden the need to access millions of individual, segregated accounts as they seek compensation for their services, whether by direct billing to the account managers or by the necessity of providing documentation of qualified expenses.
Once the beneficiary is eligible for Medicare, funds may be withdrawn from
the HSAs for non-medical purposes without penalty. For those who remain
healthy, the HSA becomes the equivalent of an individual retirement account
(IRA). Much can be said about the inequitable, regressive tax subsidies of
IRAs, but that will not be discussed here. But it is clearly inappropriate to remove dollars from an equitable health care risk pool and grant them to wealthier individuals. Such regressive tax avoidance schemes certainly should have no place in our health care system.
This program requires that the deductible for the catastrophic coverage
be at lease $1000 for individuals and $2000 for families. Many already
have deductibles at this level or higher. Why should an administratively
cumbersome program be established for expenses that are already being
met by personal reserves? The tax advantages for most would not begin to
offset the extra expenses and nuisance of HSAs.
Again, the worst feature of HSAs is that they effectively shift costs to individuals with the greatest health care needs which will threaten affordability of care. More individuals will be forced into public programs, such as Medicaid, but only if eligible. Public programs targeted to those with greater needs will remain chronically underfunded, again further impairing access.
It is important to understand health savings accounts. They are explained in
Title XII of the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (pages 660-678). The bill can be downloaded at:
http://www.house.gov/medicarerx/hr1-conflegtext.pdf
Although there are many other elements of the Medicare bill that are absolutely unacceptable, we have maybe a year or so to change them. But Title XII, which authorizes HSAs, must be repealed immediately because it becomes law in only one month. Once millions of HSAs are established, it will be almost impossible to reverse this program.
CONTACT YOUR REPRESENTATIVES AND SENATORS IMMEDIATELY AND DEMAND THE URGENT REPEAL OF TITLE XII OF THE MEDICARE ACT!
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Message: 2
From: “Don McCanne”
To:
Date: Sat, 29 Nov 2003 18:11:11 -0800
Subject: qotd: Bob LeBow
Dear Don and Ida,
I am so sorry to inform you that our great friend Dr. Bob LeBow just
passed away today, at about 11:30. As his fellow warriors, I know you would
want to know and would want to tell the many other friends around the country.
His funeral will be tomorrow at 1:00 at the Relyea Funeral Home at 318 N.
Latah in Boise. We have lost a giant among men.
Ern
Erwin Teuber, Ph.D.
Executive Director
Terry Reilly Health Services
211 16th Avenue North
Nampa, ID 83653
e-mail: eteuber@trhs.org
website: http://www.trhs.org