U.S. News Blows the Story Three Times

The latest issue of U.S. News and World Report focuses on health care, but the authors and editors miss some of important points.

A list of changes that will affect consumers missed two changes that could affect more than 10 million Americans. Beginning January 1, 2011, individuals will not be able use their health savings account (HSA) to purchase many over-the-counter medications unless they first get a certificate of medical necessity. If somebody makes a mistake and purchases something not on the allowed list or does not get the right paperwork, the penalty will double to 20 percent of the cost. These are significant costs that will hamper the one insurance product that has proven capable of improving care at lower cost, but U.S. News ignores them while highlighting expansions of coverage and government subsidies.

An article on hospitals seeking payment from patients highlights a reason for this: “Some $260 billion went to uncompensated medical care between 1999 and 2008.” That might sound like a lot of money, but is less than 4% hospital costs and less than 1% of total health care expenditures over the 10-year period.

A bigger problem facing hospitals, insurers, and patients alike is the attitude expressed in a sidebar. A woman faced a $418 facility fee in her $1,133 doctor bill. She fought it, but said, “Everybody’s attitude was: What do you have to worry about? You have insurance.”

What do we have to worry about with ObamaCare? It’s free and doesn’t raise taxes, right? Oh, wait, the administration said what about the mandate?

High-deductible Policies in Action

Public schools in Michigan could save $26 billion over a 10-year period if its employees switched from low-deductible health insurance policies to high-deductible policies that were matched with health savings accounts. That’s the calculation of the Mackinac Center for Public Policy. The center points out the benefits to employees: “money [in an HSA] stays with the employee, even if he or she changes jobs, and contributions, earned interest and health expense withdrawals are all tax-free. The money can be used to pay any qualified medical expense, and after the employee turns 65, can be used for anything, just like a traditional IRA.

High-deductible Plans Threatened by New Regulations

More employers are adding high-deductible plans to the mix of health plans they offer or using them to replace their traditional plans. Yet some insurers who offer high-deductible plans say the health overhaul law is imposing new regulations that will make it harder for them to operate, according to Kaiser Health Digest.

Earlier this month, nHealth of Richmond announced that it was shutting its doors, saying its business model couldn’t be sustained under rules that will require insurers to spend 80 to 85% of the amount they collect in premiums on clinical services and quality measures, or give customers a rebate. “In my view, this was the first shoe to drop, and I’m wondering if there will be others,” says Roy Ramthun, president of HSA Consulting Services and former adviser to President George W. Bush on the rollout of HSAs. Ramthun says he’s also concerned that the high-deductible plans might have trouble complying with regulations that will be set for health plans sold on the exchanges in 2014.

Hope for Consumer-Driven Health Care?

Two recent reports made me doubt my conviction that ObamaCare spells the death of consumer-driven health care (CDHC).

By CDHC, I simply mean restoring health-care dollars to the patients who need them, instead of laundering them through insurers, employers, and government.

Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Arrangements were key tools in CDHC. As Greg Scandlen notes, they are still growing.

Nevertheless, by giving absolute power over the design of health insurance to U.S. Secretary of Health & Human Services Kathleen Sebelius and her assorted Tsars, Tsarinas, and Tsarevitches (to be appointed), ObamaCare surely sounds a death-knell for CDHC.  ObamaCare mandates that insurers cover “preventive care”, and imposes regulations on Medical Loss Ratios (MLRs) that surely make low-premium, high-deductible, health insurance impossible.

But then I read a report from TowersWatson, which anticipates that ObamaCare would increase the uptake of CDH plans in the employer-based market.  Now I read that well-endowed venture capitalists have invested $60 million in Castlight Health, a firm that uses IT to improve price transparency.

So, what have I got wrong?  Maybe nothing: Perhaps employers will simply use Health Savings Accounts as a way for employees to dodge taxes (which are going up, making tax shelters more valuable).  Plus, as John Goodman has noted, under ObamaCare, it will only make sense for high-income workers to keep employer-based benefits.  So, to avoid discriminating in health benefits for low-income workers, companies will dissolve and reform into companies with high-income workers (who have benefits) and those with low-income workers (who are dumped into “exchanges”).  High earners with health benefits will certainly benefit from the tax advantages of HSAs.

But where does the price transparency, which Castlight provides, come in, if insurance plans have to cover preventive care?  Beats me.  Perhaps they figure that so many people will be outside the exchanges, waiting to apply until after they’ve become sick, that they’ll be willing to use cash payments more frequently while they’re uinsured.

Health Savings Accounts Still Growing

It is already old news, but AHIP has issued its latest survey of HSA enrollment (PDF). The survey found that 10 million people were enrolled in HSA-qualified coverage as of January 1, 2010, an increase of 25% from a year ago.

The states with the greatest numbers enrolled were California (1,018,000), Ohio (651,000), Florida (639,000), Texas (637,000), Illinois (575,000), and Minnesota (361,000). The states with the greatest market penetration were Vermont (13.8%), Colorado (9.2%), Minnesota (9.2%), Arkansas (8.2%), Indiana (8.1%), and Ohio (8.0%).The report includes details on average premium, average deductible, and market segments.

EBRI also released a report on Consumer Driven Health Care this month. This one is focused on the accounts themselves, including balances and amounts rolled over. It found in August of 2009 there were 5 million HRA and HSA accounts with $7.1 billion in assets. This is up from 1.2 million accounts and $835 in assets in 2006. Average account balances were $1,419 in 2009, up from $606 in 2006. But the average balance grew modestly in the past two years (3% in 2008 and 5% in 2009.)

The report gives a lot of detail on the characteristics of those enrolled, but of greatest interest to me are the income and educational levels of enrollees. EBRI finds that 45% of CDHP enrollees had incomes of $50,000 to $99,999, while only 38% of traditional plan enrollees did. This might suggest some selection based on income, but the difference in education was even greater, with 46% of CDHP enrollees having a college degree and another 21% with a graduate degree. This compares to 23% and 11% respectively for traditional plan enrollees. These results suggest that education is a far more important factor in selecting a CDHP plan than income is. The report also says, “There are no statistically significant differences in self-reported health status between CDHP and traditional plan enrollees.”

CFO magazine reports on another study, this one from Towers Watson and the national Business Group on Health. It finds that 50% of employers now offer some form of CDHP and that is expected to rise to 60% in the coming year. It adds that CDHPs now cover 15.4% of all employees. The article says concerns linger about whether employees can handle the out-of-pocket cost involved with a CDHP, but “a recent analysis of the data by Towers Watson and the NBGH suggests that at least some employee concerns may be unwarranted.” It quotes Ted Nussbaum as saying, “The perception is that because CDHPs are based on a high deductible, employees pay considerably more, but we’re just not finding that to be the case.”

The article also says that savings depend on the take-up rate among employees. It says, “Compared with the $7,826 average cost per employee in a non-CDHP plan, those with more than 50% of the workforce enrolled in CDHP plans saw an average $978 savings per employee, while those with under 20% enrollment saw only an $83 savings per employee.” The article also reports that renewal rates have not been as favorable as companies stay with the program longer.

Which Will Disappear First: ObamaCare or HSAs?

Michael Cannon of the Cato Institute provides a quick review of how  ObamaCare threatens health savings accounts (HSAs). He concludes, “HSAs allow young and healthy consumers to avoid the raw deal that ObamaCare offers them. And that’s precisely why ObamaCare’s supporters will try to kill HSAs. We will end up repealing one or the other.”

Health Savings Accounts in Maine up 144% in Just 2 Years

According to a report released yesterday, 10 million Americans have Health Savings Accounts (HSAs)!

These lower premium, higher deductible private health insurance plans allow individuals to pay lower premiums in exchange for a larger up front deductible – on average a deductible of $2,300 for an individual and $4,400 for a family (small employer plans), according to the report from America’s Health Insurance Plans.

In Maine, HSAs are extremely popular.  In 2008, there were 18,211 Mainers with HSAs or 2.2% of the market, according to AHIP’s report that year.  In 2010, that number had climbed to 44,499, up 26,300 or 144% in just two years.

It’s no wonder.  HSA plans are much cheaper.  According to Kaiser’s Annual Health Benefits Survey 2009, an HSA plan costs $319 a month for an individual and $866 a month for a family.  Traditional insurance plans cost $409 a month for individuals and $1,133 for families.  That means that an HSA plan annually saves individuals $1,080 and $3,204 in lower premiums, compared to traditional plans.

To learn more about HSAs and how they might be right for you, view my presentation on the subject or talk with a health insurance broker.

HSAs for State Workers

One way that taxpayers can get more out of the dollars they send to state capitols is to demand that legislators introduce health savings accounts for state workers and retirees. The Texas Public Policy Foundation explains how that works, both with a report (PDF) and a podcast.

Consumer-driven Care Help the Poor

There’s a must-read essay by Avik Roy in the journal National Affairs this month, with some real insight into the lack of a transparent national health care marketplace, including a solid explanation of why consumers are voting with their feet on health care:

“It is true that consumer-driven plans can lead to less consumption than fourth-party insurance does. That is, after all, one of their salient qualities — they encourage more intelligent (and so more selective) consumer behavior. But the significantly lower premiums associated with consumer-driven plans make health care more affordable for individuals with lower incomes, and so allow them more, not less, access to the care they and their doctors decide they need. The lower premiums have the added benefit of attracting younger and healthier individuals into the risk pool, mitigating the problem of adverse selection, and thereby reducing the cost of coverage for everyone else. And while it is true that health-care choices can be complex, 21st-century consumers are accustomed to making complex decisions. If they can choose between hundreds of models of computers and automobiles, each with its own extensive set of bells and whistles, they are certainly capable of making choices about health plans and treatments that will affect their lives far more significantly.”

Keep Pushing for HSAs

Ari Armstrong explains why Americans who value quality medical care should, “Keep Pushing For Health Savings Accounts“.

Here is the opening:

Despite enactment of the Democratic health law, one reform Republicans and market advocates should fight to keep alive is the Health Savings Account (HSA), which allows people to put pre-tax money into an account dedicated to health-related expenses.

Experiences my wife and I have had this week illustrate the power of paying for one’s own health care, which an HSA encourages. Rather than pay a hundred plus dollars each to a doctor and an out-of-state testing facility, we each paid King Soopers [a grocery store--ed.] $20 to test our blood cholesterol. I’m not saying this is a good substitute for seeing a doctor, but we wanted to get a test between regular doctor visits. Our actions illustrate the fallacy of claims that self-payers don’t get preventive treatment. We are highly committed to doing what we can to prevent long-term health problems by taking care of ourselves and paying for preventive care.

(Read the rest of “Keep Pushing For Health Savings Accounts“.)