Date Published: June 18, 2006   

Health savings accounts debated

Are they the answer to our nation’s health insurance dilemma, or will they leave behind the poor and unhealthy?

Photo / ClipArt.com Health savings accounts are being touted by some as part of the salvation of the nation’s employer-sponsored health insurance problems. Critics say the plans could benefit the rich and healthy and leave less wealthy people more likely to forego necessary medical care.

By LESLIE CANTU
Item Staff Writer
lesliec@theitem.com

Imagine that you're getting headaches. Common, run-of-the-mill headaches that aren't particularly worrisome but make it difficult to concentrate at work and at home. Do you go to the doctor?

If you have traditional employer-subsidized health insurance with a $20 co-pay for doctor visits, you might be inclined to go to the doctor, get it checked out, maybe get a prescription for something a little more powerful than Advil (also to be partly covered by your health insurance). Similarly, someone without health insurance might elect to go to the hospital emergency room for the same services.

In both cases, critics of our current health system say, health care users are blindly consuming services without any idea of the costs involved. If a doctor's visit truly costs $100 but you only pay $20, they say, then you don't value your doctor's opinion as much; you might tend to visit the doctor for every minor problem and thus be part of the problem of escalating health care costs in this country.

Some of those critics say that if people had health savings accounts combined with high-deductible health plans, they would be more aware of the costs of health care and thus make more intelligent choices about when to use health care, just as they do when deciding to buy any other service.

So let's say you have a health savings account and high-deductible health plan and you get those same headaches. Are they really worth a trip to the doctor? If you're paying the entire cost of the doctor's visit and prescription in cold, hard cash, rather than through insurance paperwork, you might forego that visit. After all, it's just a headache.

What if it's more than just a headache, though? In extremely rare cases, headaches can be a symptom of leukemia. What if you're one of those rare cases?

What if the situation isn't that extreme — will people cough up the cash for preventive care like mammograms or prostate cancer screenings?

The country might end up seeing more people with serious illnesses because they put off care out of concern for costs, critics of health savings accounts say, and doctors could even find themselves competing on the basis of cost.

This is the tug-of-war over health savings accounts, one of the newest additions to the health care pot. Some, like President George W. Bush and Sen. Jim DeMint, R-S.C., are pushing these accounts as part of the answer to the nation's health insurance dilemma.

DeMint toured South Carolina earlier this year, making two stops in Sumter, touting the accounts and explaining his vision of the future of health care — a future that would require mental adjustments on the part of both patients and physicians, he said.

On the other hand, critics say the accounts favor the healthy and wealthy. Tax breaks are tilted toward the affluent, they say, with proposed tax breaks making the plans even more attractive to the rich, and if young, healthy people sign up en masse for such plans, or if employers switch exclusively to these plans because they're cheaper, the unhealthy will be left behind, paying even higher premiums because there's more risk to be spread among a smaller group left in the traditional insurance pool.

WHAT IS A HEALTH SAVINGS ACCOUNT?
Health savings accounts are still very new. Legislation passed in 2003 created the accounts, but most companies didn't begin offering them until after the IRS published guidelines in 2004 in response to industry questions.

Most people aren't yet familiar with the accounts. A Kaiser Family Foundation poll after the president's State of the Union address this year found that 69 percent of respondents had either never heard of health savings accounts or had heard of them but didn't know what they were.

Health savings accounts are tax-free savings accounts meant to work in conjunction with high-deductible health plans. People can invest pre-tax dollars in the accounts and withdraw the money tax-free, provided it's used for health-related costs.

They're the only savings plan that is tax-free on both ends — with all other savings accounts, like IRAs or 401Ks, the account owner pays taxes either when the money is going in or when it's coming out.

The money in HSAs accumulates tax-free and rolls over year-to-year. It also follows the account owner rather than the employer, so account owners don't lose their savings when changing jobs.

People can open health savings accounts if they have a high-deductible health plan, aren't on Medicare and don't have other health insurance, although specialized insurance like accident coverage, coverage of a specific disease or dental and vision coverage is acceptable

High-deductible plans are those with deductibles of at least $2,100 for a family, with maximum out-of-pocket expenses of $10,500, and deductibles of at least $1,050 for an individual, with maximum out-of-pocket expenses of $5,250.

For the most part, the amount of the deductible is also the maximum amount that can be contributed to the health savings account each year — an individual's plan with a $2,000 deductible would mean the insured and/or his employer could contribute up to $2,000 each year to the health savings account.

Plan owners must meet their deductibles either out-of-pocket or with cash from the health savings account, and once they've met the deductible the insurance kicks in, just like with traditional insurance.

A special exemption allows plans to cover preventive medicine, like routine prenatal and well-child care, immunizations and screening services, before the deductible is reached, to encourage people not to put off preventive care because of cost — but they're not required to offer such coverage before the deductible is met.

BlueCross BlueShield of South Carolina, for instance, offers five high-deductible insurance options, each of which covers preventive care.

Health savings accounts and high-deductible insurance plans aren't automatically linked — many people have high deductibles and are eligible to open the health savings accounts but haven't.

But proponents link them rhetorically, and are seeking to link them practically through additional changes to the tax code. They envision a massive shift in Americans' health care coverage, from comprehensive, employer-provided plans with low deductibles — at high cost to employers — to consumer-driven plans that can lower employers' costs and potentially help consumers save money for future health care needs.

ARE HSAS FOR EVERYONE?
According to the Government Accountability Office, between 2 and 3 million people have health savings accounts — less than 2 percent of the total population with private health insurance.

BlueCross BlueShield won't say how many of its customers are enrolled in such plans, citing competitive reasons, though spokeswoman Elizabeth Hammond said the company has "seen growth" in enrollments.

Calls to office managers at a sampling of local doctors' offices indicate that most Sumter doctors haven't encountered the plans yet, or in such small numbers that it's hard to tell how different they are from traditional insurance.

Caren Schwartz at Bynum Insurance said the accounts are a great concept because they can pay for anything health-related, including dental and vision care.

Still, they take time to catch on even at the insurance office. Of 15 employees using company insurance, two switched to health savings accounts when the company renewal period arrived in April.

A number of individuals have come in for health insurance and signed up for the accounts, she said, including people whose companies don't offer insurance, who work part-time or who can't afford the company insurance.

"A lot of times, once they see the cost savings, it's like, 'Gosh, I'd be crazy not to,'" she said.

The upfront cost savings comes from cheaper premiums for the high-deductible insurance.

But, Schwartz notes, the high-deductible plans are not for everyone. Brian Morris, vice president of South Carolina Medical Association Financial Services, agreed.

"Theoretically ... they're a no-lose situation," he said. But someone making $20,000 is never going to be able to meet the deductible without help from his employer, he said.

WILL PATIENTS SKIP CARE?
Proponents believe that employers, especially small businesses, will be more likely to offer such plans because they're more affordable than trying to offer traditional insurance. And when patients become consumers, the argument goes, they will hold down costs as they become aware of how much health care costs.

There's evidence from experimental programs to show that people do cut back on health care spending when they see the money coming from their own pockets. The point of difference is whether they are foregoing necessary or unnecessary care.

Most of what people go to the doctor for, DeMint told a group of Tuomey doctors earlier this year, goes away on its own, but people have been trained under the current system to not pay attention to costs, he said, and to go to the doctor even for minor illnesses. Further, unhealthy lifestyles appear acceptable because someone else — insurance or the government — will pay for the inevitable outcome, he said.

"You turn patients into shoppers," he said. "Not only will they become shoppers, they'll take care of themselves" under a consumer-driven health care system.

The White House National Economic Council's February report, "Reforming Health Care for the 21st Century," argues that the tax system, which favors employer-sponsored health care, has led to "excessive reliance on third-party insurance for even predictable, non-catastrophic care, which in turn reduces consumer sensitivity to the cost of health care."

On the other hand, argues Jason Furman of the Center on Budget and Policy Priorities, even with HSAs and high-deductible plans, insurance will still end up paying for what studies show to be the biggest piece of the health care pie — expensive procedures and treatments for major illnesses or end-of-life care that quickly overwhelm deductibles.

Dr. Thomas Lee and Kinga Zapert, writing in the New England Journal of Medicine last September, point to a series of studies that show patients are more likely to skip care when the costs come out-of-pocket and that those eschewing care didn't distinguish between necessary and unnecessary care.

"Relying on market forces alone to improve health care is a strategy fraught with hazard," they wrote. "We think the times call for a new approach to health insurance that combines some accountability for consumers with incentives for providers to develop systems to improve the quality and efficiency of their care."

The other factor is that there isn't much information out there about how much different services cost in order to help patients make decisions as active health-care consumers.

Realistically, doctors don't have time to educate patients about cost, in addition to conducting a regular office visit, said Dr. Andy Reynolds, president of the Sumter-Lee Medical Society, and the doctors themselves probably don't know how much tests cost. They fill out coded forms that are sent to insurance companies, but nowhere on the form is there an actual dollar figure.

Doctors could probably get that information, but they definitely don't know how much patients will end up paying when they go to specialists for tests or services.

ACCOUNTS RECEIVE MIXED REACTIONS
For DeMint and Bush, encouraging HSAs and high-deductible insurance plans is one portion of a larger health care reform plan.

Bush's reform proposal calls for portable insurance, the ability to purchase insurance across state lines and the ability of small businesses to band together in trade or professional groups to purchase insurance at discounted rates for their employees.

He also wants insurance companies and medical providers to make understandable price information available to patients and to increase health information technology, which he believes can both lower costs and reduce errors.

DeMint believes that streamlining the business side of medicine, so that doctors charge and receive a flat rate for a particular service rather than having to code every sniffle and blood test, goes hand-in-hand with the HSAs and high-deductible plans. Someone with an HSA will simply pay for a service, and the doctor's administrative costs are lessened because the office manager doesn't have to navigate the insurance coding labyrinth or determine how much each of the competing health plans will pay for a particular service.

Proponents of the plans point to studies showing that up to 40 percent of people with HSAs were previously uninsured as proof that the accounts can help the nation's uninsured problem — estimated at about 46 million people.

But opponents say that's a fallacy. Writing for the Center for Budget and Policy Priorities earlier this year, Edwin Park and Robert Greenstein said that number comes from a study that looked solely at the individual insurance market, which is made up mostly of people who don't have access to traditional group insurance.

"A survey of people who have purchased any type of policy in the individual market would show that many of them had previously been uninsured. The fact that 37 percent of HSA enrollees in the individual market previously were uninsured tells us little about whether HSAs are reducing the ranks of the uninsured," they wrote.

Reynolds has mixed reactions to the accounts.

"On paper it's probably a good idea," he said. "It's just how the practice of it is going to be implemented."

The South Carolina Medical Association doesn't have a position yet, he said.

Nationally, the American Medical Association supports the accounts, while the American College of Physicians supports the accounts with some caveats. In a 2005 position paper, it predicts that HSAs alone will not lower medical costs and recommends linking the accounts to other reforms so that employers aren't tempted to drop traditional insurance, opening up new gaps in coverage.

Reynolds said the plans are great for people who are financially responsible. But if people don't sock away enough money in their HSAs, they could come up short when it comes time to meet the deductible. And that's troubling to practices that have to meet payroll for staff members.

It's also worrying that patients could weigh cost more heavily than health when deciding on care. He's seen that happen as a military doctor, when people stayed away from the clinic in droves because of TRICARE co-pays — only to return in force the following year, sicker because of the lack of care — and he even sees it with current patients, two of whom recently ended up in the hospital with lung disease after they put off visiting the doctor in hopes of getting better on their own.

Patients already shop around for pharmacies, and he's astounded at how much some of the drugs cost. Sometimes people can switch to generics, but sometimes a new drug doesn't have a comparable generic, he said, or the generic hasn't been studied the way the brand-name drug has and he can't promise it will have the same effects.

He points to the building next door, where, he says, pharmacist Joe Orvin provides wonderful, personalized service. "He's not going to be able to compete with Wal-Mart for price," Reynolds said.

Only time will tell how well the plans work, Reynolds said.

For some, the plans are an exciting alternative. Jim Markides at Markides Jewelers signed up for one this year. He's healthy, isn't taking any prescription medicine, and is part of a business segment that has been particularly hard-hit by rising health care costs — small businesses.

The percentage of small businesses offering health insurance dropped from 63 percent in 2004 to 59 percent in 2005, the same percentage as in 1996, the Kaiser Family Foundation found in a 2005 survey. It also found that premiums increased by an average of 9.2 percent in 2005, though inflation increased by 3.4 percent.

Markides thinks the savings from switching plans will allow him to break even within two years.

Rep. Jim Clyburn, D-S.C., said he doesn't oppose health savings accounts as long as they're a supplement to a universal health care plan.

With universal health care, everyone would be covered, and those who wanted a "Cadillac" plan could pay for it themselves. To arguments that that would lead to a two-tiered system of health care, Clyburn replied, "Everything about our system is two-tiered."


Contact Staff Writer Leslie Cantu at lesliec@theitem.com or 803-774-1250.