Just what the health insurance industry does not need — more initials. Just what the health insurance industry does need — more innovation.
But if the cost of innovation is a few more initials added to the alphabet soup of health insurance terms, then so be it. HSAs — Health Savings Accounts — may be worth it.
HSAs were created as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The basic idea is to help individuals save for future medical expenses on a tax-free basis.
HSAs are also designed to give individuals greater control over their health care decisions. The employer, insurer and medical provider play complementary roles, and the consumer of health services is at the center of the health care equation.
Supporters of HSAs believe the program holds some promise as a curb on health care costs. Detractors believe that people insured with an HSA may forego necessary medical care in an effort to save money.
The concept is simple. An HSA is a tax-favored account established to pay qualified medical expenses, combined with an HSA-qualified High Deductible Health Plan (HDHP). To qualify as an HDHP, a plan must have a minimum annual deductible of $1,000 for an individual and $2,000 for a family, up to a maximum of $5,000 for an individual and $10,000 for a family.
Other qualifications for an HSA:
1. The insured must have no other basic coverage except the HDHP.
2. The insured must not be eligible for Medicare benefits.
3. The insured cannot be claimed as a dependent on someone else’s tax return.
Appealing to employers and employees
Employers have shown interest in high-deductible policies because they see the program as an attractive way to get employees more involved in making health care decisions. Employees may like the idea of an HSA because they own it; money not used gets carried over to the next year, and the fund can go with employees when they switch jobs.
While the concept of an HSA is simple, its execution is not. The employee makes all the essential decisions: How much to invest, how much of the account to use for medical expenses and which medical expenses to pay from the account.
And the interest earned on unspent balances could serve as a strong incentive for employees to spend wisely on their health care. Employees will need both investment information and medical information in order to make good decisions.
The magic bullet?
So is this the elusive “magic bullet” the health care industry has been looking for to control cost? Only time will tell.
Regardless of how popular HSAs become, they will not make a serious dent in overall health care spending as long as the 10 percent of people with chronic or multiple chronic diseases account for about 70 percent of health costs. It is unlikely that any cost incentive program could reduce those costs.
It is also possible that some consumers may find the HSA concept hard to understand — more complicated, for example, than a 401(k) plan.
Moreover, high-deductible plans may not appeal to many Americans. A recent survey by America’s Health Insurance Plans, an insurance industry trade group, revealed that while many people embrace the concept of tax-free savings plan, 38 percent were not pleased about the deductible required, and a majority of those indicated they would not switch plans.
In fact, high-deductible plans will place economic burdens on some and may cause people with low incomes to delay necessary medical care, a situation that is unacceptable for everyone. An essential part of the HSA is that preventive care — such as an annual physician visit — is covered 100 percent.
HSAs do show potential to reduce the number of uninsured. They do show potential to encourage savings in areas such as the choice of generic prescription drugs and the forgoing of unneeded care.
And, perhaps most important, they show that there can be new and innovative ways to address the issue of health care costs in the 21st century. RONALD J. VANCE is vice president of sales and marketing for UPMC Health Plan. The Health Plan, with 440,000 members, is part of the University of Pittsburgh Medical Center’s integrated medical delivery system and is the only provider-led health plan in Western Pennsylvania. Reach Vance at (412) 454-7642 or [email protected].
