Shooting from the Right

Scott Krummey

This column could easily be filled with a first-hand account of American Healthcare gathered during my recent bout with mononucleosis and strep. However, testimony of the swiftness and quality of care I received versus the trouble I would have had under a nationalized system has already been provided – we must move forward.The problems of nationalized care lead to the realm of ownership in American Healthcare. A major step towards greater patient ownership was taken by the Bush Administration in January 2004 with the creation of Health Savings Accounts (HSAs). The premise for the creation of HSAs is that under the current third-party payment system, money paid to obtain health insurance coverage is independent of the amount of health care costs incurred. Although this system works, it is a poor use of funds for those who go years without major health care costs. In addition, costs of coverage and care are rising so rapidly that health insurance coverage is becoming a significant burden for both employers and individuals. The goals of HSAs are to give patients incentive to stay healthy by allowing greater control of money spent on health care. At the same time, increased competition will create market pressures that drive down costs. The nuts and bolts of HSAs are as follows: Individuals or families with a high-deductible health insurance policy (defined as greater than $1,000 for individuals and $2,000 for families) can fund a HSA with untaxed funds. This monthly contribution is capped at the value of the insurance deductible, to an annual limit of $2,600 for individuals and $5,150 for families. This money can then be used tax-free to pay for medical expenses. Most importantly, unused money can be saved for future expenses or invested safely; thus providing a modest return on long-term health savings. HSAs can also be taken from job to job, a valuable feature for many Americans. Specifically, HSAs target two key areas of cost in the third-party payment system. The first is insurance companies’ administrative cost of reviewing and reimbursing expenses. It is estimated that between doctors who hire an outside billing company to deal with insurance industry red tape and insurance companies themselves, 10% ($40 billion per year) of the cost of a visit to the doctor is wasted on paperwork. Most of this cost would disappear if patients using HSAs paid directly for their health expenses. Second, as is often reported in this column, HSAs are a market-based means of returning bargaining power to the consumer and driving down cost. Currently, health care is one of the only economic sectors in which there is no price competition or transparency. Under the third-party system, most costs are paid by employers, so patients have little incentive to minimize overall spending. Through the use of HSAs, patients will become increasingly aware of the cost of medical services and, when possible, will be able to find the best value for their money.Critics dismiss HSAs as free-market fantasy, contending that they will lead to less people being insured and will fail to reduce costs. However, there is evidence that HSAs have positive effects on the system. Reports in January from eHealthInsurance indicate that a third of HSA policies sold on its website are to previously uninsured customers. Also, Aetna reports that for patients in its HealthFund, which has incentives similar to HSAs, costs rose 3.7% in 2003 compared to a 16.2% increase for a similar group of patients in traditional insurance plans. Patients with HealthFund visit the emergency room less, switch more quickly to generic drugs and take greater ownership of their own care by researching prices and medical information using Aetna’s web-based resources. Only recently entering their second year of existence, HSAs are still being fine-tuned. For example, expansion of HSA use for 2005 is below expected levels because of timing glitches between the Treasury Department and the business insurance policy planning cycle. As the kinks continue to be worked out though, many employers will offer HSAs and patients will begin to feel greater benefits from lower healthcare costs. By increasing the amount of ownership that patients have of their healthcare funds, HSAs offer a real solution to rising healthcare costs. Certainly, American Healthcare faces more difficult challenges that HSAs do not address; but they are a great first step.