The Expert

HSA's Promote Health Care Consumerism

Health Savings Accounts (HSA) are increasing in popularity and are changing the way we look at our health care decisions–in a good way.  A little background on HSAs:  HSAs are special savings accounts that allow individuals to pay for their health care expenses with tax-free money from the first dollar they spend on health care.  Contributions to HSAs are tax deductible and the interest earned on the account is tax free when funds are used for eligible medical expenses.  An individual can contribute up to $3,050 in 2010 and a family (2+ people) can contribute up to $6,150.  The individual/family owns the HSA so the money rolls over year to year and can grow exponentially! 

In order to contribute to an HSA you must have a special health insurance policy called a Qualified High Deductible Health Plan (HDHP).   HDHPs must have a minimum deductible for singles of $1,200 and for families $2,400.  HDHPs cannot have deductibles higher than $5,950 for singles and $11,900 for families.  Plan out of pocket maximums cannot exceed the maximum single/family deductibles.  HDHPs generally require that a plan member meet the deductible first for all services (ER, office visits, hospitalization, Rx, etc…) but insurance companies can include preventative coverage (physical exams, well child check ups) for just a copay (example, $25) without meeting the deductible. 

I personally have a HDHP for my family and I think it is great!  My premiums for a family of 5 are under $300/month, my family deductible is $5000 and my out of pocket maximum is $7,000.  We only pay $15 copays for preventative care–and with 3 kids under 5 years old–that is great.  I believe the main purpose of health insurance is to insure against catastrophic health care expenses that would financially destroy my family.  On my plan, I know that I will never pay more than $7,000 in any worst case scenario in one calendar year.  This is something I can plan for and $7k would not bankrupt me. 

Having a “high” dedcutible changes how we have purchased health care.  We used to have a rich copay plan where we only paid $15 for any type of doctor’s office visit and small copays for Rx.  We had no incentive to be good health care consumers because we only paid the small copay and never thought twice about taking ourselves or our kids in to the doctor.  Now that we have to pay the first $5k/year of all our health care expenses we only take our kids in when necessary and we shop around for the best care at the best price. 

For example, my son had a ear infection a few weeks ago–it was bad enough that he needed antibiotics.  To just walk through the door of our pediatrician it would have cost us about $100.  The IHC InstaCare would have been about the same.  So we searched around and found an IHC ExpressCare in Draper.  It is located in Smith’s Food.  It has one exam room and a Physician Assistant.  They will see anyone over 2 years old and they just do basic routine care like ear infections and the cost: $49.  We walked right in (no appointment-no waiting) my son was examined, the PA prescribe the medication and we were done!  If I had had a plan where I just paid a copay I would have never considered shopping around.  The same kind of thing happened when my wife had a baby last year.  Our insurance did not cover maternity so we shopped for the hospital, doctor, and anesthesiologist who would give us the best price.  Everything turned out great and we saved a ton of money.  To top it all off, we have paid for all our health care over the last 2 years with our HSA money and I have saved over $3000 in taxes because of the HSA during that time!!!

Could you imagine if everyone had a HDHP and an HSA? We would actually force doctors and hospitals to better compete for our “business”.  We would collectively put downward pressure on prices, promote better quality, and these changes may possibly curb or stop the upward trend to health care inflation that plagues our insurance premiums.  I don’t believe HSAs are the silver bullet that will save our health care system, but I do believe they are a piece to the puzzle.

This is a question I get all the time and for good reason.  Over the last 8 years that I have been in health insurance sales I have had to present rate increases to my clients every year, ouch!  This is not fun and I will be the first to tell you I dislike rate increases as much as anyone–after all I buy a personal health insurance policy for my family and get the same increases.  So why do rates go up?

There are hundreds of reasons health insurance premiums increase year after year, so to simplify it I have narrowed them down to three: rise in the cost of health care delivery, high utilization, and artifically low Medicare reimbursements. 

First is is important to understand that health insurance premiums are a shadow of the costs associated with health care since health insurance is a payer of health care.  So when health care costs go up and people using the health insurance to pay for health care rises, so does your health insurance premiums.  It costs a lot to deliver health care and the cost keeps rising but only about 3 to 4% a year (much less than the 11% average health insurance premium increase).  These costs include a doctor’s overhead, malpractice insurance, investments in technology, and pro bono care.  Health care technology is getting better every day but with those advancements comes higher costs and those costs are passed on to me and you usually through health insurance premium increases. 

Utilization is a fancy word for using your health insurance.  It’s fine to use your health insurance–that’s what it is there for–however, many people do not use it wisely.  For example “over-utilization” is where consumers go to the doctor for every little cough or sniffle, choose not to get second opinions when recommended for a procedure, and other countless bad health care consumer situations.  Another problem is that doctors tend to practice defensive medicine–meaning the perform numerous unnecessary tests and procedures in order to cover their behinds in case of a lawsuit.  I have seen some studies that estimate that up to 50% of all tests and procedures are unnecessary.  This is a huge burden on the consumer and those paying health insurance premiums. 

Last but not least, artificially low Medicare reimbursements are a big problem.  The Federal Government (Medicare) sets the price that doctors get paid from Medicare insurance (insurance for the elderly and chronically disable).  Medicare has not increased what it pays to doctors to keep pace with doctor’s costs of doing business.  Many doctors have retired early because they can not stay in businesses with the Medicare reimbursements so low.  Other doctors will subsidize their loses from treating Medicare patients by negotiating higher reimbursements from privates insurance companies.  Sometimes these reimbursements are 25% or more than Medicare reimbursements.  So what does that mean to you?  Since you most likely pay health insurance premiums to a private insurance company your rate reflects a high premium due to the  cost shift from Medicare.  Simply, you are paying at least 25% more than you should be paying.  To fix this Medicare needs to increase their reimbursement to the docs that accept Medicare to the same levels private insurance pays.  This will better equalize the premiums and you will not be carrying more than your fair share. 

So how do we fix it so our premiums stop increasing?  I will give you my opinion to the question in another post.  Until then, do your best to be a good health care consumer and pray our system changes for the best.

Currently the Utah legislature is proposing House Bill 294.  HB 294 is mainly a health insurance reform bill and it has already been passed in the House and is now moving to be debated and voted on in the Senate.  Much of the bill is fine however, there is a part of the bill that is concerning to me.  The bill will require a State-wide risk adjuster for all health insurance companies starting in 2013.  A risk adjuster is a mechanism  that essentially allows competitor insurance companies to share risk (loses and profits).  This bill would require that all health insurance companies in Utah to share risks and loses.  So what’s the big deal?

Well let me put it this way, let’s say you have two competing banks, B of A and Wells Fargo and lets assume they are part of a risk adjuster.  So the first year B of A has a great profiable year and makes $5 million dollars but Wells Fargo has a downer year and only makes $1 million (because B of A  took many of their customers).  To make it “fair and an even playing field” B of A will now have to take a portion of its profits and cut a check to Wells Fargo to make them even.  So even though B of A was a better-run business and made a profit it will now have to share profits with its competitors.  On the other hand, Wells Fargo got a hand out they did not deserve or earn to the detrament of B of A and its owners/members.  That does not make any sense to me. 

If competitors share losses and gains, what will will the incentive for companies to be efficient, cost concious, and prudent as they compete only to know that a competitor who is more successful will prop them up?  To be as plain as can be, this is a way for Utah to socialize health insurance through private insurance.  The risk adjuster in no way will reduce our health insurance premiums nor will it reduce health care inflation.  I personally believe this idea will harm the insurance market and reduce competition because it will dis-incentivize insurance companies from coming to Utah.  Less competition means  less choice, less choice means higher costs eventually. 

This legislation is headed to the Utah Senate for debate this week.  If you have concerns about this item in the bill, please let you State Senator know.  You can visit http://le.utah.gov/Documents/find.htm to find your State Senator and let them know your concern.