Health Savings
Accounts in the
MPH 439 – Prof. Neuhauser
April 25, 2006
Joseph
Sweigart
Health Savings Accounts in the
I. Introduction
What are health
savings accounts (HSA’s), and are they a good addition to the healthcare system
of the
Section II is a brief analysis of the health care environment into which HSA’s will play and will provide a brief explanation of the goals of these plans at a societal level. Section III will provide a basic description of the legislation creating HSA’s, which is necessary to understand what the programs are and how they are to be administered at the level of the individual health consumer. Section IV further describes the goals and benefits of the HSA’s, while section V, conversely, contains the shortfalls of such plans. Section VI provides an abbreviated discussion of the Rand Insurance Trial, a unique and pivotal economic study into the impacts of cost sharing on health care. Finally, section VII will offer recommendations and summary conclusions.
II. The Health Care Setting in the
The
uninsured and underinsured Americans are a prominent, central shortcoming of the
III. Descriptions of Health Savings Accounts
Health
savings accounts are aimed at addressing these very problems in the
In
order to qualify for these tax-free accounts, HSA owners must be enrolled in a
high deductible health plan (HDHP).
HDHP’s include a minimum annual deductible of $1,000 for individuals and
$2,000 for families.[14]
While these initial deductibles are quite high compared to traditional health
insurance plans, maximum out-of-pocket expenditures with HSA/HDHP’s are fixed
at $5,000 for individuals and $10,000 for families.[15]
The 2006 maximum annual investment into an HSA is the lesser of either the
deductible or $2,700 for an individual or $5,450 for a family.[16]
In other words, if the HDHP deductible is less than $2,700 for an individual and
$5,450 for a family, HSA owners can only deposit the amount of the deductible
each year; if, though, the HDHP deductible is above $2,600 for an individual
and $5,150 for a family, HSA owners can only deposit the maximum amount of
$2,600 or $5,150, respectively. See Box
I for an example of an individual and Box II for an example for a family. These maximum deposit values do not apply to
HSA owners over the age of 55 in order to allow them to invest more heavily in
accordance with the larger probability of high health care consumption;[17] persons
enrolled in Medicare, though, are not permitted to make deposits into 
their HSA.[18]
Private, third-party insurers supply plan options and negotiate rates with health care providers. Federal legislation firmly establishes the minimum and maximum values, as previously discussed, but individual plans vary broadly within the parameters provided. As the plans will be managed in manner similar to traditional plans, it is reasonable to assume that administrative costs of the insurance will be similar. Also, providers are free, but not mandated, to pay for screenings and preventive care prior to beneficiaries paying the deductible amounts. This is known as first dollar payment, and this, too, can vary from plan to plan.[19] In some plans, though, beneficiaries must pay any and all medical expenses up to the deductible amount before the insurance provider begins to contribute.[20] Also, private financial institutions, possibly affiliated or associated with health insurance providers, will manage the savings accounts according to the desires of the HSA owners. Investing options include basic savings accounts, certificates of deposit, money markets, or mutual fund.[21]
IV. Goals and Benefits of Health Savings Accounts with High Deductible
Health Plans
The central goal of HSA/HDHP’s is for working citizens who are unable to afford the high premiums of traditional plans to be able to afford the lower premiums of HDHP’s. Similarly, companies that are too small to afford the costs of providing traditional plans to their employees will be able to provide HSA options. In addition, employees unable to afford employer-provided coverage or employees of employers who are unable to provide any insurance coverage are free to establish individual health savings accounts independent of employers. As such, these options could also potentially provide a reasonable means to maintain health insurance between jobs, during times of unemployment, or while laid off.[22] Since cost is the most prohibitive factor for attaining traditional health insurance plans, it is likely that the low premium of HDHP’s and the flexibility of HSA’s will do well to increase affordability and access to health insurance for working Americans.
In
addition to benefiting health care consumers, HSA/HDHP’s are also intended to
improve efficiency of the
Americans standing to benefit most from HSA/HDHP’s potentially includes a broad spectrum of health insurance consumers. Tax-free deposits into HSA’s are relatively safe investments for healthy people who are not likely to have exorbitant health care expense. This is especially true for young people who are likely to require little health care, and, as a result, stand to build up large savings through the tax-free payroll deduction over the course of long, healthy careers. It is possible that people in exceedingly poor health may also benefit from HDHP’s given that these plans have a federally mandated maximum out-of-pocket expenditure while traditional health plans typically do not. Also, as mentioned previously, uninsured persons with jobs who are unable to afford the cost of premiums for traditional health insurance plans could attain health insurance with the low premiums of HDHP’s. Perhaps wealthy persons seeking tax shelter for lucrative investments could also benefit from HSA’s, but this is not very likely given the maximum annual investments. Nonetheless, the potential beneficiaries of HSA/HDHP’s span the population from young to old as well as poor to rich.
Evidence
supports the ideal that these plans do, in fact, increase the access and
affordability of health care on an individual level. HSA/HDHP’s seem to be especially effective at
reaching target demographics within the
Given the success of HSA/HDHP’s at the level of individual employees and employers, it is likely that many of the well-crafted societal goals will be realized as well. These plans do a great deal to shift health care toward a consumer-driven, market model. Individuals enrolled in HSA/HDHP’s gain more control over the health care spending, especially with regard to first dollar payments.[27] Additionally, HSA owners gain greater freedom and flexibility in health care investments, including the ability to invest now for future health care in a manner that is not currently possible with traditional health insurance plans or social security.[28] Since savings accrue from year to year, after only a very few years of heavy investment and light expenditure, HSA/HDHP members could have enough money in their account to cover the maximum out-of-pocket amount and would be virtually free of health-related financial risk for that year. Out-of-pocket expenditure maximums will allow reasonable security when planning investment strategies and provide further mechanisms for assuring that health insurance remains affordable. These factors all contribute to placing greater control of the health care dollar firmly in the hands of individual health care consumers.
In addition to
benefiting consumers, though, HSA/HDHP’s are also likely to positively impact
health providers. Decreased numbers of
uninsured patients will increase reimbursements for providers. Market incentives in the form of more
business and greater profit will reward providers who are able to provide
efficient, cost-effective services, most likely including preventive and
maintenance care. Similarly, the
increased presence of consumer-driven health care is anticipated to drastically
reduce costs.[29] In
fact, an
V. Shortfalls of Health Savings Accounts with High Deductible Health
Plans
Despite the far-reaching promise of HSA/HDHP’s, they are certainly not a comprehensive answer to all the problems plaguing the American health care system. Though they are notably smaller than with traditional plans, gaps will undoubtedly remain between persons able to effectively participate in HSA/HDHP’s or receive Medicaid assistance; accordingly, HSA/HDHP’s alone are not universal or socialized health care. Additionally, persons unable to afford the premiums of traditional plans may also be unable to afford the lofty deductibles of HDHP’s in order to access needed care. People able to afford HSA/HDHP’s but too poor to make deposits into their account will not benefit from the tax break or accumulate any savings for future health expenses. The same is true for people who cannot save or choose not to save for any reason. People with little or no propensity for savings will gain nothing from HSA’s and may find themselves unable to afford the high deductibles of the HDHP’s. Accordingly, the proportion of the population that is, for whatever reason, able to foresee, appreciate, and act on the reasons to save money for future healthcare expenses will negatively impact the perceptions and outcomes of these plans. If previously uninsured, such people will still enjoy the benefit of carrying health insurance and their providers will receive improved reimbursements, but this situation still remains less than ideal.
Chronically ill persons or other people who are likely to have high health expenditures are apt to repeatedly spend the maximum out-of-pocket amount each year and, since this amount far exceeds the maximum annual investment into an HSA, stand to benefit little from the tax break. Accordingly, perhaps traditional plans would be a better option for such people. Also, while the pre-set out-of-pocket maximums may be appealing to high spending patients, the variables necessary to calculate if one would benefit or suffer with an HSA/HDHP could be difficult or unforeseeable. As such, HSA/HDHP’s have potentially negative implications on the health insurance industry because they may serve to undermine the risk pool for health care through risk stratification. It is likely that these plans will appeal most to healthier members of the population,[31] and, as previously described, it is also likely that chronically ill or expensive patients may be more likely to opt for traditional plans. If these trends hold true across the entire health insurance industry, the cost of the risks insured against by traditional plans would increase, and with them would go the expenses of such plans. These expenses would surely be passed onto plan holders, thus exacerbating the problem of prohibitively pricy traditional health insurance. This sort of risk stratification is familiar, acceptable, and arguably successful in other insurance industries, but may have adverse, less socially-acceptable affects on health care.[32] The presence and magnitude of stratification are difficult to reliably quantify,[33] but the emergence of such problems will depend largely on participation levels of HSA/HDHP’s in the future.
Among the most heavily criticized of the potential problems with HSA/HDHP’s is the potential to dis-incentivise necessary or desirable health care utilization.[34] Plans are not required to cover first dollar payments for primary or preventive care, and thus could contribute to enrollees avoiding efficient, effective health consumption and suffering from preventable conditions or presenting with late-stage illnesses as a result. Medically necessary but expensive services and procedures may also be avoided for purely or primarily financial. Once again chronically ill people are of grave concern because financial incentive to avoid necessary health care is likely to result in worse health and, consequently, higher expenses for both the individual and society.[35] HDHP’s without HSA’s have been shown to result in more missed care,[36] although the inclusion of HSA’s may help to alleviate this trend. Ideally, the opposite of these negative potentials will be realized; that is, HSA/HDHP’s will encourage better prevention and adherence to therapeutic regimens since patients will be forced to realize and cope with their unhealthy choices and the expensive negative consequences of preventable problems.[37] The fact remains, though, that many people expect consumer driven health care to decrease patient desires for expensive therapies even if such therapies are medically necessary.[38]
HSA/HDHP’s are
truly revolutionary because the
VI. The
Perhaps the most
pertinent of any economic analysis into the effects of cost sharing on health
care cost and consumption is the Rand Insurance Trial. President Nixon requested such an experiment
from the
The study revealed that the impact of cost sharing is likely to be a mix of desirable and undesirable outcomes. Among the most harmful to the ideals of the HSA/HDHP’s is that cost sharing did not seem to succeed at reducing the efficiency of the health care market. The cost per episode of health care utilization was no different among the groups, nor was the incidence of inappropriate hospitalization or antibiotic usage.[43] Instead of increasing efficiency, cost sharing served to decrease the frequency and quantity of health care utilization. Screenings were more common among the group receiving free care, and both mental health and well visits were negatively correlated with cost sharing. The end result of the study was that cost sharing led to worse control of hypertension, worse vision care, and worse oral health.[44]
Potentially providing support to HSA/HDHP’s is that health care spending was undeniably reduced through cost sharing plans.[45] Surely reducing spending is not desirable if it means sacrificing health; it is not clear that this was the case in the Rand Insurance Trial, however. Cost sharing had less affect on acute and chronic care than on other areas of health care, and the value of the increased care that was sought with free plans may have been only marginal. It is notable that free care recipients had more self-reported diseases and increased anxiety levels. This may indicate that the increased health utilization of this group served largely to decrease anxiety and perhaps alleviate symptoms, but had little impact on more meaningful health outcomes. In fact, participants in the study reported no difference in self-assessed measures of health.[46] Also, it seems that the differences reported for hypertension management were actually the result of detection, not care. Once the disease was diagnoses, management and follow-up were similar among all groups. In sum, the study reported that cost sharing resulted in no overall difference in provider choices or the quality of care received.[47]
It is important to factor in both the good and bad implications this study has on the future of HSA’s. The HDHP’s of the study included no such savings accounts and no associated tax incentives, and exactly how such accounts and incentives may have affected the results cannot be reliably extrapolated. Additionally, the study brings to bear the issue of whether subjective, self-reported indicators or more objective, pre-determined measures are of greater importance when evaluating the success of any given health plan. Furthermore, on a more gestalt level, it is crucial to consider that the differences in spending habits and health outcomes between the groups with various levels of cost sharing are smaller than those between insured and uninsured groups;[48] consequently, increasing access to insurance through increased cost sharing is likely to be beneficial to society as a whole. Thus, while certainly demonstrating areas of weakness and the need for improvement from HDHP’s alone, the Rand Insurance Trial may give some backing for the ideals motivating HSA’s as well as the combination of HSA/HDHP’s.
VI. Recommendations and Summary Conclusions
HSA/HDHP’s
are a new reality in the American health care system, and should be addressed as
such. In the relatively near future,
these plans will function in conjunction with other empowerment shifts to potentially
transform the appearance of health care in the
Given the apparent
potential popularity of HSA/HDHP’s, the policies regulating these plans may
need to be modified to better articulate the goals of increasing the overall
efficiency of the health care industry. One
possible modification would be to mandate that all first dollar spending for
screenings and preventions be covered with all HDHP’s. This could side-step many of the negative health-related
potential outcomes of HSA/HDHP’s as well as increasing the value of added
health care for individuals enrolled in the plans. Even without modification, though, many
people stand to benefit greatly from HSA/HDHP’s, as is evidenced in the previously-described
growth in participation. The
introduction of a consumer-driven, market approach to health care while still
maintaining privatization may prove more likely to be embraced in the
Further
Information concerning the American health care setting:
The Kaiser Commission on Medicaid and the Uninsured. “The Uninsured: A Primer, Key Facts about Americans without Health Insurrance. Henry J. Kaiser Family Foundation, 2006. Available online at: http://www.kff.org/uninsured/upload/7451.pdf
Links to multiple HSA related resources:
Grace-Marie Turner. “Health Savings Accounts: A Survey of the Literature.” (Galen Institute, 2006). Available online at: http://www.galen.org/ccbdocs.asp?docID=862
Links to multiple resources for insurance information concerning HSA/HDHP’s:
Center for Health Transformation: Better Health, Lower Costs. Health Savings Accounts homepage. Available online at: http://www.healthtransformation.net/news/cht_articles_and_op_eds/#oHSA
Summary of conclusions from the Rand Insurance Trial:
Emmitt B. Keeler, “Effects of Cost Sharing on Use of Medical Services and Health.” Available online at: http://rand.org/pubs/reprints/2005/RP1114.pdf