- The Washington Times - Saturday, December 31, 2005

It’s not just Father Time who is turning a year older today. The New Year marks the second birthday of Health Savings Accounts, the largest innovation in health care policy since Congress created Medicare in 1965.

Though little noticed outside the world of health policy analysts, creation of Health Savings Accounts was a profound shift. It heralded a move towards Consumer Driven Health Care, a broad and inevitable movement to transfer control of health care decisions and dollars from large bureaucracies, public and private, to individuals and families.

Health Saving Accounts combine high deductible medical insurance with a side fund offering tax-deductible contributions, tax-deferred investment growth and tax-free distributions provided funds are spent on qualified medical expenses. This year, an individual is responsible for the first $1,050 to $2,700 of expenditures ($2,100 to $5,450 for families). Routine care is paid out-of-pocket, albeit with tax advantages. Just as car and homeowners insurance do not pay for maintenance and minor repairs, health insurance kicks in only in the event of a true catastrophe. Once a deductible is met, a generous insurance package, often 100 percent of covered expenses, takes over the burden. Money unspent in one year rolls over into the next, earning compound interest.

In short, Health Savings Accounts put the insurance back into health insurance, provide Americans with a triple tax free means to save for future expenses, and deliver a strong incentive to economize on use of health care.

Like any change, HSAs have powerful and vocal enemies. “You’re giving them peanuts,” gripes Columbia University Professor Sherry Glied, author of an anti-HSA study for the Commonwealth Fund. “Very few people will gain insurance coverage because of tax preferences for health savings accounts.”

The evidence so far contradicts the critics. Health Savings Accounts have proven popular with both individuals and employers. Although a significant change from traditional medical insurance, more than 1 million HSAs were established by spring 2005. Roughly half of them were bought in the nongroup market.

HSAs are expanding health insurance. A study by America’s Health Insurance Plans, an industry organization for health insurers, found 27 percent of small business companies that bought policies previously offered no health insurance. The same study found 37 percent of individual HSA purchasers were previously uninsured.

By allowing people to retain and roll over money not spent on health care, HSAs transform health coverage from a use-it-or-lose-it insurance option into a wealth-accumulation vehicle, similar to 401(k) retirement plans.

A wide range of Americans find HSAs attractive. Far from being only for the wealthy, 1 in 2 new nongroup purchasers earn less than $50,000 each year, says a study by eHealthInsurance, an online brokerage serving the individual market.

And it isn’t only the young. It seems old dogs can learn new tricks. The eHealthInsurance study found 45 percent of purchasers were over 40, with 19 percent 50 or older. A study by Assurant Health, serving small businesses, individuals and families, found 73 percent of its HSA customers were families with children and 57 percent included persons over age 40.

HSAs show economic incentives matter. The consulting firm McKinsey surveyed employees who had HSA-style accounts for an entire year. The good news: Employees were more attentive to their health, being 30 percent likelier to get an annual physical and 25 percent likelier to engage in healthy behaviors, and 20 percent likelier to comply with doctors’ recommended treatments than their colleagues in traditional health plans.

The bad news: Only 44 percent of study respondents were more satisfied with their new plans than their former plans. A major dissatisfaction is lack of information on price and quality differences among providers. Eight in 10 respondents reported they had inadequate information on doctors’ fees.

These numbers are hardly surprising, given that most of the U.S. health care infrastructure is designed to shield patients from ever knowing the true costs of care. As thousands more elect HSAs, health-care providers will surely produce consumer-oriented information. Aetna, for example, recently made available on its Web site the prices its members will pay specific doctors for their 25 most commonly performed procedures.

HSAs aren’t a silver-bullet solution to all U.S. health-care problems. And they certainly aren’t for everyone. Still, HSAs have accomplished much in two short years. They have a promising future.

Sally C. Pipes is president and chief executive officer of the Pacific Research Institute and author of “Miracle Cure: How to Solve America’s Health Care Crisis and Why Canada Isn’t the Answer.”



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