President Obama’s recent signing ceremony for the overhaul of the health care system did not end our national dialogue on health care. Rather, enactment of health care reform sets the stage for even more intensive civic conversation on entitlement, utilization and cost.
Raising taxes and reducing reimbursements will not change consumption patterns that are pushing up costs. And should 30 million newly insured Americans adopt the same habits, capacity will be overwhelmed and rationing will arrive early.
Focusing on cost might seem venal when we are talking about people’s health. However, bending the cost curve is vital for one simple reason: Access to health care will be determined ultimately by cost. Already, health care costs consume a larger percentage of our gross domestic product than in any other Western country, and health care spending is rising at about 7 percent a year at a time when the U.S. Consumer Price Index is basically flat. Unless we get a better grip on the cost side of the health equation, our nation’s finances will buckle under the weight of the tab for health care reform.
Fortunately, there is an important mechanism that has proved its ability to rein in health care costs. That tool is the consumer-directed health plan (CDHP), of which the health savings account (HSA) is one of the most widespread forms. Eight million Americans are enrolled in HSAs, which limit total out-of-pocket exposure, similar to traditional indemnity plans. The president recognized HSAs’ value by including them in his reconciliation proposal.
Unlike traditional health plans, in which millions of people annually pay for coverage they are unlikely to use, HSAs enable people to save for the future, tax-free, what they don’t spend in a given year on health care. HSAs lower costs for this simple reason - they transfer control of health care spending decisions to consumers and away from the providers and insurance carriers; in other words, from the seller to the buyer. They reward consumers for managing their health and choosing the most cost-effective means of getting and staying well.
I am speaking from experience. With more than 3,000 employees, Webster Bank understands the challenges of rising health care costs. As the custodian of 300,000 HSAs for employers across the nation, we also know that HSAs are a proven method to save family, employer and government health care dollars.
Our HSA plans provide access to the same doctors and services as traditional health insurance plans while moderating medical cost trends and year-over-year premium increases for both Webster’s and our clients’ employees. We’ve learned firsthand that more and more expensive treatments don’t correlate with better outcomes. In fact, the opposite is often true. Studies confirm that HSAs lower costs and actually improve patient outcomes by incentivizing people to avoid unnecessary services that don’t improve their well-being. By making people discriminating consumers, HSAs decrease use of unnecessary health care services and thereby increase the capacity of our existing health care system without increasing costs.
According to the Kaiser Family Foundation’s annual summary of employer health benefits, the total average 2009 premium for family coverage under an HSA (employer and employee contributions combined) was 19 percent, or $2,636, below the average premium for a traditional health insurance plan. Of that $2,636 in savings, the average employee’s portion was $798.
While the health care reform law recognizes the value of HSAs, their full potential hasn’t been tapped. Patients, the government and taxpayers could save at least tens of billions of dollars in health care costs each year if the federal government were to convert Medicare plans on a voluntary basis to HSA-funded plans for eligible persons. Participants would pay their Medicare premiums into the HSA plan along with a matching contribution from Medicare. Unused balances would be tax-free to the participant as long as the account was used for health care purposes. Participants, the buyers, would become discriminating consumers of health care, assuming greater responsibility for their health care needs. Use of health-plan services would drop, participants would demand better pricing and higher quality, and capacity to care for the uninsured would increase. The same could be done with Medicaid.
By injecting a greater dose of personal responsibility and reward into the use of health care services, HSAs, in conjunction with CDHPs, can help bend the curve of health care inflation. Congress and Mr. Obama have committed our nation to ensuring quality, affordable health care for all. Now we must take steps to tame health care costs and incentivize responsible use to ensure that health care is truly accessible for all.
James C. Smith is chairman and chief executive of Webster Bank, based in Waterbury, Conn.