Health Savings Plans (HSAs) Start to Falter

[Rich_in_Tampa]

From the Wall Street Journal:

Health Savings Plans Start to Falter

"President Bush and many big employers have hailed "consumer-directed" health plans and savings accounts as an effective weapon in the battle against runaway medical costs. But several years after the plans got off to a fast start, the approach appears to be stumbling -- largely because of consumers' unease in using them"

and

"If I were a product manager in any other industry and saw scores this low in customer satisfaction and understanding, I'd be thinking of pulling that product from the shelves or retooling it," says David Guilmette, managing director of Towers Perrin's health-care consulting practice."

I was a little surprised just how low utilization of this option really is. Not the panacea, obviously.

[Darryl]

Wow, I suppose it depends on your educational level (ability to understand and willingness to be active in your healthcare purchases), Income level (desire to avoid taxes and desire to partially self insure and ability to cover the deductible in case of a large medical problem occurring before you have the balance built up in your HSA) and your current health. My family has had large medical bills in the past that were paid nearly 100% by the HMO we were in and it would have been annoying to have had a big medical bill right after switching but it would not have kept food off our table or forced the mortgage payment to be late. My premiums are 66% lower than the HMO premium (did the article say 15% lower?) so it was quite an enticement. I have spent less on medical care because like most people I watch my money more actively than I worry about the insurance companies expense's. I think I have done this without shorting my care. A few months ago I was concerned about an issue and wanted a test. The Dr. said there was not enough evidence to suggest a problem and insurance wouldn't cover it. I told him I had cash in the HSA and as long as I wasn't getting in to the insurance companies money they wouldn't fight with me about it. He wrote the order, I paid the bill, the test came back fine no fighting for benefits. I save enough each week on premiums to pay the max contribution. I have more control of my money and my health and that is just the way I want it and I have the 900 pound gorilla BCBS beating down the cost of every bill from billed amount to their rate sheet and they cover me on the high side for those $10,000 to 3 million dollar medical bills. From where I'm at looks like a wonderful product. though I understand it's not for everybody.

[mykidslovedogs]

Originally Posted by Rich_in_Tampa

From the Wall Street Journal:

Health Savings Plans Start to Falter

"President Bush and many big employers have hailed "consumer-directed" health plans and savings accounts as an effective weapon in the battle against runaway medical costs. But several years after the plans got off to a fast start, the approach appears to be stumbling -- largely because of consumers' unease in using them"

and

"If I were a product manager in any other industry and saw scores this low in customer satisfaction and understanding, I'd be thinking of pulling that product from the shelves or retooling it," says David Guilmette, managing director of Towers Perrin's health-care consulting practice."

I was a little surprised just how low utilization of this option really is. Not the panacea, obviously.

I still have confidence. The big problem with HSAs right now is lack of education. It's really sad that brokers and HR professionals aren't doing a better job of educating people on how HSAs work and how to properly use their plan once they have an HSA. People just can't grasp the simplicity of a policy with a single deductible for everything and 100% coverage thereafter. We are so used to paying copays for every little service that people just can't grasp the concept that coverage can be as simple as paying the discounted, preferred network pricing for all services until the deductible is met (and using tax advantaged $$ to pay for it).

I have found that many people who have an HSA think they have no benefits until they meet their deductible. They make the HUGE mistake of failing to use their insurance card for services, because they don't think it is of any use until the deductible is met. What they don't realize is that if they aren't using their card for services, they aren't getting discounts (including for prescriptions) and the cost of the service isn't reducing the deductible. Somehow, they think the insurance company majically tracks their deductible when they are not using their health insurance card or they think that they have to manually file claims up until the deductible is met. Brokers and HR professionals have got to do a better job of educating, and once that happens, I think we will have a lot better sucess with HSAs.

[TromboneAl]

I was surprised when I first ran a spreadsheet and found that a high-deductible policy is cheaper in almost every situation, since the savings on premiums offsets the higher medical expenses.

Now how many average Joes or average Parises are going to comprehend that? Even the people at BCBS don't understand that.

My conversation with BCBS person:

Me: Hey, I'm looking at these different plans, and I found that because the premiums are so much lower with the higher deductible, it's always cheaper with the high deductible plan, no matter what expenses you have.

BCBS: Well, the high deductible plan would cost you more if you had a lot of medical expenses.

Me: Actually, no.

BCBS: <blank>

[Rich_in_Tampa]

Originally Posted by TromboneAl

My conversation with BCBS person:

Me: Hey, I'm looking at these different plans, and I found that because the premiums are so much lower with the higher deductible, it's always cheaper with the high deductible plan, no matter what expenses you have.

BCBS: Well, the high deductible plan would cost you more if you had a lot of medical expenses.

Me: Actually, no.

BCBS: <blank>

These findings point out that best solutions are not always the ones that are best on paper. Once you start dealing with the general population and real-world perceptions, biases, bird-in-the-hand mentality and other aspects of innumerate thinking, things get unpredictable. People will shun the logical choices in favor of less beneficial but "better packaged" and marketed products.

Reminds me of how people -- even those with employer-matched funds -- generally don't contribute much, if anything, to their 401k. Imposed social security is the only thing that keeps food on the table for many.

For years, and maybe even now, there are those who think of a staff model HMO (e.g. Kaiser) as "socialized medicine" or some other evil. While they vary in lots of ways, good ones are probably as good a customer solution and value as you'll find. Just human nature to make decisions based on more than the numbers, no matter how convincing they are.

[Khan]

I have an HSA with a high deductible ($2000). I worked the numbers and it came up cheaper every way.

[tomz]

Here's a funny article on how consumer-driven healthcare might work.

Controlling Healthcare Costs from the bottom up

Mr. McClellan, is it? You’re here for the…

….colonoscopy. The Internet Special. I believe it’s $1,299.95 through the end of this week.

Quite right. As I'm sure you know, many people are still a bit squeamish about the idea of a tube being inserted up their…lower intestine, so we’re offering a real “bare bottom” price, if you get my drift. Before we begin, though, there are a few questions I need to ask. First of all, would you like anesthesia?

Don’t I need anesthesia?

[lets-retire]

My current company has HSA's, but the premium is about the same as the "full service" insurance with lower out of pocket costs. Since the total cost for the HSA would be a bit higher than the full service insurance you can guess which I am taking.

[justin]

Our family coverage through DW's employer is a high deductible HSA policy. The difference in premiums vs. the full coverage copay plan is close to $2400, the amount of the deductible. So we put $2400 into the HSA through payroll deduction and end up paying just a little bit more for health insurance. All our well-baby visits and physicals are free, instead of paying $25 copay in the past. Doctor visits for illnesses end up costing $50-$75 out of pocket instead of $25 copay under the old copay plan. For the year, we have paid approximately $120 more for healthcare under the HSA plan vs. the copay plan. But we have saved over $1000 in premiums (which went into the HSA).

Long term, there may be a year or two where we end up paying a thousand or two more in total costs for the HSA plan (for major illnesses). But tax savings and HSA savings in the good years offsets the risk of a few bad years.

[kramer]

Originally Posted by lets-retire

My current company has HSA's, but the premium is about the same as the "full service" insurance with lower out of pocket costs. Since the total cost for the HSA would be a bit higher than the full service insurance you can guess which I am taking.

This was my experience at a Fortune 500 with various options. If you took the cheaper options, you were simply reimbursed less for your premiums. So I took the more premium option and so did most other folks. And if you opted out of their health insurance, you basically got nothing (you did not get the money that would have gone to your premiums or any portion thereof).

I now have an HSA plan in semi-retirement and could not be happier.

My HSA insurance also covers routine annual physicals which do not count against the deductible.

Also, keep in mind that a lot of folks opposed to private solutions in the health care market want HSAs to fail. Here in California, they continue to refuse to offer a tax deduction for HSAs -- it has nothing to do with the tax money, which is a tiny amount, but the opposition is founded in ideology.

Kramer

[Martha]

I think there will be people who will spend the time to figure out what is the best priced option for them and others who don't for one reason or another.

The biggest problem is the assumption that an HSA plan will lead to consumers making good shopping decisions and thus help bring down the cost of care. There is no indication that this is working. Prices are far from transparent and people are more concerned about getting quality care than price. Also, there is the risk that people will go without needed care.

The WSJ article looks like it is getting a large part of its information from the Kaiser Family Foundation (The Henry J. Kaiser Family Foundation - Health Policy, Media Resources, Public Health Education & South Africa - Kaiser Family Foundation). This foundation has concluded that "low-income families would not benefit from HSA-HDHPs due to an already low level of tax liability and the amount of family income that the HDHP and potential cost-sharing would consume. In addition, greater cost-sharing potentially reduces the use of health care among those with low-incomes, particularly those who are not in good health."
Issue Brief (.pdf)

If you are young and if you are healthy, and have the money to fund the account they can be very very good choices.

Another real world problem is that people who are opening HSAs often are not funding them unless the funding is coming from their employer.

[PBAT]

My employer switched to a high deductible HSA plan this year, from a PPO w/$250 deductible and copays. Both BCBS. The employer funds my HSA with the $2400 annual deductible, and the premiums I pay are the same as with last year's PPO.

Employer explained that it was cheaper for them to switch to this plan and fund the HSAs, then to keep our employee rates the same on the PPO plan. I suppose that by keeping our premiums the same, employer is actually using our own money to fund the HSA "for" us, since high deductible plans should have lower premiums.

But I still think for the employee this is better than last year's plan, since I pay the same premium, out of pocket costs are eliminated, and any remaining balance is mine.

However, several coworkers complained this plan was too much trouble. Two months after the switch, several people still haven't figured out how to login online to activate their debit cards. And after several informational meetings, some have been confused when their doctors would not accept their health card (not debit card) and $20 as full payment.

Change is hard for many people, and it takes time for a new system to gain trust.

[Rich_in_Tampa]

Originally Posted by Martha

The biggest problem is the assumption that an HSA plan will lead to consumers making good shopping decisions and thus help bring down the cost of care.

That's a benevolent interpretation. The flip side is that by increasing out-of-pocket liability for subscribers, there may be decreased utilization overall, not all of which is cosmetic or frivolous care.

[cute fuzzy bunny]

That was the upshot of my TCO analysis of the PPO and HMO options I did a few weeks ago.

The higher deductible plans, even if you paid the full deductible, were in total cheaper than the full coverage plans. Except for the HMO option, which offered better coverage than the PPO plans for far less money.

Only thing on those higher deductible plans is that some items like hospitalizations, lab tests and surgeries were only covered at 80% and 60% while the lower deductible, higher premium options covered at 100%.

I can relate to the complications with the HSA. We used an FSA at my wifes old employer. There was a good bit of paperwork, a fair bit of form filling, and they screwed the account up completely at one point. We ended up just bailing out of the plan altogether...the small tax savings wasnt worth the trouble.

[jIMOh]

Originally Posted by Rich_in_Tampa

From the Wall Street Journal:

Health Savings Plans Start to Falter

"President Bush and many big employers have hailed "consumer-directed" health plans and savings accounts as an effective weapon in the battle against runaway medical costs. But several years after the plans got off to a fast start, the approach appears to be stumbling -- largely because of consumers' unease in using them"

and

"If I were a product manager in any other industry and saw scores this low in customer satisfaction and understanding, I'd be thinking of pulling that product from the shelves or retooling it," says David Guilmette, managing director of Towers Perrin's health-care consulting practice."

I was a little surprised just how low utilization of this option really is. Not the panacea, obviously.

I have a budget. I can save $X amount each month, $Y amount each year. If I used the HSA option, my take home pay would not change (costs about the same), and the amount saved into a HSA would not be enough to warrant switching insurance types.

The insurance companies still want their money, company just doesn't want the burden of the extra bills.

[jIMOh]

There needs to be health care reform beyond just making HSA's. Get doctor's to lower costs, insurance companies to lower malpractice rates, and pass legislation limiting lawsuits. Fixes a little more.

Prevent health insurance companies from denying based on pre-existing conditions. Allow all people the same costs for the same procedures from the same doctor. Remove the corruption and inefficiencies from the health insurance industry. Fixes a little more.

One little fix without other little fixes will fail.

[justin]

Originally Posted by cute fuzzy bunny

I can relate to the complications with the HSA. We used an FSA at my wifes old employer. There was a good bit of paperwork, a fair bit of form filling, and they screwed the account up completely at one point. We ended up just bailing out of the plan altogether...the small tax savings wasnt worth the trouble.

We did FSA's in the past. I agree, pain in the butt. HSA's are rather different, in the sense that you are in charge of reimbursing yourself instead of some greedy ready-to-deny insurance company administrator. I still have to keep a box o receipts, but the money is mine regardless of whether I spend it or reimburse myself. And it rolls over each year. Not much work for ~1400+ in tax savings every year and continued tax savings on earnings going forward.

[TromboneAl]

I don't plan to reimburse myself for about 10 years.

I'm being very careful about all the receipts, scanning them in, making offsite backups, and filing the paper copies, but it's still a little risky.