Economy & Markets
May 1st, 2006 Print this article The move toward consumer-driven healthcareBy Agostino von Hassell and Mark Bella Processors frustrated by their lack of control over rising prices for resins and energy may be interested in recent reforms to the U.S. healthcare system, which propose to both employers and employees an alternate means of facing skyrocketing healthcare costs. While these changes are no panacea, and further reform is warranted, some SMEs have already begun to realize the promise of these new programs. Health reimbursement arrangements Under the Heath Reimbursement Accounts (HRA) program, employers set aside funds that will reimburse employees for their qualified medical expenses. Unlike many managed care programs, this plan allows the individual employee to decide how and where these medical funds will be spent. Employers are permitted to deduct the cost of these plans as a business expense. While existing programs like Medical Savings Accounts (MSAs) are only available for the self-employed workers or small business employees (firms with 50 or fewer employees), HRAs are open to employees of any size company, offering "first-dollar" medical coverage until their funds have been exhausted. However, unlike MSAs, which can be funded by either the employer or the employee, but never both, HRAs are funded only by the employer. HRAs are also unique in that they can be complemented by any type of health insurance plan (or none at all), while MSAs and Health Savings Accounts (HSAs) require the plan to be linked to a high-deductible health policy. The flexibility of the HRAs allows employers to tailor these plans to the specific needs of their employees. Employers can, for example, vary their contributions from one employee to another, taking into consideration factors like age, seniority, and health risk factors. It should be noted, however, that employers are not permitted to design programs that could be considered discriminatory, favoring, for example, management over the general worker. Both MSAs and HRAs differ significantly from earlier programs like Flexible Spending Accounts or Cafeteria Plans, because they allow users to roll over their unused funds to the following year. While HRAs are not portable, companies can voluntarily allow former employees, including retirees, access to their unused reimbursement funds-an option not available with MSAs. Health savings accounts The next generation of consumer-driven health plans (CDHPs), the Health Savings Account (HSA), was introduced in the Medicare Prescription Drug, Improvement and Modernization Act of 2003. HRA and HSA accounts share much in common: Each program reimburses employees for a portion of their expenses not covered by their high-deductible plansSavings in both HRAs and HSAs can be rolled over into the following yearEach program allows participants to make tax-deductible investments Both accounts encourage consumers to make economical healthcare choices so as to maximize their accumulated savingsThere are also many notable distinctions: HSAs offer the employee tax-free earnings on their investment returns and accrued interest. Owners of HSAs are allowed to invest their funds in a variety of ways, similar to what is permissible under 401(k) and IRA plans. HRAs do not have to be linked to a high-deductible health insurance account; HSAs demand an associated high-deductible accountHSAs offer portability when employees switch jobs. HRAs are owned by the employer and are non-transferableHSAs can be funded by both the employee and employerHRAs have no statutory limit on employer contributions, but employers may set limitsHSAs currently limit annual contributions to the amount of a policy's annual deductible-with contribution caps set at $2600 for individual plans and $5150 for family plans.Key among distinctions is the fact that these new health savings accounts are both employee owned and portable. Many employers have expressed fear that because HRAs are funded by employers and cannot travel with an employee if he/she changes jobs, the program does not offer significant incentives to employees to use the account conservatively. Portable accounts mean employees can change jobs without losing their medical investments; nor would these investments be lost if their employer went out of business or changed owners. This reasoning has influenced the Bush administration's budget requests for 2007. The president has now asked Congress to grant employers tax-free conversion of their existing HRAs into new HSAs. Questions remain about the desirability of such a move for many. The high cost of prescription drugs has made several companies question whether the high-deductible mandated by HSAs could make drugs too costly for low-income employees or discourage the use of preventive medications that diminish more costly illnesses later. While, under the HSA guidelines, "preventive drugs" do qualify for pre-deductible coverage, it remains unclear which drugs would be considered preventative. Many have suggested that the IRS could allay these concerns by publishing a comprehensive list of preventive drugs, but the agency has been reluctant to try. Consumers considering an HSA should remember that HSA participants using in-network providers are still entitled to the same negotiated discounts for drug and medical services as are those employees covered under traditional non-consumer-driven health plans. Looking forward In his latest State of the Union address, President Bush outlined his intended amendments for Health Savings Accounts. If approved, they would: Increase the maximum annual contributions to $5250 for individual plans and $10,500 for family plans. These increases are intended to match the total maximum out-of-pocket expenses that a plan could expect a subscriber to pay. Allow HSA contributions to be used to pay coinsurance and deductible expenses.Authorize a refundable tax credit to low-income people in hopes of expanding coverage among those who currently have no coverage.Make the high-deductible health plans themselves portable. The proposed hike on limits for annual contributions would permit enough savings to allow these accounts to double as health and retirement accounts. Upon reaching age 65, HSA proceeds could be used penalty-free to cover nonhealthcare expenses; nonmedical withdrawals will face regular income taxes, which are not applied to qualified medical withdrawals. HSA supporters have also suggested the need for further reforms, including making HSA premiums fully tax deductible for individual purchasers, as they are now for employers. They have also championed the Health Care Choice Act, which would allow citizens in all 50 states to purchase plans offered in other states. Addressing consumer concerns A recent survey by the Employee Benefit Research Institute (EBRI) has helped fuel concerns about CDHPs such as HSAs and HRAs. Among the highlights: Only 42% of CDHP respondents were extremely or very satisfied with their health plans, compared to 63% of individuals with comprehensive health plans.Despite similar rates of care use, 31% of CDHP users spent 5% or more of their annual income on out-of-pocket costs and premiums, compared to only 12% of comprehensive plan members.35% of CDHP participants reported that they delayed or avoided care because of costs, compared to only 17% of those with comprehensive coverage.The survey also suggested that CDHP holders were significantly more likely to say that the terms of their health plans made them considerably more cost conscious when deciding on healthcare and treatment options.The survey raises legitimate concerns, but note that when CDHP members were compared to people who had high-deductible health plans and no health savings account, CDHP participants had considerably better experiences, including: a 9% higher satisfaction rating; 11% fewer members spending more than 5% of their incomes on out-of-pocket expenses; and a 4% lower likelihood of delaying or avoiding care than respondents with high-deductible plans and no CDHP. Another common complaint that consumers have raised is being addressed by the private sector. During his testimony to the House Energy and Commerce Health Subcommittee, the man commonly referred to as the "father of Health Savings Accounts," John Goodman, president of the National Center for Policy Analysis, acknowledged that "the institutions of healthcare delivery often make price and quality information difficult, if not impossible, to obtain." This handicap greatly hinders the consumer's ability to capitalize on these new plans by preventing them from adequately comparing the prices and value of different medical procedures and associated drugs. Many private firms have begun to make pricing information easily accessible to the consumer. Websites like Rxaminer.com and DestinationRx.com now allows patients to learn therapeutic and generic substitutes for brand-name drugs, as well as over the over-the-counter alternatives, and to compare prices around the country. Health Market allows its insured to compare the price they will pay for 20,000 procedures preformed by almost any doctor in the country. Similarly, a product developed by Subimo allows patients to evaluate quality and price data for most hospitals in the U.S. HealthGrades Inc. (which obtains its pricing information from 80 health plans covering around 55 million people) can generate a report that calculates the expected out-of-pocket costs for people with insurance; the average price negotiated by health insurers in their region; and the average amount charged by the provider-a figure usually paid only by uninsured patients. Traditional health insurers are getting on board. Aetna has begun a pilot project to report the costs of roughly 600 medical procedures, and plans to expand this to other areas of the U.S. by the fall of 2006. Agostino von Hassell avonhassel@aol.com, and Mark Bella bellamark@msn.com, of the Repton Group LLC (New York). | 
