HSAs Touted As An Answer To Rising Health Care Costs
With the cost of health care increasing, employers are looking for innovative new ways to trim expenses when it comes to employee health plans.
“Its the employer who is the buyer of health care in the United States,” says Ed Philips, president of Philips-Cox Insurance Services in Virginia Beach, Va.
“These companies want to look good to the stockholders, so they have to trim costs – and health care is a major cost,” he says.
Philips says that because of the increase in health care costs, employers are starting to put more of the expense back on to employees. “You’re going to see a cost transfer accelerate.”
Dr. Michael Parkinson, who is chief health and medical officer for Lumenos, Alexandria, Va., cites three factors which are driving the need for a new kind of health care plan. “The foremost factor driving it is the return to double-digit health care cost inflation.
“Another one is the dissatisfaction with many of the limitations placed on patients under managed care,” he says.
“And the third,” he continues, “is the realization by informed purchasers that the current health care delivery system is extremely inefficient administratively, from a clinical standpoint it is excessively wasteful, and in many cases delivering sub par quality and often times dangerous medical care.”
A relatively new option in health care has evolved as a result of these concerns and is starting to attract interest from producers like Philips: employer funded Health Savings Accounts.
“These kinds of plans are meant to begin the education process,” says Robin Downey, who heads product development for Aetna in New York.
“People don’t understand what health care costs any longer,” says Downey. “People really think now that an office visit costs $10, and a drug costs $5.”
Philips agrees, “The mindset of most people with health insurance is that after the co-pay, it’s free.
“We’ve got to find a way to let people understand it really isn’t free, and they shouldn’t spend the money as though it’s someone else’s, because it is truly theirs,” he says.
Philips says that with an employer funded health savings account, participants can see the reward for better management of health expenses.
There are only a few companies marketing these types of plans, he says, and, Aetna and Lumenos are two of them.
Downey describes Aetna’s recently introduced Aetna HealthFund as “a PPO plan with a health fund attached to it, which is all employer funded.”
The basic mechanics of the program involve an employer, or plan sponsor, making a certain amount of dollars available to an employee for health care expenses. Dollars that aren’t used up in that year can be accrued for the employee to use for future medical expenses in later years. The health savings account is combined with a high deductible PPO-like plan.
“We call it a consumer directed health plan,” says Downey.
By combining a high deducible employer funded PPO plan with a health savings account, she says, the participant [employee] has more control over where the health care dollars go.
Dr. Parkinson agrees, “If there is a promise of control of the dollars, changing the locus of control from a third party to an individual who consumes those dollars, it’s much more likely that they’ll ask the hard questions of the system.”
Dr. Parkinson feels that by empowering the consumer to ask questions about health care and its expense, it will drive better quality and lower costs.
“Going into this some people have said that you’re probably going to see 10-20% improved reduction in cost for that portion of medical spending thats directly controlled by the consumer,” says Parkinson. “They’ll start to think of it as their money.”
By giving people more control over their medical expenses, says Philips, it will also improve the patient/doctor relationship.
“Now a doctor is going to be asked ‘How much is that prescription?’” says Philips.
“A doctor can give you a choice of three antibiotics and the price of each of them, the odds are the most expensive one could be better,” he explains. “But we can try the others first — now the patient is joining in on the decision with the doctor,” says Philips.
Dr. Parkinson agrees, “I think it’s going to change the nature of the doctor patient relationship.
“By aligning the financial incentives with consumer friendly clinical information,” he continues, “the future for a true partnership between patients and their doctors will only be enhanced.”
Parkinson explains that not all physicians will see this as a benefit to them, noting some doctors won’t be comfortable with patients coming in with a series of new questions about their health care. “For those providers, they may find over time that they have less market share then those providers that do engage their patients constructively in an empowered fashion,” says Parkinson.
“By and large, it’s going to totally transform health care,” predicts Parkinson.
“Another benefit is the reward for maintaining a balance every year,” Philips adds.
Rolling over the account balance every year accrues dollars for the participant’s future use. This results in a lower out of pocket expense for any medical services needed that may exceed the participant’s account balance and fall below the high deductible of the underlying PPO plan.
“Because it’s an unfunded employer liability, we can roll it over, versus a flexible spending account, which can’t be rolled over,” says Downey.
Downey notes that while any unused dollars accrue for each plan participant, they do not earn any interest or any investment return. “We don’t hold any dollars. Since the plan is self-funded, the plan sponsor funds the claims as they’re incurred.”
Philips describes the process, “The employer gives you a paper credit, and that paper credit continues to compound. It’s not actually invested anywhere because it never went into a segregated account.”
Philips continues, “If you don’t use it, you can roll it over.”
The health benefits covered under this type of arrangement are at the plan sponsor’s discretion, says Downey. “Most plan sponsors are going to want to cover just things that are traditionally covered under a PPO-style health plan,” she says.
“But, suppose a plan sponsor said it wanted to cover Lasik eye surgery or a couple of other things that normally aren’t covered by a health plan,” says Downey. “They would want to cover it under the fund.”
Downey says these added benefits can serve as “encouragement to have employees participate in the plan, or just because they are trying to give the employee more of a benefit.”
From Philip’s perspective, these additional benefits, combined with the plan’s lack of portability, may help an employer retain employees.
“We’re a job hopping society,” says Philips. “If you have this type of health plan, you may think twice about leaving your employer.”
Philips believes that if an employee has a large accrued balance in a health savings account, he may consider staying with a company versus leaving for another position. This may be especially true if he can use those dollars for benefits other plans may not pay for, such as orthodontics, eye surgery, or even in some cases cosmetic surgery.
While adding these benefits may ultimately increase an employer’s claim expenses, Philips says the savings realized from employee retention will far exceed any of those costs.
“It’s very expensive for an employer to train a new employee. If you can cut down on that through incentives in the health plan — it all comes down to productivity.”
Someone who has favorable health experience may accrue a sizable account balance, but not using those dollars prior to termination will result in losing the credit, says Downey. “It’s only available if that employee is working for that employer. It’s not portable.”
Marketing this type of health plan may help open doors for producers, says Philips.
“When you bring this type of plan into a company, you’re going to have to do more counseling,” says Philips.
“You’re going to have to work closely with human resources people, do a lot of information seminars, and answer a lot of questions,” he says.
Philips concludes that anyone who is spending this much time with a large company’s benefit plan is in a great position to assist with other types of benefits. “There’s another market called voluntary benefits. Whether its voluntary long term care, or voluntary short term disability, there’s opportunity.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.