Thursday, December 13, 2012

HSA's--One Important Way to Address Healthcare Cost Inflation

Health Savings Accounts are a recently developed tax incentive for saving to pay for your own healthcare.  They are different from Health Reimbursement Accounts that require you to spend all the money each year.  You can rollover the money in the account if you don't spend it.  The website I have linked above is a company that offers health savings accounts.  If your employer offers high deductible medical insurance, you may be qualified to enroll.  The website describes the whole process.  They are simple and easy to use.

The more important question is why this is a good approach.  As you can see, an individual can contribute up to $3200 and a family more than double that each year.  The idea is that you start this plan when you are young and have few medical costs and you keep it until you are old and have lots of medical costs.  In the meantime, you have invested it and your investment income has made it grow to a tidy amount.    You don't pay taxes on the money when you invest it and you don't pay taxes when you use it for medical expenses.

The plan offers a debit card and checks to pay for medical expenses directly.  No claims to file.  No third party decision makers deciding if you "need" the medical care recommended by your physician.

But how, you may ask, does this type of plan address the issue of medical costs?  I will let John Mackey make the first argument.  Mackey makes the legitimate argument that, for the most part, people don't even ask what a medical procedure costs.  They don't shop for the lowest price or the best value.  And the reason, he suggests, is that, when you have conventional medical insuranee, you are not paying for it.  If you are paying for it, even with tax advantaged funds, you will ask.  And you will make choices based, not on some insurance company guidelines, but on the basis of what is important to you.  Only you know if that very high priced latest drug for pain control is worth it to you.

In my case, my physician prescribed a drug that cost more than $200 for pain relief. At the time I didn't have drug coverage in my Medicare plan.  To say the least, I asked a few questions and did a little research and concluded that a) my pain wasn't that bad and b) there were much lower cost alternatives that would provide as much pain relief as this very expensive drug.   No other person really knows how much pain you are in.  No one else should be making that decision, really.  But under regular insurance plans, some faceless nameless insurance company employee looks at a guideline and decides if you need that expensive drug.  With an HSA, you make that decision.  In my case I decided I would rather forego the expensive drug.

HSA's also, simply put, reduce costs.  They are better for individuals, who have much more freedom of choice than with a regular insurance plan where a third party makes the decisions, and they are better for medical care providers, who get paid right away.

Many medical offices employ a full time employee just to process medical claims.  Insurance companies and third party administrators enter into contracts with Medicare to process the claims.  It costs billions of dollars each year just to process all the claims.  Health Savings Accounts would reduce that cost substantially since only very large medical costs would be part of the claims process. If you have an HSA, you pay the equivalent of cash for your office visits and your medications.  It is only when you have very large expenses that you file a claim.  Experience, on a broad scale, shows that HSA's save both employees and employers a lot of money.  The State of Indiana offered HSA's as an option for employees in 2004.  By 2009, 90 percent of Indiana State employees had opted for them.  AS the report shows, those enrolled in HSA's  were more likely to use generics rather than name brand pharmaceuticals, used urgent care centers rather than emergency rooms for non ER problems and used preventative services more often.  The moral of that story is that if you, the consumer, are the person who benefits from using a more cost effective alternative in medical care, you will use it.  If the insurance company is paying for it, no matter what choice you make, why should you save the insurance company money.

So, if HSA's are so great why are there so few advocates for them?  Please note what I said above.  Insurance Companies and Third Party Administrators make billions of dollars from processing claims.  Many of them will go out of business or see a substantial reduction in revenue if HSA's are widely adopted.  They have lobbies.  There are only a few HSA administrators and only a few employers who care enough about their employees to advocate on their behalf.

You might think that Unions would be advocating for something that benefits employees.  You would be wrong.  The reason?  Many unions sponsor health care plans and receive a percentage of the premiums.  Like the AARP, which sponsors Medicare plans and makes billions in the process, they are far from an impartial advocate for the insurance that they sell.

The first step is for people to at least know what HSA's are and to ask their employers to establish an HSA.

The second step is to improve the legislation on HSA's.  The Obamacare legislation took it a step backward by eliminating coverage for non-prescription drugs.  For those of us who are cost conscious this is an abomination. It leads to people choosing expensive prescription drugs when an over the counter drug would do just fine.  It's a stupid policy.  Example:  if you ever have a twisted ankle, a wrenched knee or other musculo skelatal injury that is not major but very painful, the chances are that your physician will prescribe 600 or 800 milligram ibuprofen.  The last time I was offered a prescription like that I asked this question:  Is there any  difference between taking 3 or 4 200 milligram tablets of the type that I can buy at Costco, $14 for 1000 tablets and the 600 milligram tablet that requires a prescription?  Answer: No.  Except that 3 over the counter tablets are cheaper than one 600 milligram tablet.  Many of the drugs that are now sold over the counter were once prescription drugs and are very effective for the purposes for which they are sold.  Why should consumers pay the difference for a prescription?

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