Friday, January 05, 2007

The False Promise of Employer-Funded HSAs

Earlier this week, Jay highlighted a Journal Sentinel article that discussed the sharp increase in unpaid medical bills due to the rise in high deductible health plans (HDHPs).

The assumption in the article was that medical bills were going unpaid because people in HDHPs didn't have the money to pay their high deductibles. While this is true, it masks another story lurking beneath.

When the GOP was first pushing HSAs in 2002 and 2003, one of the big claims was that switching to an HDHP would be cost-neutral (or nearly cost-neutral) for the employee because the employer would take the premium savings (or a lot of it) and fund the HSA at (or near) the deductible amount each year.

So, if that actually has turned out to be the case for the thousands of employees who have switched (or have been switched) to HDHPs, why are many still having trouble paying their medical bills?

Surprise, surprise -- a recent study has found -- employers actually haven't been using the premium savings from switching to HDHPs to fund employees HSAs. They've just been pocketing the savings and leaving their employees to fend for themselves.

In its new study, the health industry group Vimo found that while over 3 million people are enrolled in HDHPs, only 820,000 have bothered to open a HSA. What's more, while the average HDHP deductible is $2,378 for single coverage and $4,760 for family coverage, the average HSA balance is only $1,180, which is less than half of the single coverage deductible.

As the Vimo study concludes: "Certainly there are immediate and significant savings available when companies or individuals migrate to HDHPs. This cost differential can be pocketed as a one time gain, or it can be used to fund most or all of the HDHP deductible by depositing the difference into an associated Health Savings Account. It would seem that many employers are opting for the one time gain."

And what's most eye-opening about this study is that Vimo is a recent health industry start-up that's aimed at providing comparison shopping for health care, which means -- and as health policy expert Matthew Holt explains -- the company actually has a lot to gain from the success of HSAs.

So why be so forthright? Holt figures it's because by pointing out the trouble with HDHPs and HSAs now, Vimo can potentially avoid their ultimate demise if the problems were allowed to subsist.

Makes some business sense to me. But I still wonder, how exactly does Vimo, along with others who rely on the viability of HDHPs and HSAs, plan to either convince employers not to pocket the savings or expect employees to magically come up with the money to pay their still skyrocketing medical bills?


Blogger proletariat said...

I actually see this as a good thing.

Currently Doyle is refusing to put WHCPP into the 07/08 budget. He has come out against any structural solutions to the health care problem.

HSA's may create enough upheaval in the system, that the Dems have no choice but to pass single payer health care.

Funny Seth the program you were pushing so hard for is making its way through the assembly and Doyle is dead against it, and you're silent about it. Must be that compromising thing I'm just incapable of understanding.

January 05, 2007  
Blogger Dave Diamond said...

What's really funny, Nate, is that of the three major health care reform plans out there, you're supporting the one that doesn't cover every Wisconsinite.

January 05, 2007  
Blogger proletariat said...

Why do you say that?

Here is what Newby said,

The basic idea is that all workers and their dependents in Wisconsin would be covered by a common, totally comprehensive health care plan. It would be financed in a fair fashion by affordable co-pays and deductibles by workers, and a flat per worker per month fee by employers. Our actuary determined that in 2003 the employer would have to pay considerably less than $300 per month per employee to provide this comprehensive health care (estimated at about $330-340 in 2006). The cost is so low for two reasons: we would drastically cut the unnecessary administrative costs in our current health care system; and, with all employers both in the private and public sectors paying their fair share, the per-employee cost would be reduced dramatically.

It sounds to me like it covers all Wisconsinites.

January 05, 2007  
Blogger Dave Diamond said...

WHCPP does not cover the unemployed, self-employed or early retirees. The Miller/Benedict WI Health Security Act and Gielow/Richards WI Health Plan cover everyone.

January 05, 2007  
Blogger proletariat said...

Good point. I'd have no problem supporting WI Health Security Act. As I said in my post about Doyle and the Repubs, WHCPP was my compromise. It relied too much on fees for my taste, but something needs to get done.

January 05, 2007  
Blogger Seth Zlotocha said...

For starters, Nate, putting a major policy such as comprehensive health care reform into a budget bill before it's been discussed separately is a recipe for disaster. Budget bills are contentious enough, and too much else is at stake to bog it down further with major policy reform measures. The issue of health care reform needs to be worked out on its own first, and then added to the budget.

In terms of working it out this legislative session, Doyle is playing the politcal hand he was dealt. No comprehensive health care reform plan is going to pass the Republican-controlled Assembly, period. So, rather than beat his head up against a wall, Doyle is trying to do what he can with marginal -- but important -- reforms like BadgerCare Plus.

Despite the fact that Doyle's a centrist Dem who will rarely get out and fight for any issue that doesn't stand a good chance at passing, when the opportunity does arise, I believe he'll gladly take it up. If Green was elected governor (or if any GOPer is elected in 2010), Wisconsin wouldn't stand any chance at universal care.

That said, the best thing progressives can do now to get closer to universal care is to push to gain control of the state Assembly and further Dem control of the state Senate.

January 05, 2007  
Blogger Seth Zlotocha said...

I want to add, Nate, that I'm surprised to see you're willing to compromise on the WHCPP. After all, doen't that make you a Demowhore, just like it did me?

January 05, 2007  
Blogger proletariat said...


I would argue the historical conditions have changed. Within the next year or two the co-pays and out of pocket expenses with HSA's will be so great that the fees with WHCPP will be minimal (still think they're unfair). I would argue the only reason HSA's are as popular as they are is inaction by Doyle on health care.

Even with a referendum, Doyle's arrogance is so great that he will not support the majority leader of his own party in her call for universal health care. The Dems biggest obstacle in the next 2 years will not be the Repubs but Doyle. If Doyle did put it in the budget he would draw a line in the sand which would guarantee the Dems more seats in 08.

January 05, 2007  
Blogger Seth Zlotocha said...

The level of your distaste for moderate Dems -- and, subsequently, what you're willing to blame them for -- is always entertaining, Nate.

January 05, 2007  
Blogger Dad29 said...

The VIMO report makes no mention whatsoever of HRAs. This is a very serious omission.

Remember, too, that in Wisconsin, HSAs do NOT get favorable tax treatment because the Governor will not sign such a bill.

Why not?

January 06, 2007  
Blogger Dave Diamond said...

Um, because HSAs are a scam designed by the insurance industry to pretend like they're doing something about the health care crisis, when it's really just another tax shelter for the rich?

And it's not like this is some lefty report you can dismiss, Dad; these folks are pimping HSAs even harder than you are. Maybe you should e-mail them about their shoddy methodology.

January 06, 2007  
Blogger Dad29 said...

You missed the point.

The fact is that the report simply skipped over a very important component: HRAs.

As to the "benefits the rich" crap--that's a contention which you cannot support.

In fact, HRAs and HSAs are just as beneficial to the lower-mid class as they are to the "rich"--whoever they might be.

The money is spent on medical care, right?

$2K is a LOT of money to the lower-mid class, and a drop in the bucket to "the rich."

Seems to me you have it backwards.

January 07, 2007  
Blogger Seth Zlotocha said...

Vimo didn't simply skip over HRAs. In fact, they acknowledge in the beginning of their report that they're focusing solely on HSAs, in spite of the fact that HDHPs can also come with HRAs and FSAs (both of which are available to people with any type of health plan). The report was simply aimed at examining whether HSAs have lived up to their promise in their current form -- the answer was clearly "no."

While HRAs (along with FSAs) may help explain why 75% of the people in HDHPs don't have HSAs established (it's questionable by how much...if you have some numbers, feel free to share them), they don't explain the lackluster average HSA balance nor do they answer the question of increasing unpaid medical bills associated with HDHPs.

The fact is many businesses aren't shifting premium savings from HDHPs to help their employees pay for their high deductibles. Even HRAs don't cover the entire deductible (and FSAs are funded by the employee, although tax free). Employees with HRAs are still stuck with a huge doughnut hole they need to cover on their own before the plan benefits kick in hundreds (or even thousands) of dollars later. That's why, as Dave noted, they -- along with all HDHP arrangements -- are most popular with the wealthy & healthy. Those who are chronically ill or those who don't have a lot of disposible income are much better off with comprehensive care.

And I would argue the entire nation is better off with comprehensive care. By keeping the wealthy & healthy in the comprehensive care pool, it helps to flatten out the risk and, thereby, lower the over cost of the system for everyone. That's a big part of the promise of health care pooling. But as long as HDHPs syphon the wealthy & the healthy, pooling just won't work...and guess who gets left behind in that arrangement. (If you're wondering, that's essentially why Doyle didn't sign the bill to make HSAs state tax free, although Doyle -- along with many Dems, myself included -- are open to the use of HSAs as long as they are part of a broader reform plan that initiates universal coverage, such as the Wisconsin Health Plan, so that the syphoning effect won't take place.)

January 07, 2007  
Blogger Dad29 said...

We can agree that HRAs (and MSAs) should have been 'counted' in the study. I don't have any numbers, but it's not necessarily relevant to the larger discussion.

Your position is that "comprehensive" health care must be available to all at zero- or extremely-low- cost (whatever...)

That would be a radical change from the past, during which families paid between 4% and 6% of earnings for healthcare (let's say it includes dental...) Right now it's about 4%.

We also know that preventive care is far more efficacious than "non"-preventive.

So are you also willing to postulate that preventive care should be FORCED on consumers?

And are you really suggesting that "comprehensive" care should be cost-free?

Your difficulty will be in defining "adequate." This will be a major problem, because "adequate" care will be litigated, ratcheting upward ad infinitum.

....and suddenly, the cost of "comprehensive-adequate" care will take off. That's when somebody will establish limits on plan expenditures...

Finally, comparing "the rich's" treatment regimens to "the poor's" treatment regimens will not show a significant difference. MD's are well aware of litigation probabilities.

Post-Finally: uncollected medical bills are a function of a NUMBER of factors (income, housing- food- auto- and "other-" expenses)--not just the cost of medical treatment, per se. That's the weakest part of your argument.

January 08, 2007  
Blogger Seth Zlotocha said...

For starters, we don't agree that Vimo's study is flawed because it didn't include HRAs and FSAs. Not including those two in the study limits the report, but it doesn't make it flawed. The report was aimed at assesing HSAs, and it did that. It sounds to me like you're focusing on what the Vimo study didn't say because you have no response for what it did say.

Secondly, I've explained funding options for universal comprehensive care more times than I can count. There are a variety of options for how to do it, but all rely in some way on increasing the purchasing power of payers in the system and reducing administrative overhead as a means for controlling cost. My favorite plan before the state legislature in Wisconsin is the WHCPP. The details on that plan's funding -- which uses employer and employee assessments that, for most, would be cheaper that what they currently pay (here and here, for two examples) -- are here.

Third, preventive care wouldn't be forced on consumers in a universal plan. It depends on the way you set it up, but most people would be required to pay for their own health care; however, whether they access that care is still completely up to them (similar to public education). In the WCHPP, for instance, the self-employed, early retirees, etc., would have the option to buy into the system, they wouldn't be forced to do so. All employers and employees would be required to participate (again, often times at cheaper rates than they pay now for health care...unless, that is, they don't get health care, which is a big reason our system costs so much; those of us who do have it are forced to cover the cost of caring for those who don't, and, adding insult to injury, we don't get the benefits -- e.g., purchasing power and administrative efficiency -- of having those people in the same system).

You'll need to explain a bit more about your concern over defining "adequate" coverage. In most universal plans, a standard base coverage is established among the participating insurance plans. Is your concern over what procedures would be considered medically necessary and which ones are deemed purely cosmetic?

Or is it about rationing, which is a big critique of those who oppose universal comprehensive care? If it's rationing, the concern is a false one because we currently have rationing in our health care system, and it's a worse type of rationing than anything you'd find in countries with universal coverage. I'll let health policy expert Matthew Holt explain: "So yup [rationing] happens here too, and instead of doing it by some defensible way — like looking at the cost-benefit analysis for a population — that an economist ought to commend, we do it on the basis of whether or not you can afford it." Here's the story of a guy who couldn't afford it.

Lastly, on you're point about unpaid medical bills, attributing them to HDHPs is not my argument, it's the argument of health care providers in the area (the ones getting stiffed on the bills). Here's an excerpt from the JS article:

"The problem, however, is real for area medical providers.

"For example, in the first nine months of last year, the proportion of accounts receivable due from individuals using Advanced Healthcare grew from 22% to 29%. Advanced is a large physician practice based in Germantown.

"Other area providers report similar increases.

" 'We have not yet seen a significant increase in our bad debt expense, but I expect that is coming,' said Rob Lonergan, senior vice president of Advanced Healthcare, who provided the figures on changes in receivables. 'It takes a while for that to all work out through the wash.'

"The reason for the increase is the higher amounts people are expected to pay for care with the growth of health insurance plans with large deductibles, he said."

So, if you have a problem with the strength of that argument, you should take it up with Lonergan and other provider execs who made it.

January 08, 2007  
Blogger Dad29 said...

My objection to the VIMO study is perhaps misplaced. Maybe I should have stated that your USE of the study was inappropriate as an argument-tool because it ignores other (HRA/MSA) vehicles, which are obviously significant to the discussion of "uncovered expense."

I agree that Admin expense in MD/hospital offices is more than it should be--but that's not a strong endorsement of a State-run plan. It would be a long sight better if the insurers and bennies-administrators would hammer out some common-sense plan--but even then, Medicare/aid have their own games, which would not be affected by commercial-carrier reform.

Further, you are assuming that the State can get better rates through 'more negotiation' than current players, like (for example) the State's OWN plan. Really? Maybe one could reduce office/admin expense by 15%, but how much does that translate to in fee-dollars? NOT 15%, my man...

"The definition of 'adequate'" is poorly-phrased--good point. Better that we talk in terms of "what's good care?" because that will be a moving target, subject to re-definition by litigation, (does the Wisconsin plan address litigation expense?) or by special interests who sell machinery and/or drugs. Do you think that the cost of technology will drop? I don't.

As to rationing: the State will eventually impose it because the STATE will 'run out of money.' Look, for example, at the cost of college education. A UW-M student paid $250/semester in 1967--inflation included, that should be $1500.00 today--but it's not. It's around $2700.

What happened there was that the Gummint started lending money to students, allowing them to "buy in" to the system, increasing demand, and etc., etc., etc.

Maybe a "Wisconsin plan" will work for 5-10 years--but eventually, the money available will have the same effect: cost increases.

Obviously, we do not look with happiness on the fate of those who 'couldn't afford it.' No more than we are happy about the kids who were killed by a DUI. But if you're looking for "zero defects," you're on the wrong planet.

January 08, 2007  
Blogger Seth Zlotocha said...

The state is able to negotiate lower rates with providers because it pools its employees into large group plans. It’s like buying in bulk.

The state has realized significant savings – both through negotiation and administratively – on its drug plan because it’s essentially single payer (all state employees go through Navitus). That move has saved the state tens of millions of dollars in just two years.

For the health care portion of coverage, the state has a tiered system based on cost and coverage. Each plan in a particular tier offers the same coverage at the same cost. There are three tiers in all – the first is the cheapest and the third is the most expensive. Employees pay the lowest premium if they choose a plan in the first tier, and they pay the most if they choose a plan in the third tier. This tiered system saved the state $14.5 million in a single year through negotiation rates alone.

Because of its novel set-up, Wisconsin’s health care plan for state employees has been touted as a model for other states. Even conservative state senator Roberta Darling heaped praise on it at a legislative panel session last summer: “Wisconsin has a shining example…. The state changed to a three-tier insurance system and developed a prescription initiative that is very strong. This is the best in the country, and other states are looking at it.”

That quote and the figures I cite above can all be found here.

The plans currently before the state legislature to provide universal health care to all (or nearly all) Wisconsinites incorporate aspects of the existing (and very successful) state health plan.

The WHP takes a tiered approach, just like the state health plan. There are a number of consumer-driven attributes it uses, like HSAs, but the basis of its promise comes from the savings realized through consolidating payers into a structured (in this case, tiered) system.

The WHCPP is essentially single-payer in the way that it pools all employees (and gives the option for the self-employed and early retirees to join in) into a single plan, just like the state does for its drug coverage.

I’m not sure what you mean when you say that a state regulated plan will only work for 5-10 years before it runs out of money. Of course costs won’t stay the same – that isn’t true for any service-based marketplace.

But by creating a centralized structure for health care, costs will be held down more than they are today. Our current privatized and non-centralized system is rife with inefficiencies and, worst of all, selective coverage. Simply not offering health care coverage is not an option, so it makes the most sense to structure a system that is the most efficient and equitable possible.

Of course no system will be perfect. But when our current one has costs increasing at over 10 percent each year while still leaving tens of millions of Americans without coverage on an ever-increasing basis (some because they actually need it and others because they might actually need it someday), it’s clear fundamental change is needed.

January 09, 2007  
Blogger Dad29 said...

We agree that some change is required.

But as WPRI points out, the State's assumptions on cost are a bit rosy; and (another significant deficiency) is that no matter what, we will replace a bunch of bureaucrats with ANOTHER bunch of bureaucrats.

However, it will be impossible to fire the second bunch's bozos and nincompoops, as they will be civil-service protected.

Reassuring, no?

BTW---what's the State's estimate of the cost of covering illegal aliens?

January 10, 2007  
Blogger Seth Zlotocha said...

For starters, there isn't a set group of "bozos and nincompoops" running the show for health care right now. It's completely decentralized, which is actually the problem because it drives the inefficiencies in the market.

A big difference between that set-up and instituting a centralized structure, in addition to efficiency, is accountability. A state commission would need to be directly responsive to the public, unlike the current privatized marketplace. While other privatized markets are (at least somewhat) responsive to the public, the existing health care market is largely not because of the existence of third party payers.

And the problem with dropping third party payers altogether is that unlike most consumer goods/services, health care is not optional, it's necessary (much like education, although arguably even more necessary than that), which means consumers can't just walk away from surgery like they can from buying a TV if the price isn't right.

Plus, on the point of prices, how much a procedure costs is often impossible to predict because everyone (and, subsequently, nearly every medical problem) is different. If a doc goes into surgery and discovers other complications that weren't part of the initial diagnosis, what happens then -- bring the patient out of sedation to ask if it's ok to add it to the bill?

Another problem is the geographic disbursement of medical providers, which is often due to the large amounts of capital it takes to build and maintain hospitals. While you can have a Circuit City right across the street from a Best Buy, around the corner from American TV, and up the street from Sears -- all competing with each other for consumers -- the same just can't be said for hospitals.

And, on your last point, I'm not sure about the costs of covering undocumented immigrants. Why don't you find out and let me know if it's enough to be worthy of inclusion in a broader discussion on health care reform.

January 10, 2007  
Blogger Dad29 said...

A big difference between that set-up and instituting a centralized structure, in addition to efficiency, is accountability. A state commission would need to be directly responsive to the public, unlike the current privatized marketplace. While other privatized markets are (at least somewhat) responsive to the public, the existing health care market is largely not because of the existence of third party payers.

Are you REALLY trying to sell the idea that Gummint is "more responsive" than private enterprise?

As for "centralization," ask the Russkies how that worked for them in, say, the industrial sector. Or the ag sector. Or the health-care sector, for that matter.

Seth, you've GOT to be better than that!

As to your other comments, all of them are completely neutral--that is, they could be argued either way.

It's not going to be helpful to ignore illegal aliens, by the way. Mandating coverage for them, while a social "good" is also a cost "bad," likely driving up the cost of WHP. It certainly cannot make it cheaper.

January 13, 2007  
Blogger Seth Zlotocha said...

I explained why the health care market is different than other markets -- namely, it uses third party payers. Due to this fact, yes, the government would be more responsive to the public than the private sector. That doesn't mean that's the case for every market.

And your mentioning of Russia is a non sequitur. That was a totalitarian state that employed some socialist principles in its economy. The US is a democracy. I don't think I need to explain the difference when it comes to responsiveness to the public there.

But, just to note, the health care that will be provided to people under every universal care plan out there would still be privatized -- in fact, under the WHP, the insurance would be privatized, too, it would just be more regulated (i.e., centralized) than our current system.

And you're seriously going to tell me I need to do better? You really need to re-read this comment thread. I've been citing a number of articles and studies to back up my points -- all you've come with is "all hail the market" ideology. When I do ask you to get some real numbers to back up your argument -- such as how many HRAs are actually out there or your undocumented immigrant comment -- you back away from it. The only hard numbers you've offered are un-cited claims about how much families have paid in earnings for health care historically (speaking of which, according to this USA Today article from three years ago, low income workers spent on average 17% of their after-tax earnings on health care in 2002, and that was 4 years ago, so something tells me your 4% figure is a bit low) and the cost of UWM tuition.

And why don't you explain to me exactly how my other points -- that is, how the consumer need, provider specialization, and geographic disbursement of health care make it different from other service-oriented markets -- "could be argued either way." It's easy just to say they could be, and thereby side-step actually responding to them, but why don't you take some time to explain to me exactly what you mean.

If you want to continue the discussion, let's take it somewhere meaningful and real rather than running around in theoretical circles. Since you admit that health care reform is needed, let's hear what you think should be done about it using more than just ideology to defend why and explain how.

January 13, 2007  
Blogger Dad29 said...


Let's start by de-watering current health insurance--that is, remove State legislated bennies (chiropracty, e.g.), birth control, sex-enhancement.

I'm sure there are more.

But I'm not going to research them, nor the number of HRAs in effect. Like you, I have a life.

Finally, when one uses AVERAGE numbers, (4%-6% of family income spend on healthcare over the last 100 years,) there will be extremes.

I'm sure that John D Rockefeller spent, maybe, 1/10 of 1% of his income on healthcare. Others spent 17%.

The average is still 4, 5, or 6.

January 15, 2007  
Blogger Seth Zlotocha said...

Until you have some citations for your "AVERAGE numbers," I'm not buying it. And it's really the low and middle income Americans who need health care reform the most. I, for one, am not too worried about the Rockefellers out there -- they'll do just fine under any system we have.

And, again, the issue of what's covered should be worked out by a nonpartisan state commission comprised of medical professionals along with public input.

January 15, 2007  

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