[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
HEALTH SAVINGS ACCOUNTS
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 28, 2006
__________
Serial No. 109-66
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona XAVIER BECERRA, California
JERRY WELLER, Illinois LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri EARL POMEROY, North Dakota
RON LEWIS, Kentucky STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida MIKE THOMPSON, California
KEVIN BRADY, Texas JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
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C O N T E N T S
__________
Page
Advisory announcing the hearing.................................. 2
WITNESSES
America's Health Insurance Plans, Karen Ignagni.................. 11
Commonwealth Fund, Sarah H. Collins.............................. 41
eHealthInsurance, Gary Lauer..................................... 25
Lutheran Social Services of Illinois, Larry Lutey................ 37
Neighborhood Family Practice, Jean Therrien...................... 69
U.S. Chamber of Commerce, and Buffalo Supply, Inc., Harold
Jackson........................................................ 21
Wendy's International, Inc., Jeff Cava........................... 7
SUBMISSIONS FOR THE RECORD
Americans for Tax Reform, Grover Norquist, statement............. 117
Business Roundtable, and Deere & Company, Robert Lane, statement. 119
Coalition to Promote Choice for Seniors, statement............... 122
Consumers for Health Care Choices, Greg Scandlen, statement...... 123
Consumers Union, Gail Shearer and William Vaughan, joint
statement...................................................... 127
Council of Insurance Agents and Brokers, statement............... 132
Ethical Health Partnerships, Dawn Lipthrott, statement........... 134
Food Marketing Institute, John Motley, letter.................... 139
Healthcare Visions, Inc., Ronald Bachman, statement.............. 141
International Health Racquet & Sportsclub Association, Helen
Durkin, letter................................................. 142
National Association of Chain Drug Stores, statement............. 143
National Center for Policy Analysis, John Goodman, statement..... 144
HEALTH SAVINGS ACCOUNTS
----------
WEDNESDAY, JUNE 28, 2006
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:38 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 21, 2006
FC-23
Thomas Announces Hearing on
Health Savings Accounts
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
Health Savings Accounts (HSAs). The hearing will take place on
Wednesday, June 28, 2006, in the main Committee hearing room, 1100
Longworth House Office Building, beginning at 10:30 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include experts on health insurance issues, health
savings accounts and members of the business community. However, any
individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
On December 8, 2003, the President signed into law the Medicare
Modernization Act (MMA, P.L. 108-173), which created tax-preferred
savings accounts for health care expenses that utilize health plans
with high deductibles and limitations on annual out-of-pocket expenses.
These accounts are commonly referred to as HSAs.
Under current HSA law, workers under the age of 65 can accumulate
tax-free savings for lifetime health care needs if they have qualified
health plans with a minimum deductible of $1,050 for self-only coverage
and an annual out-of-pocket limit not to exceed $5,250. These amounts
are doubled for family coverage. Individuals can make pre-tax
contributions of up to 100 percent of the health plan deductible, and
the maximum annual contribution is the lesser of 100 percent of the
insurance deductible or $2,700 for individuals with self-only policies
and the lesser of $5,450 or 100 percent of the overall deductible, with
some exceptions, for families (indexed annually for inflation).
Importantly, the individual owns the account, and the savings follow
the individual from job to job and into retirement. Upon death, HSA
ownership may be transferred to the survivor on a tax-free basis.
The use of HSAs has grown rapidly since their inception on January
1, 2004. Recently released statistics indicate that approximately 3.2
million people are using HSAs to obtain health care coverage, determine
how and where they spend their health care dollars, and save for future
medical needs. This data also indicates many of the people using HSAs
were previously uninsured prior to buying into their HSA plan, and that
almost half of HSA plan purchasers have annual incomes of less than
$50,000. Finally, some argue consumers should be provided with
accurate, relevant data on quality and prices in order to make informed
decisions on how to spend their health care resources and save for the
future.
In announcing the hearing, Chairman Thomas stated, ``For years, too
many Americans have struggled with the rising costs of health care, and
too many Americans are entirely without insurance. Health savings
accounts are helping families and individuals gain better access to
affordable, quality health care, while encouraging savings for medical
costs through tax-deductible contributions. Various proposals to
promote the continued development of HSAs have been offered, but
obstacles remain in getting consumers relevant information. It is
important to explore whether more can be done to give Americans access
to affordable health insurance coverage.''
FOCUS OF THE HEARING:
In continuing the Committee's consideration of health care
financing, the hearing will focus on real world examples of people and
businesses with experience using or providing HSAs. This real world
experience will provide valuable insight in the Committee's future
consideration of HSA adjustments. The panel witnesses will describe the
key components of HSAs and HSA-eligible health insurance plans. Also,
the witnesses will provide information on key demographic trends in HSA
use, insurance premium costs and affordability, and health insurance
benefit levels. Finally, witnesses will provide testimony regarding the
impact of HSAs on consumers and business.
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Mrs. JOHNSON OF CONNECTICUT. [Presiding.] Good morning. The
Chairman has been detained in traffic, so we are going to
start; he will be along shortly.
Today, the Committee will be exploring the growing
popularity of Health Savings Accounts (HSAs). These tax
preferred accounts are a tool created by Congress in 2003 to
give consumers more control over their health care dollars and
to help combat the rising costs of health insurance.
Health Savings Accounts, created as part of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003
(P.L. 108-173) provided an opportunity to set aside money on a
tax-free basis for health costs either now or in the future.
Contributions can be made by the account owner and the
employer. Not only is the money tax-free on the way into the
account, but as long as it is used for health costs, it is also
tax-free when it is spent. Most importantly, this account is
the individual's own regardless of whether he or she changes
jobs, is between jobs or doesn't work at all.
To contribute to an HSA, you must also purchase a high
deductible health insurance policy. This type of policy
protects individuals from catastrophic costs.
Despite the fact that these accounts have been available
for little more than 2 years, they are increasingly popular. A
recent census done by America's Health Insurance Plans found
that almost 3.2 million people are now covered by HSA plans,
triple the number a year ago. In addition, the Federal Employee
Health Benefit Plan began offering an HSA option this year to
thousands of Federal employees throughout the country.
Health Savings Accounts can play a major role in reducing
the number of uninsured Americans. They provide a more
affordable insurance option without sacrificing quality of
care. In fact, a recent study by eHealthInsurance found that
HSAs have broad appeal. For example, it found that almost half
of HSA purchasers have incomes of $50,000 or less and that
individuals paid about $114 a month in premiums. Compare that
premium with the Kaiser Foundation estimate of $335 per month
for premiums in traditional health plans.
The Chair believes these accounts can change the way
Americans consume health care, the President agrees and has
proposed ideas to increase the attractiveness of HSAs, such as
making the health insurance premiums tax deductible. As this
Committee looks at the successes of HSAs, we will explore this
concept and other proposals.
I would just like to comment that HSAs have a couple of
unique strengths. One is that you can spend that money on
anything under the Tax Code, which provides a far more generous
series of options than any employer plan, even though in terms
of what counts toward the catastrophic is constrained. So, it
gives us a chance to enable families to tailor their health
care choice to their own families' needs; and that is not a
benefit to be underestimated in today's world. Fundamentally,
it simply spends less money on insurance and more money
controlled by families on health.
I have had some outstanding experience with HSAs among
small manufacturers in my district. Success depends on the
seriousness of the employer in providing resources in the HSA
account so the employee actually does have a chance to not only
be kept whole, but also to experience the value of saving for
large health costs that may come in the future.
I would now like to recognize the gentleman from New York,
Mr. Rangel, for an opening statement.
Mr. RANGEL. Thank you, Madam Chairlady.
I first would want the panel to know that our colleague,
Richard Neal, will have to leave at some time before the
hearing is over. He is going to Arlington to attend the funeral
of one of our beloved warriors in Iraq that was killed at the
site when his two colleagues were captured and, of course,
beheaded; and as tragic as it is, he still is with us. When he
does leave, that will be the reason.
I want to thank you for having this hearing because it is
going to help us find out just how effective these health
saving plans are; whether or not the employees are indeed
cooperating; how much would an employee have to save if they
didn't have disposable income; and what is the cost of the
medical insurance plans.
So, helping me with understanding all of this, of course,
is Peter Stark, and I would like to yield my time to him.
Thank you, Mr. Stark.
Mr. STARK. Thank you, Mr. Rangel.
I think it is time that we had a reality check. These HSAs
are very much like weapons of mass destruction, and I don't
think that misinformation is necessarily a lie; it is usually
just a lack of understanding.
While it is true that there are over 3 million people
enrolled in HSAs, the laughable part of that is, according to
the Treasury figures, or the most recent ones we have, less
than 100,000 of those 3.2 million people actually opened an HSA
savings account. They just bought into a high deductible, but
there wasn't anybody putting any money in their savings
account, largely because 70 percent of the people who might
qualify are in the income brackets below 10 percent and the tax
deductibility wouldn't do that much good anyway, even if they
had the money to put into it.
Employers contributing to the HSAs, less than a third do,
and of the two-thirds who contributed anything, they only
contribute between 10 and 25 percent of the total deductible;
and among low-income people, that basically leaves them unable
to afford particularly the preventive care that they need.
You have to go to the HSA Finder, Inc. This is some group
that put out a primer for employers, and basically you score
should you as an employer offer these things to your employees.
I would like, Madam Chair, to make this a part of the
record because it is something put out by the HSA promoters to
employers, and it proves the point. If you have younger, high-
wage workers, go for it; and what happens, companies with older
and lower-wage workers are stuck in traditional insurance where
the rates will go up ever and ever faster. Providers will be
underpaid, providers will get stuck with the bills, as we will
learn later from the only witness I think who doesn't have a
financial interest in these HSAs; and the Administration wants
again to solve a plan by throwing extra dollars at the very
rich and ignoring the middle class, as they have done so well.
[The information is being retained in the Committee files.]
I guess the only thing better to improve the health care of
this country would be a constitutional marriage ban or a
constitutional ban on burning the flag. That would do more than
anything the Republicans have offered, and particularly more
than hsas.
I look forward to most of the nonsense we will hear from
witnesses with big financial interests in this program.
Thank you, Madam Chair.
Mrs. JOHNSON OF CONNECTICUT. Now I would like to recognize
Representative Beauprez to introduce Harold Jackson from
Buffalo Supply, Inc., in Colorado. Mr. Beauprez.
Mr. BEAUPREZ. Thank you, Madam Chair. It is a pleasure to
have an acquaintance, a friend, a constituent of mine from
Colorado, Mr. Harold Jackson. He is the President and CEO
(chief executive officer) of Buffalo Supply in Lafayette,
Colorado; they are a medical supply company. He actually has, I
think, a very positive, very real, hands-on, practical story to
tell us today about the success of participating with HSAs at
his company and on behalf of, especially, his employees. So, I
look forward to his testimony and welcome him to this
Committee.
Mrs. JOHNSON OF CONNECTICUT. I would like to recognize
Congresswoman Tubbs Jones, who will introduce Ms. Jean
Therrien, a constituent from Cleveland.
Ms. TUBBS JONES. Thank you, Madam Chair.
Good morning. Welcome to Capitol Hill. I am so happy; as I
look at your face, I remember having visited the west side
practice when you first opened up the new facility and how
beautiful it was.
I would like to let everyone know that Ms. Therrien is the
Executive Director of the Neighborhood Family Practice, a
family practice on the near west side of Cleveland.
She has been a member of the practice since 2003 and takes
an active role in meeting the health care needs of Cleveland
residents as you will hear in her testimony. She has a degree
from the University of North Carolina in Nursing and a Master's
degree in Public Health from the Harvard School of Public
Health and has completed a program at the Weatherhead
Professional Fellows Program at Case Western Reserve
University, my alma mater.
Welcome to Capitol Hill, and we look forward to hearing
your testimony.
Mrs. JOHNSON OF CONNECTICUT. Thank you. I would like to
recognize Representative Weller, who would like to introduce
Larry Lutey of Lutheran Social Services of Illinois (LSSI).
Congressman Weller.
Mr. WELLER. Thank you, Madam Chair. It is a real privilege
for me to welcome and introduce a gentleman from Illinois--who
happens to be a constituent of the Speaker of the House--Larry
Lutey, who is Vice President and Chief Human Resources Officer
for LSSI.
The LSSI is an affiliate of Lutheran Services in America,
that serves 65,000 Illinois residents every year through
behavioral health services, owns and manages senior housing,
senior home care services, skilled nursing facilities,
traditional and specialized foster care, domestic and
international adoption services, developmental disability
services, and a ministry with incarcerated women and their
children.
The LSSI has an annual operating budget of nearly $107
million and employs 2,100 people in Illinois. It is a real
privilege to have Mr. Lutey here, who is, of course,
representing a very respected social service agency in
Illinois.
Mrs. JOHNSON OF CONNECTICUT. Thank you, Mr. Weller.
Let me just mention that there is a vote on. It is a single
vote. Members will come and go to vote, but we will proceed
with the panel.
I would like to recognize Mr. Cava. Mr. Cava, I recognize
you for 5 minutes.
For all of the panelists, your entire statement will be in
the record, but you each have 5 minutes to summarize your
testimony.
Mr. Cava, you have to pull the microphone quite close so we
can hear you and be sure it is turned on.
STATEMENT OF JEFFREY CAVA, EXECUTIVE VICE PRESIDENT OF HUMAN
RESOURCES AND ADMINISTRATION, WENDY'S INTERNATIONAL INC.,
DUBLIN, OHIO
Mr. CAVA. Yes. Thank you.
Mr. Chairman and Members of the Committee, I am Jeff Cava,
Executive Vice President of Wendy's International, Inc. Thank
you very much for your invitation to testify today. It is an
honor to be here on behalf of our great American company to
discuss an issue about which we feel so strongly.
We have a passionate respect for our employees' ability to
make good decisions about things that are important to them and
their families. Competitive employee benefits are a top
priority for Wendy's in our ongoing effort to be both
innovative and become an employer of choice.
Wendy's International is one of the world's largest
restaurant companies. We are an enterprise of more than 9,900
restaurants and three quality brands--Wendy's Old Fashioned
Hamburgers, Tim Horton's and Baja Fresh Mexican Grill. Wendy's
was founded by Dave Thomas in 1969 and has grown to more than
6,700 restaurants in North America and internationally. We are
a heavily franchised system with about 80 percent of Wendy's
independently owned and operated by over 430 franchise
entities.
Three years ago we began to explore the idea of introducing
consumerism principles in our health plan. We sought a better
way to spend valuable resources for health care, manage our
costs, but more importantly, engage our employees and their
families to adopt consumerism principles. We had to increase
their level of involvement, unique to their personal needs, in
the health care decisions that they make.
After exploring a variety of approaches, we knew a full
replacement, high deductible health care plan with HSAs was the
answer. The HSAs would allow our employees to fully own their
accounts. While the company would contribute, plan participants
may, but would not be required to, make contributions.
Especially important is that these funds would carryover from
year to year, allowing an employee to buildup a reserve for an
unexpected injury or illness.
In a business with frequent turnover, portability was also
important, and HSAs would allow employees to set aside money
for postretirement health care expenses that stayed with them
regardless of where they were working.
Offering a high deductible health plan as an option to an
existing managed care plan would have limited our ability to
address the issue of consumerism head on. To continue to offer
a quality health care benefit, we had to change quickly, so we
made the decision to fully replace our plan; and it was the
right decision. With a decentralized workforce, it was
imperative to deliver clear and concise information so our
employees would select the best plan to fit their needs. We
wanted to support changes in behavior necessary for them to
become better health care consumers.
This communications piece was an enormous project. Our
communications strategy included a multilingual information
call center, web-based enrollment with modeling tools, and a
comprehensive written guide. Our field human resources team was
trained to hold informational meetings for employees and their
families. For some employees, health care decisions are often
made as a family, and we wanted to be sure to include family
members who desired to learn more about their options.
The Wendy's plan includes HSAs and offers several choices.
To each HSA, we contribute approximately 60 percent of the
deductible. Importantly, our plans cover preventive care at 100
percent. This includes annual routine physicals, flu vaccines,
child care immunizations, Pap smears, mammograms, prostate
exams and colonoscopies.
In 2004, approximately 50 percent of our employees
indicated this they received an annual physical. In 2005, the
first year of our consumer health plan, that increased to 75
percent. Also, we had a significant increase in employee use of
our online health care information and management of their
health plan, exactly the type of result we were looking for.
Our participation levels have remained essentially
constant, at approximately 84 percent of those eligible since
we introduced our new plan in 2005, and approximately the same
participation rate as we experienced under our old plan. During
2005, 60 percent of our participants contributed personal funds
to their HSAs, and at the end of the year over 90 percent of
our participants had a favorable account balance. Today, that
figure is 95 percent.
At the end of the year, the average account balance was
$600; today, the average account balance is $760. At the end of
2005, the combined funds in our employees' HSAs totaled
approximately $4 million.
Now, instead of paying premiums in traditional plans,
participants may use their money to save for future health care
expenses, again, the type of result we were seeking.
Out of 10,200 eligible, the company insures approximately
7,000 people, covering 20,000 lives. In the first year of the
plan, Wendy's health care claims decreased by 14 percent. If
you include company contributions to the employee HSAs, our
costs increased by 1 percent in 2005 over 2004.
There are four key areas we believe warrant government
action as addressed in Congressman Cantor's bill: Modify the
comparability rules to allow us to provide larger contributions
to health care savings accounts for the chronically ill. This
helps participants with recurring high claims to get the health
coverage they need. We encourage an increase in the limits of
out-of-pocket expenses beyond the deductible. This gives
participants the option to fund their accounts at higher
levels. There is confusion among our employees about the rules
for Flexible Spending Accounts (FSAs) and how they relate to
HSAs. We would like our plan participants to be able to
integrate these accounts so unused FSA dollars may roll into
HSA accounts without penalty or loss of contribution.
Finally, as was permitted last year, allow a carve-out of
prescription drugs from deductibles. This is a concern for our
participants, particularly those who need specialty drugs or
drugs for which there are no generic alternatives. To support
our employees, this year we accelerated our company's
contribution to their HSAs to help cover their drug costs up
front.
Mrs. JOHNSON OF CONNECTICUT. Mr. Cava, your time has
expired, if you could conclude that sentence.
Mr. CAVA. Thank you.
[The prepared statement of Mr. Cava follows:]
Statement of Jeff Cava, Executive Vice President of Human Resources and
Administration, Wendy's International, Inc., Dublin, Ohio
Mr. Chairman and Members of the Committee, I am Jeff Cava,
Executive Vice President of Wendy's International, Inc. Thank you for
your invitation to testify today. It's an honor to be here on behalf of
our great American company to discuss an issue about which we feel so
strongly. We have a passionate respect for our employees' ability to
make good decisions about things that are important to them and their
families. Competitive employee benefits are a top priority for Wendy's
in our ongoing effort to be both innovative and an ``employer of
choice.''
Company Profile
Wendy's International is one of the world's largest restaurant
companies. We're an Enterprise with more than 9,900 restaurants and
three quality brands--Wendy's Old Fashioned Hamburgers, Tim Hortons
and Baja Fresh Mexican Grill. Wendy's was founded by Dave Thomas in
1969 and has grown to more than 6,700 restaurants in North America and
international markets. We're a heavily franchised system with about 80%
of Wendy's independently owned and operated by over 430 franchise
entities.
A Full Replacement, Consumer Driven, High Deductible Health Plan Based
on Health Savings Accounts Work Well for Wendy's and our
Employees
Three years ago we began to explore the idea of introducing
consumerism principles in our health care plans. We sought a better way
to spend valuable resources for health care, manage costs and engage
our employees and their families to adopt consumerism principles. We
had to increase their level of involvement, unique to their personal
needs, in the health care decisions they make.
After exploring a variety of approaches, we knew a full replacement
high deductible health care plan with Health Savings Accounts was the
answer. HSAs would allow our employees to fully own their accounts.
While the company would contribute, plan participants may--but would
not be required to make contributions. Especially important is that
these funds would carry over from year to year, allowing an employee to
build up a reserve for an unexpected injury or illness. In a business
with frequent turnover, portability was important. Health Savings
Accounts would allow employees to set aside money for post retirement
health care expenses that stayed with them regardless of where they
were working.
Offering a high deductible health plan as an option to an existing
managed care plan, would have limited our ability to address the issue
of consumerism head on. To continue to offer a quality health care
benefit, we had to change, fast. So we made the decision to fully
replace our plan and it was the right decision.
With a decentralized workforce, it was imperative to deliver clear,
concise information so our employees would select the best plan to fit
their needs. We wanted to support changes in behavior necessary for
them to become better health care consumers. This communications piece
was an enormous project.
Our communications strategy included a multi-lingual information
call center, web-based enrollment with modeling tools, and a
comprehensive written guide. Our field Human Resources team was trained
to hold informational meetings for employees and their families. For
some employees, health care decisions are often made as a family. We
wanted to be sure to include family members who desired to learn more
about their options.
Profile of Wendy's Health Plan
The Wendy's plan includes HSA's and offers several choices. To each
HSA, we contribute approximately 60% of the deductible. Importantly,
our plans cover preventive care at 100%. This includes annual routine
physicals, flu vaccines, child care immunizations, pap smears,
mammograms, prostate exams and colonoscopies. In 2004 approximately 50%
of our employees indicated they received an annual physical. In 2005,
the first year of our consumer health plan, that increased to 75%.
Also, we had a significant increase in employee use of on-line health
care information and management of their health plan. Exactly the type
of result we hoped to achieve.
Enrollment Results and Other Key Findings
Our participation levels have remained essentially constant at
approximately 84% of those eligible since we introduced our new plan in
2005 and approximately the same participation rate as we experienced
under our old plan.
During 2005, 60% of our participants contributed personal funds to
their Health Savings Accounts and at the end of the year over 90 % of
participants had a favorable account balance. Today that figure is 95%.
At the end of last year, the average account balance was $600.
Today the average account balance is $760. At the end of 2005 the
combined funds in our employees' Health Savings Accounts totaled
approximately $4 million. Now, instead of paying high premiums in
traditional plans, participants may use their money to save for future
health care expenses. Again, the type of result we were seeking.
Out of 10,200 eligible, the company insures 7,000 covering 20,000
lives. In the first year of the plan, Wendy's health care claims
decreased by 14%. If you include company contributions to employee
Health Savings Accounts, our costs increased by 1% in 2005 over 2004.
Suggestions to improve Health Savings Accounts
There are four key areas we believe warrant government action. As
addressed in Congressman Cantor's bill, modify the comparability rules
to allow us to provide larger contributions to Health Savings Accounts
for the chronically ill. This helps participants with recurring, high
claims to get the health coverage they need.
We encourage an increase in the limits for out of pocket expenses
beyond the deductible. This gives participants the option to fund their
accounts at higher levels.
There is confusion among our employees about the rules for FSAs and
how they relate to HSAs. We'd like our plan participants to be able to
integrate these accounts so unused FSA dollars may roll into their HSAs
without penalty or loss of contribution.
Finally, as was permitted last year, allow a carve out of
prescription drugs from deductibles. This is concerning for our
participants, particularly those who need specialty drugs or drugs for
which there are no generic alternatives. To support our employees this
year we accelerated the company's contribution to their HSAs to help
cover their drug costs up front. At a minimum, we encourage a modified
approach such as using co-insurance for drugs in certain categories.
As a separate but related health care policy matter we have no
doubt that a serious, national effort must be made to achieve true
transparency in our health care system. Americans deserve easily
understood information about the price and quality of health care prior
to receiving treatment when possible. We urge you to begin now to
require medical providers and insurance companies to release this
information. Congress can develop a system of more affordable,
portable, transparent and efficient health care in this country by
taking these steps.
Summary
In summary, we honor the legacy of our founder Dave Thomas. He
built Wendy's on the simple promise to ``Do the Right Thing.'' We
firmly believe this is the right thing. The health and wellness of our
employees and their families now and in the future will improve as they
take more ownership of their health care decisions.
This strategy is not just about efficiency in health care spending
but most importantly, it is about creating a sustainable improvement in
the health of our employees.
We appreciate your focus on this important issue and welcome your
questions.
Mrs. JOHNSON OF CONNECTICUT. Mrs. Ignagni.
STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICA'S HEALTH INSURANCE PLANS
Ms. IGNAGNI. Thank you, Madam Chair, Mr. Rangel, Members of
the Committee, we appreciate the opportunity to be here. I have
two objectives this morning; one is to provide information on
what we know about HSA coverage and, second, to provide
recommendations on where we should go from here.
First, the data that we have: We have surveyed all of the
plans that are offering HSA coverage. They have all responded.
We have a 100 percent sample. The number as of January 2006 was
3.2 million people. We know that right now it would be higher
than that, and we are in the process of resampling so we will
be able to provide additional data.
This is the third time we have surveyed the HSA offering
plans. We did it once right after the regulations were issued
by the U.S. Department of the Treasury. We did it the second
time in March of 2005, and the numbers that we are reporting
from January 2006 have indeed increased substantially since the
March 2005 census.
What do we know? In addition to the 3.2 million people, we
know that the numbers of firms offering HSA coverage are
doubling annually. Thirty-three percent of companies offering
this coverage previously had not offered insurance. It is also
exceeded by the 37 percent of individuals who are purchasing
HSA coverage that were not previously insured.
The age distribution is roughly even above and below age
40. There is broad access to providers. Indeed, individuals
purchasing HSA coverage are taking advantage of our member
discounts in terms of episodes of care as well as individual
particular services they are accessing.
Premiums are 20 to 30 percent lower. About 50 to 60
percent, according to the U.S. Government Accountability Office
(GAO), have actually created accounts and 30 percent have
incomes lower than $50,000.
What do we know about utilization? Two important pieces of
data: People are using preventive care, as you just heard from
Mr. Cava. They are filling their prescriptions, in many ways,
more than has been done under other types of coverage,
particularly for chronic illnesses.
You can--if you are interested, we have a Web site:
www.healthdecisions.org. All of our members have listed their
products there. They are listed by State, by company. We were
asked by a number of individuals in the small business
community to create an opportunity for one-stop observing and
to look at how they could look across States, across plans and
have a handy reference. So, we have endeavored to provide that.
With the progress that is being made, we have identified
five categories of opportunities. I will just highlight them.
There are very specific details provided in our testimony, Mr.
Chairman.
First, the unintended consequences that should be
addressed. Right now we are penalizing families. If a spouse
has an FSA, you can't--the other spouse can't have a HSA.
Second, we think there should be separate deductibles for
individual family members. They may have different needs. Right
now we are not able to do that. The second category of issues,
we need more coordination between tax-based accounts--FSAs,
HSAs and Health Reimbursement Accounts (HRAs). There should be
rollovers that are allowed.
Third, in our view, there should be more flexibility in
three areas: first, allowing early retirees to purchase;
second, seniors who would wish to purchase Medigap; third,
veterans to wish to set up HSA accounts right now that cannot.
The fourth category of issues, there should be a number of
administrative changes. Let me just highlight two. We should
increase the contribution limits so individuals can accumulate
resources quicker. We should post cost of living adjustments
(COLAs) midyear rather than waiting until November. There
should be a special focus on how individuals with chronic
conditions can more rapidly accumulate funds in their account.
We have urged that the Committee continue to explore and
prioritize the issue of providing subsidies for low-income
individuals notwithstanding the type of insurance they may
purchase. We think that that is something that definitely needs
to be attended to. We have provided very specific examples of
transparency initiatives, which go hand in hand with some of
the new types of products being offered in the HSA arena, in
the Preferred Provider Organization (PPO) arena, and in other
types of arenas as well. We hope that will be useful to you.
We have also highlighted an effort that we have under way
with all of the physician specialty societies to come to
consensus about performance, quality performance measurement,
which is very, very important to have a uniform approach to
that.
I would be happy to answer any of your questions on any of
these areas, Mr. Chairman. Thank you.
[The prepared statement of Ms. Ignagni follows:]
Statement of Karen Ignagni, President and Chief Executive Officer,
America's Health Insurance Plans
I. INTRODUCTION
Good morning, Chairman Thomas, Ranking Member Rangel, and members
of the committee. I am Karen Ignagni, President and CEO of America's
Health Insurance Plans (AHIP), which is the national association
representing nearly 1,300 health insurance plans providing coverage to
more than 200 million Americans. Our members offer a broad range of
innovative health insurance products, including high-deductible health
plans (HDHPs) that are compatible with Health Savings Accounts (HSAs).
We appreciate this opportunity to testify on HSAs and their role in
providing more Americans with access to high quality, affordable health
care coverage that includes benefits for preventive care. We applaud
Congress for authorizing this important new health care option as part
of the Medicare Modernization Act of 2003 (MMA). Today, just three
short years later, more than 3 million Americans are covered by HSA-
compatible health plans. This innovative approach to health care
financing is helping a substantial number of previously uninsured
consumers purchase coverage, accumulate savings for their future
medical needs, and access preventive health care services.
Our testimony today will focus on:
the rationale for HSAs and their value as an option for
consumers;
consumers' initial experience with HSAs and HDHPs;
opportunities for enacting legislation to further improve
HSAs; and
the need for greater transparency in health care prices
and quality to help HSA account-holders and other consumers make
informed health care decisions.
II. THE RATIONAL FOR HSAs
While HSAs are commonly recognized as accounts that consumers
establish in combination with high-deductible health plans, it also is
important to emphasize that access to preventive care is a central
component of this approach. The MMA addressed this priority by
specifically providing that preventive care services may be covered by
HSA-compatible health plans and do not count against an individual's
deductible. As a result, consumers who establish HSAs are covered on
``day one'' for a wide range of preventive health care services:
routine prenatal and well-child care;
immunizations for children and adults;
periodic health evaluations, including tests and
diagnostic procedures ordered with annual physicals;
smoking cessation programs;
obesity weight-loss programs;
screening services for mammography, glaucoma,
tuberculosis, etc.; and
limited categories of medications that serve as
preventive measures.
Along with this strong focus on wellness, HSAs also include an
opportunity for consumers to take an active role in deciding when and
how much to contribute to their accounts (subject to an allowable
maximum) and how to invest the dollars in their accounts. The funds
that individuals withdraw from their HSAs to pay out-of-pocket health
care costs are not subject to taxation. At the end of the year, any
unspent funds in an HSA remain in the account and can be used to pay
medical expenses in following years. Interest and other earnings on HSA
funds accumulate in the fund and are also tax-free. This approach to
health care financing creates incentives for consumers to make
decisions about their health care while at the same time allowing them
to accumulate assets to meet their future needs.
III. CONSUMERS' INITIAL EXPERIENCE WITH HSAs
To learn more about consumers' experiences with HSAs, AHIP has
conducted a comprehensive census of the HSA market three times in the
past 21 months--in September 2004, in March 2005, and in January 2006.
The most recent census \1\ was based on responses from 96 AHIP member
companies, representing nearly all health insurance plans offering HSA-
compatible policies. This includes 53 companies offering plans in the
individual market and 87 companies offering plans in the group market.
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\1\ AHIP,January 2006 Census Shows 3.2 Million People Covered by
HSA Plans, March 2006
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We found that HSA-compatible HDHPs covered 3,168,000 people in
January 2006. This reflects a more than three-fold increase in
enrollment in HSA products since March 2005. This represents a strong
start for a new health care option that was unknown to most Americans
just a few years ago. By comparison, a previous effort to encourage
health care spending accounts--the Medical Savings Accounts (MSA)
demonstration program that Congress authorized in 1996--resulted in
only 250,000 consumers establishing MSA accounts from 1997 through
2001. While our census did not count the number of HDHP policyholders
who have established HSAs, the Government Accountability Office (GAO)
has reported \2\ that approximately 50 to 60 percent of people with
HSA-compatible plans have established accounts.
---------------------------------------------------------------------------
\2\ Government Accountability Office, Consumer-Directed Health
Plans: Small but Growing Enrollment Fueled by Rising Cost of Health
Care Coverage, April 2006
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A closer look at AHIP's census data reveals a number of significant
findings:
Many consumers choosing HSA/HDHP coverage were uninsured
before choosing this option. In the individual market, 31 percent of
enrollees previously were uninsured. In the small group market, 33
percent of the companies offering HSA/HDHP coverage previously did not
offer insurance coverage. This indicates that these options are
achieving success in expanding coverage to the uninsured.
The age distribution of people choosing HSA/HDHP coverage
is evenly divided. In the individual market, 50 percent of enrollees
(including dependents) were age 40 or older. In both the small group
and large group markets, approximately 45 percent were age 40 or older.
People who choose HSA/HDHP coverage have broad access to
providers, much the same as persons with other types of health
insurance. More than 90 percent of enrollees with HSA/HDHP coverage are
enrolled in preferred provider organizations (PPO) that include both
in-network and out-of-network coverage. Consumers with PPO coverage
have access to the discounts these plans negotiate with health care
providers, which allows them to keep their out-of-pocket costs low both
before and after they reach the deductible under their HDHP.
HSA/HDHP coverage accounts for a notable share of new
health insurance in the individual market (23 percent), in the small
group market (11 percent), and in the large group market (7 percent).
The fastest growing market for HSA/HDHP coverage is group
coverage, which has increased from approximately 20 percent of the HSA/
HDHP market in September 2004 to more than 60 percent in January 2006.
This growth indicates strong employer interest in offering HSAs as an
option for workers.
Premiums for HSA-compatible plans are approximately 20 to
30 percent lower than average premiums in the employer market. The
tables on the following page show the average annual premium for both
single and family coverage for HSA-compatible plans in the individual,
small group, and large group markets.
[GRAPHIC] [TIFF OMITTED] T0705A.001
[GRAPHIC] [TIFF OMITTED] T0705A.002
Additional research findings have demonstrated that HSAs are having
a favorable impact on patient health and helping consumers to make
cost-effective decisions. An analysis by Cigna \3\ found that
preventive care visits for members of its Choice Fund, an HSA product,
were 13 percent greater when compared to other health care consumers.
Choice Fund members also were found to be more consistent in refilling
medications that manage chronic conditions. Other findings of this
analysis show that the use of cost-effective generic prescription drugs
increased 19 percent among Choice Fund members and that overall
pharmacy costs were 5 percent lower than for members with traditional
health coverage.
---------------------------------------------------------------------------
\3\ Cigna HealthCare, Choice Fund Results Analysis, March 2006
---------------------------------------------------------------------------
Two other studies--one by the Employee Benefit Research Institute
(EBRI), another by the Blue Cross Blue Shield Association (BCBSA)--have
demonstrated that the health status of individuals with HSAs is
comparable to the health status of those with other types of coverage.
The EBRI study \4\ found that 86 percent of individuals with HDHPs and
87 percent of individuals with non-HDHP coverage reported their own
health status as very good or good. The BCBSA study\5\ yielded similar
results, with 77 percent of individuals in both categories--those with
HDHP coverage and those with non-HDHP coverage--describing their health
status as very good or good.
---------------------------------------------------------------------------
\4\ Employee Benefit Research Institute, Early Experience With
High-Deductible and Consumer-Driven Health Plans, December 2005
\5\ Blue Cross and Blue Shield Association, Consumer Survey Shows
High Rate Of Satisfaction With HSAs, Cites Increased Reliance On
Decision-Support Tools, September 2005
---------------------------------------------------------------------------
The EBRI study also found that the income distribution is fairly
similar for persons with HDHP coverage and with other types of
coverage. According to EBRI, 31 percent of HDHP enrollees and 27
percent of non-HDHP enrollees have annual household incomes below
$50,000. Similarly, Assurant Health found that 29 percent of enrollees
in its HDHPs have annual household incomes below $50,000. Other data
\6\ from Assurant indicate that 43 percent of HDHP applicants did not
have prior health coverage and, additionally, that 69 percent of HDHP
purchasers are families with children and 62 percent are over the age
of 40.
---------------------------------------------------------------------------
\6\ Assurant Health, Quick Facts: Health Savings Accounts
---------------------------------------------------------------------------
Consumer Information at HealthDecisions.org
Consumers interested in learning more about HSAs and HDHPs can
visit AHIP's consumer-directed portal--HealthDecisions.org--which
provides a national directory of health insurance plans. This site
enables visitors to easily locate profiles of HDHP products in their
state. The health plan information on this site is updated and re-
verified on an ongoing basis by the health plans themselves, thus
ensuring that consumers have access to most current, accurate, and
complete information.
HealthDecisions also contains a wealth of easy-to-understand
information in its ``Learning Center,'' including educational
materials, an online library, and a glossary to help consumers and
small businesses better understand available HSA options. Visitors to
the site also will find our HSA ``Basics'' and ``Fast Facts'' sections
and can browse our ``Question and Answer'' section outlining the most
frequently asked questions accumulated over time by the Treasury
Department and other sources. HealthDecisions.org is being visited each
month by 20,000 to 30,000 people who are interested in learning more
about HSAs and other types of health insurance.
IV. OPPORTUNITIES FOR FURTHER IMPROVING HSAs
While HSAs are proving to be highly effective in helping many
consumers meet their health care needs, there are a number of
additional steps Congress could take. AHIP is recommending the
following proposals to address the unique needs and circumstances of
the chronically ill, early retirees, low-income persons, individuals
without employer-based coverage, and many others for whom HSAs can be a
valuable coverage option.
Expanding Coverage for the Chronically Ill
Increase HSA Contributions: Congress should allow
employers to assist employees or their family members who suffer from
chronic conditions by permitting increased contributions into the HSAs
of individuals who are enrolled in disease management or care
coordination programs. These programs provide coordinated health care
interventions and communications for populations in which patient self-
care efforts are significant and are used to improve the health of
individuals with chronic conditions such as diabetes, hypertension,
chronic heart disease, and obesity. This proposal will help patients
with chronic conditions use after-tax money in their HSAs to pay for
health care costs.
Prescription Drugs: High-deductible health plans should
be allowed to cover certain prescription drugs used to treat chronic
conditions without the patient first being required to satisfy the
minimum annual deductible on the HDHP. Currently, HDHPs may not cover
prescription drugs unless the annual deductible has been satisfied or
the prescription drug is used for a narrow category of preventive
services. This proposal will help patients with acute illness or
injuries access prescription drugs and assure that they do not forego
their medications due to cost concerns.
Encouraging Families to Participate in HSAs
Spousal FSAs: Individuals should be allowed to establish
an HSA if their spouse has a Flexible Spending Arrangement (FSA).
Individuals currently are disqualified from setting up an HSA if they
have a spouse with an FSA. This rule unfairly limits consumer choice,
particularly in instances where the individual's medical expenses are
not being covered with funds from the spouse's FSA.
Allowing Separate Deductibles for Individual Family
Members: HDHPs for family HSAs should be allowed to include separate
deductibles, also known as ``embedded deductibles,'' for individual
family members below the family deductible set by the statute--but at
least as high as the individual deductible set by the statute. Under
current law, individual embedded deductibles are permitted only to the
extent that they are not lower than the statutory family deductible.
Allowing lower embedded deductibles for each family member will make it
easier for families with HSAs to meet their health care expenses.
Helping Early Retirees and Seniors
Retiree Health Coverage: Early retirees--those in the 55-
64 age category--should be allowed to use HSA funds to purchase retiree
health coverage. This proposal would make transitional coverage more
affordable for individuals who sometimes struggle with the high cost of
health insurance in the years just before they become eligible for
Medicare. It also would give the near-elderly more flexibility as they
plan ahead for changing circumstances.
Medigap Coverage: Seniors should be allowed to use HSA
funds to purchase Medigap coverage. Current law, which prohibits this
use of HSA funds, fails to recognize the high value offered by Medigap
policies and the fact that millions of Medicare beneficiaries are well-
served by supplementing their basic Medicare benefits with Medigap
coverage. Reversing this prohibition will make Medigap coverage more
affordable for persons with HSAs.
Giving Employers More Flexibility in Offering HSAs
Coordination With HRAs and FSAs: Employers should be
allowed to combine HSAs with Flexible Spending Arrangements (FSAs) or
Health Reimbursement Arrangements (HRAs) to cover medical expenses
below the HDHP's deductible. Currently, employers face regulatory
barriers that significantly limit their ability to combine these
products. Allowing the coordination of these accounts will enable
employers to develop innovative strategies for meeting their employees'
health care needs.
FSA and HRA Rollovers: Individuals with unspent funds in
employer-based FSAs or HRAs should be allowed to transfer these funds
into their HSAs. Current law allows such rollovers from Archer Medical
Savings Accounts (MSAs), but not from other health care spending
accounts. Allowing FSA and HRA rollovers would free up existing
resources to help many individuals and families build up funds in their
HSAs.
Promoting Tax Party and a Level Playing Field
Above-the-Line Tax Deduction: Congress should enact an
above-the-line tax deduction for all health insurance coverage,
including HSA-compatible health plans, purchased in the individual
market. This proposal would make health coverage more affordable for
individuals by granting them the same tax-advantaged treatment that is
available to Americans who receive employer-based coverage.
Tax Credits: Congress should enact tax credits to help
low-income persons purchase HSA-compatible health plans and other types
of health insurance. Building upon the health care tax credits that
Congress enacted in 2002, this proposal would put health insurance
within the reach of many low-income Americans who are unable to afford
coverage without assistance.
Contribution Limits: The HSA contribution limits should
be increased to allow consumers to contribute an amount equal to the
out-of-pocket limits of their HDHP. Increasing this threshold will
enable HSA account-holders to meet their health care expenses with
after-tax dollars. Current law places an annual limit on the amount of
funds consumers are permitted to deposit in their HSAs; this limit may
be lower than the amount of the HDHP deductible.
Easing Administrative Complexities
Align Deductibles and Contribution Limits for Mid-Year
Enrollment: Current rules act as a disincentive for employees who want
to enroll in an employer-provided HSA in the middle of the year. When
employees establish an HSA in the middle of the plan year, they are not
allowed to make a full year's contribution to the account--even though
the employer is required to charge a full year deductible. This
``mismatch'' between the deductible and the contribution amount is a
hardship for employees who want to sign up for HSA coverage mid-year.
Employees should have the opportunity to make the full annual
contribution when they enroll during the middle of a plan year, or the
employer should be permitted to charge a smaller deductible.
Earlier Release of COLAs: The annual adjustment of
deductible amounts, out-of-pocket expense limits, and contribution
limits should be announced by the Treasury Department earlier during
the year to give employers sufficient time to determine their plan
offerings for the new year. Instead of being announced in November, the
adjusted figures should be announced by June 1.
Give Consumers More Time to Establish an HSA: The current
HSA law punishes consumers who may wait to set up their HSAs by
prohibiting the use of HSA funds for any medical costs incurred before
the account was set up. Experience has shown that some individuals may
wait several months to complete the paperwork needed to establish an
account at a financial institution--thereby delaying when they can use
HSA funds to pay for medical costs. Consumers should have until the end
of the tax year (April 15) to set up the account in order to pay for
health costs incurred during that year.Technical Change to ERISA COBRA
Requirements: Congress exempted the HSA financial account from the
COBRA continuation of coverage requirements by amending the federal tax
code to make clear that the COBRA law does not apply to the account.
Continuation coverage is not necessary because the money in the account
is ``portable'' and goes with the employee when he or she changes jobs.
The HSA law, however, failed to enact a similar amendment to the ERISA
law and there continues to be some confusion regarding the application
of COBRA to the account. Therefore, a technical change is needed to
provide an exemption for HSAs under the ERISA rules for COBRA
continuation coverage. This change would not affect the HDHP, which is
subject to the COBRA continuation coverage requirements.
HSAs for Veterans: Veterans who use VA health care
facilities should be allowed to contribute money to an HSA. Under
current law, any veteran who has accessed the Veterans Administration
medical system within the past three months is prohibited from putting
money into an HSA. This restriction hurts veterans--especially
returning service personnel who have service-related injuries.
Progress at the State Level
Having reviewed these opportunities for further legislative
improvements at the federal level, we also want to acknowledge the
positive steps many states have taken to expand consumer access to
HSAs. At the time HSAs were enacted by Congress in December 2003, many
state laws impeded the offering or approval of HSA-compatible high-
deductible health plans. For example, some state laws required coverage
for certain types of benefits--or benefits for certain categories of
individuals--before the minimum deductible amounts were reached. Other
state laws prevented HMOs from offering HDHPs by either specifying the
amount of deductibles and copayments or by interpreting requirements
for ``reasonable'' deductibles or copayments as prohibiting these
products. Still other states did not allow the HSA contributions to be
deducted for state income tax purposes.
In the intervening years, most states have taken action to remove
these impediments. In fact, as of June 15, 2006, all states except
Illinois, Missouri, and New York have passed legislation to remove
impediments to offering an HDHP in connection with an HSA. Moreover,
only Alabama, California, New Jersey, Pennsylvania, and Wisconsin have
not acted to make HSA contributions deductible for state income tax
purposes.
V. THE IMPORTANCE OF TRANSPARENCY
Because HSAs provide an opportunity for consumers to be more
actively engaged in their personal health care decisions, greater
transparency--with respect to both the price and quality of health care
services--is critically important in helping consumers and other
purchasers make informed, value-based decisions. HSA accountholders are
a catalyst for transparency and our efforts are evolving to meet their
needs. AHIP and our members are strongly committed to making price and
quality information more widely available and more easily understood
for consumers with all types of health coverage.
Industry Efforts to Promote Transparency
In addition to implementing plan-specific initiatives, our members
are working with other key stakeholders to give consumers information
that will allow them to assess physician and hospital performance. In
September 2004, AHIP joined a broad coalition of stakeholders,
including the American Academy of Family Physicians and the American
College of Physicians, to form a collaborative effort to determine how
to most effectively and efficiently improve performance measurement,
data aggregation and reporting in the ambulatory care setting. This
broad-based coalition, the AQA, is now composed of more than 125
organizations representing physicians, consumers, employers,
government, health insurance plans, and accrediting and quality
organizations. In April 2005, the AQA endorsed a ``starter set'' of 26
clinical performance measures for the ambulatory care setting that are
already being incorporated into provider contracts. The uniform starter
set includes preventive measures for cancer screening and vaccinations;
measures for chronic conditions including coronary artery disease,
heart failure, diabetes, asthma, depression, and prenatal care; and two
efficiency measures that address the overuse and misuse of health care
services. The AQA also has adopted new sets of measures for
practitioners in the areas of cardiology (eight measures) and cardiac
surgery (15 measures). These measures represent an important first step
in establishing a broad range of quality standards to give consumers
the information they need to make informed health care decisions.
Over the next few months, the AQA will be working toward
identifying a starter set of efficiency measures. These measures will
assess physicians' resource utilization when treating select conditions
over a period of time. The AQA will seek to align these measures with
existing clinical quality measures and ensure that they are
appropriately adjusted for risk and case mix.
On another front, the AQA is receiving support from the Centers for
Medicare & Medicaid Services (CMS) and the Agency for Healthcare
Research and Quality (AHRQ) to launch a pilot program in six sites
across the country to combine public and private sector quality data on
physician performance. This pilot program will test various approaches
to aggregating and reporting data on physician performance, while also
testing the most effective methods for providing consumers with
meaningful information that they can use to make choices about which
physicians best meet their needs.
This pilot program is being implemented in areas and through
organizations that have a history of collaboration on quality and data
initiatives among health plans and physician groups:
California Cooperative Healthcare Reporting Initiative,
San Francisco CA;
Indiana Health Information Exchange, Indianapolis IN;
Massachusetts Health Quality Partners, Watertown MA;
Minnesota Community Measurement, St. Paul MN;
Phoenix Regional Healthcare Value Measurement Initiative,
Phoenix AZ; and
Wisconsin Collaborative for Healthcare Quality, Madison
WI.
A highly respected advisory committee of leaders in quality and
performance design selected these six entities because they have the
infrastructure and experience needed to support the combination of
public and private data and, additionally, are positioned to implement
the pilots within a short timeframe. Ultimately, we anticipate that the
results of this pilot program will lead to a national framework for
measurement and public reporting of physician performance, which is an
important step toward improving transparency and consumer decision-
making.
Plan-Specific Initiatives to Promote Transparency
Individually, many AHIP members have taken steps to promote
transparency. While plans use a variety of approaches, our industry is
pioneering the next generation of consumer tools and resources to help
Americans make value-based health care decisions. The following are
examples of six plans that have implemented transparency tools to help
their enrollees become better informed health care consumers.
Aetna has developed a suite of tools, called Estimate the Cost of
Care, that allows its enrollees to estimate average in-network and out-
of-network costs in the member's zip code for various health care
services and products. These tools are a valuable resource for
enrollees who are interested in cost information on prescription drugs,
medical and dental procedures, office visits, medical tests, and a
variety of diseases and conditions. For example:
Prescription Drugs: Enrollees can access information
about specific drugs, drug uses and interactions, and the cost of brand
and generic prescription drugs at retail drug stores and through
Aetna's mail-order program.
Office Visits: Enrollees can receive estimates on the
costs, by type and complexity level, for visits such as routine
physicals and emergency room visits, and the potential cost savings if
they choose participating physicians or hospitals.
Diseases and Conditions: Aetna's Estimate the Cost of
Care tools provide up to a year of estimated average total in-network
costs for facility, doctor, pharmacy, and medical tests associated with
specific diseases and conditions, such as asthma or diabetes, depending
on their level of severity.
Building upon these tools, Aetna recently announced that effective
August 18, it will provide online access to physician-specific cost,
clinical quality, and efficiency information in Connecticut, Maryland
and Washington, D.C. and in portions of Florida, Indiana, Kentucky,
Ohio, and Virginia. This initiative will provide physician-specific
pricing for up to 30 of the most widely accessed services by specialty
along with indicators based on adverse events, hospital re-admit rates,
and overall efficiency. In addition, Aetna will provide pricing
information in Kansas City, Las Vegas, and Pittsburgh. These
enhancements will provide Aetna members with clinical quality and
efficiency information for more than 14,800 specialists and pricing
information for more than 70,000 physicians.
Blue Cross and Blue Shield of Florida is broadening access to tools
and resources to help its members find the information they need. With
the following web-based, decision-support tools, members of this plan
can access health care information, estimate health care costs,
research a medical condition or procedure, and choose physicians and
hospitals based on their needs.
Hospital Advisor\TM\--With this tool, members of Blue
Cross and Blue Shield of Florida can find and compare hospitals based
on major health topics, procedures, and/or type of care; compare
hospitals based on clinical quality, outcomes, patient safety
standards, reputation, and characteristics; and retrieve health care
data from over 50 public industry and government data sources.
Healthcare Advisor\TM\--This interactive tool is designed
to provide members access to personalized health care information to
help them make well-informed health care decisions. Personalized
information includes an educational assessment for over 239 medical
conditions and procedures, questions to ask a physician about managing
a condition or preparing for a procedure, and links to resources
including websites organized by health care topic.
Physician Selection Advisor\TM\--This tool provides
members the ability to research and compare more than 700,000
physicians from the American Medical Association and other reliable
sources. Physician attributes include various demographic, educational,
and professional statuses.
Treatment Cost Advisor\TM\--This tool is designed to help
members estimate the cost of specific health care services. It allows
members to choose the type of service, provide some basic demographic
information regarding age, region and gender and receive health care
cost estimates.
CIGNA offers its enrollees a range of tools to assist them with
their decision-
making:
Hospital Value Tool: Provides star-based health care
ratings for in-network hospitals' patient outcomes and cost efficiency
for 19 procedures.
Hospital Comparison Tool: Provides side-by-side hospital
comparison data for 200 medical and surgical procedures based on the
individual's needs and preferences. This tool contrasts a number of
factors including patient volume, hospital mortality and complication
rates, average length of stay, and patient safety.
Prescription Drug Price Comparison Tool: Provides real-
time, actual out-of-pocket costs for brand name and generic
prescription drugs, enabling CIGNA Pharmacy members to compare the
actual costs charged by 54,000 retail pharmacies nationwide.
DrugCompare\TM\ from WebMD: Allows members to make side-
by-side comparisons of medications or classes of medications for
average drug costs, side effects, and drug interactions or
contraindications.
CIGNA Care Network: Offers members financial incentives
for the use of select physicians who demonstrate superior health care
outcomes. Members can access information on quality and/or efficiency
for these specialists. Provider access is not limited as members can
still select from any provider; however, members gain financial rewards
for using providers within the CIGNA Care Network.
Harvard Pilgrim Health Care's member web site includes a section
called ``Understand Quality,'' which provides information, such as the
Honor Roll, to help members make informed choices about their care.
Harvard Pilgrim uses HEDIS measures to evaluate the quality of care
provided by its contracted physician groups and has developed a
Physician Group Honor Roll to recognize those groups that have provided
outstanding care to Harvard Pilgrim members. Separate Honor Rolls are
published for excellence in adult and pediatric care, and members are
able to determine if an individual primary care physician is in a
practice group that is on the Honor Roll. Harvard Pilgrim also promotes
transparency in several other ways:
An interactive on-line tool includes educational
information about treatment options and what to expect for over one
hundred different conditions and procedures. This tools allows members
to rate the importance of various convenience, safety, and quality
characteristics of hospitals and receive a display of hospitals that
best fit their preferences.
The Plan Cost Estimator allows Harvard Pilgrim members to
estimate out-of-pocket expenses for themselves and their family
members. Members enter projected utilization (doctor visits,
prescriptions, etc.) based on history and expected utilization during
the following year. They then indicate any chronic conditions, for
which the Cost Estimator calculates typical expenses. The tool is pre-
loaded to include the employee's contribution to the premium and any
employer contribution to a reimbursement vehicle (Health Reimbursement
Arrangement or Health Savings Account).
The Harvard Pilgrim Independence Plan (a PPO offered for
Massachusetts government employees and retirees) features consumer
cost-share differentials based on a two-tiered physician network. Five
high-volume specialties--cardiology, dermatology, general surgery,
orthopedics, and gastroenterology--are tiered based upon variability in
cost-effectiveness. Quality information is not part of the tiering, but
is disclosed separately to members.
Humana has developed a SmartSummary Rx tool that is designed to
assist consumers in planning for their future spending on health care
services and prescription drugs. This tool, which is available through
monthly paper-based or on-line statements, provides Humana's members
with:
personalized guidance about cost-saving drug
alternatives and care options that are triggered by their specific
prescription drug claims;
details on the costs of their medications and the value
of their plan, along with additional guidance tools that can enhance
drug safety and medication-taking compliance;
information showing where they are within the different
stages of their prescription drug plan to help budget future out-of-
pocket costs;
details on the amounts members have paid versus what the
plan has paid, along with information on specific discounts and how
much money they have saved; and
the ability to track prescriptions, including dosage,
previous refill dates, and information on the prescribing doctor and
pharmacy.
Independence Blue Cross has developed a number of tools to make
information on provider performance and health care costs more
transparent to its members. This includes:
access to information on hospital quality and costs
through a ``HealthGrades'' tool;
a treatment cost estimator that allows people to estimate
costs for management of conditions, diagnostic tests, office visits,
and select procedures;
a tool to compare the costs of various health plan
options and to model HSA expenses;
24/7 Health Coaching to help members make more informed
health care decisions using a Shared Decision model, including coaching
on chronic illnesses and more than 20 significant decisions regarding
surgery for specific conditions, and other types treatments;
a pharmacy cost estimator; and
health risk appraisals, a full set of wellness and
prevention tools, and access to general health information.
Independence Blue Cross also is working with the Hospital
Association of Pennsylvania, its local affiliate (the Delaware Valley
Healthcare Council), and hospitals to create a state-wide hospital
performance measurement system to enhance data on hospital performance.
On another front, Independence is developing integrated quality and
efficiency reports for twelve specialties. Data from this initiative
will be shared first with physicians and later with members.
VI. CONCLUSION
Thank you for this opportunity to testify about the value of HSAs
and opportunities for further strengthening this important health care
option. We appreciate the support many committee members have
demonstrated for HSAs and we look forward to continuing to work with
you to advance solutions for further expanding access to high quality,
affordable health care.
Mr. MCCRERY. [Presiding.] Mr. Jackson.
STATEMENT OF HAROLD JACKSON, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, BUFFALO SUPPLY INC., LAFAYETTE, COLORADO, ON BEHALF OF
THE U.S. CHAMBER OF COMMERCE
Mr. JACKSON. Thank you, Chairman, Ranking Member Rangel,
Members of the Committee. I am Harold Jackson, President and
CEO of Buffalo Supply, a 20-employee, women-owned small
business specializing in distribution of medical equipment and
supplies. We are located in Lafayette, Colorado.
I am pleased to be able to be here today to submit the
following testimony for the record, and I am here on behalf of
the U.S. Chamber of Commerce.
As President and CEO of Buffalo Supply, one of my most
important duties is to attract and keep highly qualified
employees. Therefore, making changes to the health care
coverage offering for me and my employees is one of the most
challenging things that I face.
In the spring of last year, I was faced with a difficult
decision on how to address the health care insurance needs for
our employees in light of a 21 percent projected increase in
our current premium. At that time, we had in place a preferred
provider option plan that had 80 percent reimbursement with a
20 percent copay for the first $3,000 dollars per employee, or
$6,000 per family. After that amount was used up in any year,
the major medical picked up 100 percent.
The annual premium for that policy ending May 31, 2005 was
$102,000 for the 13 employees--that I have that opted for
coverage. If I elected to renew that same policy, the price was
going to be just over $123,000.
After reading about the recently passed Federal provision
known as HSAs, I asked my insurance broker to look into HSA-
conforming plans for our company. He came up with a high-
deductible conforming plan through United Health Care, which
had a $2,000 per employee deductible and $4,000 per family.
Once the deductible is met, it is 80 percent reimbursement with
20 percent copay coverage, with a maximum out-of-pocket expense
of $4,000 per person or $8,000 per family.
I was surprised that the premium was only $75,300 for these
13 employees, an astonishing 39 percent reduction over the cost
if we had renewed our PPO plan. With the cost of the savings of
the insurance premium on the HSA plan, I was able to have
Buffalo Supply fund the savings accounts at a rate of $2,000
per employee, or $3,000 per family, which equated to a $35,000
cost. This effectively reduced the out-of-pocket maximum, when
considering company contributions to the HSA, to $2,000 per
person and $5,000 per family; that is, $1,000 in each category
less than our PPO plan. So, Buffalo Supply was able to realize
a 10.8 percent savings over renewing the PPO plan and provide
better coverage to our employees.
Early this spring, I polled my employees on what they
thought of the HSA plan, and they overwhelmingly endorsed it
and urged me to continue an HSA vehicle for our insurance
coverage.
As we start our second year with an HSA, we have an $1,100
per employee deductible and $2,200 per family. After that
deductible is satisfied, the employee or family has 100 percent
coverage. There are no copays for prescriptions, doctor visits,
hospitalizations. Our employees pick up the full cost of the
deductible and bear the burden of contributing to the savings
plan should they desire. Every employee opted to contribute the
maximum amount possible.
This year, the total premium is $115,400, slightly more
than last year's cost, but we have one additional insured.
My employees and I are delighted with the concept of HSAs
that allow us to benefit from our health care spending
decisions and using pretax dollars.
While my employees and my family are very satisfied with
the HSA-compatible health plan, I would like to take this
opportunity to thank the Members of the Committee for working
with the U.S. Chamber of Commerce and the HSA Working Group to
introduce legislation that will improve HSAs, and I have some
suggestions in my written testimony to make those improvements.
Thank you.
[The prepared statement of Mr. Jackson follows:]
Statement of Harold Jackson, President, Buffalo Supply, Inc.,
Lafayette, Colorado, on behalf of U.S. Chamber of Commerce
Chairman Thomas and Ranking Member Rangel, members of the
Committee, I am Harold Jackson, President and CEO of Buffalo Supply,
Inc., a 20-employee, women-owned small business specializing in the
sale and distribution of medical equipment and supplies located in
Lafayette, Colorado. I am pleased to be able to submit the following
testimony for the record. I am also here on behalf of the U.S. Chamber
of Commerce. The U.S. Chamber of Commerce is the world's largest
business federation, representing more than three million businesses
and organizations of every size, sector and region. Over ninety-six
percent of the Chamber members are small businesses with fewer than 100
employees. I commend the Committee for its interest in having this
hearing on the benefits of Health Savings Accounts.
Buffalo Supply, Inc. has been in the medical equipment and supply
business since 1983 and we are currently the exclusive source for
Stryker, Gaymar Industries and Baxa Corporation products. I joined the
company in 1990 at which time company revenues were at $1.2 million. By
building a strong reputation for service with my customers, I have been
able to grow our revenues to the current level of $45 million in 2005.
As President and CEO of Buffalo Supply, Inc., one of my most
important duties is to attract and keep highly-qualified employees. It
is the employees of Buffalo Supply that carry the banner of our company
and maintain the level of customer service that allow us to effectively
compete in the marketplace.
I find health coverage is the most sought-after benefit that an
employer can offer. In many cases, both present and potential employees
judge the organization on the quality of the health plan that a company
provides. In some cases, I have seen the level and quality of health
care coverage to be the major factor on whether or not an employee
accepts a job with an organization.
Indeed, the decision to make changes to the health care coverage
offering for me and my employees at Buffalo Supply is one of the most
challenging I face since it can have a dramatic impact on the level of
employee satisfaction. On the one hand, like most small business
owners, I am faced with continued soaring annual increases and must
seek ways to contain these costs in order to stay competitive. On the
other hand, I must be very careful in my decisions to pass on these
increases by raising deductibles, lowering coverage, or by implementing
a new coverage product that might not have the same appeal.
In the spring of last year I faced the difficult decision on how to
address the heath care insurance needs for the employees of Buffalo
Supply in light of a projected 21 percent increase in my current
premium. At that time, we had in place a standard preferred provider
option plan that had 80 percent reimbursement with 20 percent co-pay
for the first $3,000 per employee or $6,000 per family in coverage.
After that amount is used in any given year, major medical then picked
up 100 percent. The annual premium for policy year ending 5/31/05 was
$102,119.28 for the 13 employees that opted for coverage. If I had
elected to renew the cost would have been $123,647.04.
After reading about a recently passed federal provision known as
Health Savings Accounts, I asked my insurance broker to look into a HSA
conforming plan for Buffalo Supply. He came up with a high deductible
conforming plan with United Healthcare called their ``Definity HSA''
plan which had a $2,000 per employee and $4,000 per family deductible.
Once the deductible is met there is 80 percent reimbursement with 20
percent co-pay coverage--with a maximum out of pocket of $4,000 per
employee or $8,000 family. I was surprised that the premium was only
$75,369.48 for the same 13 employees, an astounding 39% premium
reduction from the projected costs for the PPO plan.
With the cost savings in the insurance premium of the ``Definity
HSA'' plan, I was able to have Buffalo Supply fund the savings account
portion at $2,000 per employee and $3,000 per family which amounted to
$35,000. This effectively reduced the out of pocket maximum when
considering the company contributions to the HSA to $2,000 per employee
or $5,000 per family, which was $1,000 less in each category over the
conventional PPO. Buffalo Supply was able to realize a 10.8% savings
over the projected costs of the conventional plan and provide better
coverage to our employees.
Early this spring, as we approached our anniversary date of the
United Healthcare's ``Definity HSA''plan at Buffalo Supply, I polled my
employees on what they thought of the new plan. They all overwhelmingly
considered the HSA plan a success and urged me to continue with this
vehicle for coverage.
We just started our second year with a $1,100 per employee
deductible and a $2,200 per family deductible. After the deductible is
satisfied the employee and family has 100% coverage--no co-pays for
prescriptions, doctor office visits or hospitalization. The employee
picks up the full cost of the deductible and bears the burden to
contribute to the savings plan should they desire. Every employee has
opted to contribute the full amount to the savings portion of the plan.
This year the total annual premium is $115, 414.92, slightly more that
last year's costs, but we are also insuring one additional person.
My employees and I are delighted with the concept of Health Savings
Accounts that allow us to benefit from our health care spending
decisions with the use of pretax dollars. This type of health plan puts
the consumer in charge of how he or she may elect to spend their health
care dollars. The excess rolls over year after year, and employees can
take it with them to a new job or if they retire. I understand that
United Healthcare, the company that provides Buffalo Supply's plan and
the nation's largest purveyor of HSA-compatible insurance, has over
54,000 HSA-style accounts out of nearly 1 million enrollees in Colorado
where I am located.
On behalf of Buffalo Supply and our employees, I would like to
thank this committee for the work you have done on enacting this
legislation into law. Having Health Savings Accounts as a viable health
care option allowed Buffalo Supply to stem the increases in our health
care premiums while enhancing the coverage for my employees.
While my employees and my family are very satisfied with the HSA-
compatible health plan, I would like to take this opportunity to thank
members of this committee for working with the U.S. Chamber and the HSA
Working Group to introduce legislation that will improve HSAs and to
offer some suggestions to further strengthen the current law. This
broad range of potential improvements to HSAs will make them more
attractive to both consumers and employers.
Increase the amounts individuals and employers may
contribute to HSAs. The President's budget proposal includes an
increase in HSA contribution limits to allow HSA participants to set
aside more funds on a tax-free basis for their current and future
health care needs. Under this proposal, HSA participants could
contribute up to the out-of-pocket spending limits for their HSA-
eligible high deductible health coverage--limited by statute to no more
than $5,250 for self-only coverage and $10,500 for family coverage in
2006.
Allow employees with HSAs to also participate in other
tax-favored health care accounts such as health flexible spending
arrangements (FSAs) and health reimbursement arrangements (HRAs).
Permit up to $500 in unspent funds in flexible spending
arrangements to carry forward to the following year or to be rolled-
over into an HSA.
Permit employers to convert funds contributed to health
reimbursement arrangements (HRAs) to employees participating in HSAs.
Allow employers to contribute higher amounts to HSAs for
their lower-paid employees.
Permit individuals over age 65 to continue to contribute
to their HSAs.
Allow early retirees to pay for their health insurance
needs on a tax-free basis with funds from their HSAs.
I appreciate the opportunity to comment on Health Savings Accounts
in front of the Committee. I especially applaud the Committee's
interest in having this hearing. Thank you again, Chairman, Ranking
Member and members of the Committee.
______
The U.S. Chamber of Commerce is the world's largest business
federation, representing more than three million businesses and
organizations of every size, sector, and region.
More than 96 percent of the Chamber's members are small businesses
with
100 or fewer employees, 70 percent of which have 10 or fewer
employees. Yet, virtually all of the nation's largest companies are
also active members. We are particularly cognizant of the problems of
smaller businesses, as well as issues facing the business community at
large.
Besides representing a cross-section of the American business
community in terms of number of employees, the Chamber represents a
wide management spectrum by type of business and location. Each major
classification of American business--manufacturing, retailing,
services, construction, wholesaling, and finance--is represented. Also,
the Chamber has substantial membership in all 50 states.
The Chamber's international reach is substantial as well. It
believes that global interdependence provides an opportunity, not a
threat. In addition to the
U.S. Chamber of Commerce's 105 American Chambers of Commerce
abroad, an increasing number of members are engaged in the export and
import of both goods and services and have ongoing investment
activities. The Chamber favors strengthened international
competitiveness and opposes artificial U.S. and foreign barriers to
international business.
Positions on national issues are developed by a cross-section of
Chamber members serving on committees, subcommittees, and task forces.
More than 1,000 business people participate in this process.
Mr. MCCRERY. Thank you, Mr. Jackson. Mr. Lauer.
STATEMENT OF GARY LAUER, CHIEF EXECUTIVE OFFICE,
eHEALTHINSURANCE, MOUNTAIN VIEW, CALIFORNIA
Mr. LAUER. Good morning, Mr. Chairman, Members of the
Committee. Thank you for the opportunity to testify today. I am
Gary Lauer, the CEO of eHealth. We are the parent company of
eHealthInsurance, the Nation's leading online health insurance
for individuals, families and small businesses.
We market and sell health insurance in all 50 States and
the District of Columbia. We have partnerships with over 140 of
the Nation's leading health insurance carriers, and we offer
more than 5,000 unique health insurance products nationwide
online. We serve families, individuals and small businesses as
they search for quality, affordable health insurance solutions.
Our strategy and business model has always been to present
products in an unbiased, objective way. Our goal is to help
people find the health insurance product which best meets their
needs.
Several years ago we found that policymakers and
influencers have a real need for accurate information about the
cost and benefits of health insurance offered and purchased in
the marketplace. Consequently, we survey our national member
base on a semiannual and annual basis to ascertain what people
are really spending on health insurance and what they really
get.
Last month, we released the most recent of several reports
providing a snapshot of the national HSA market, defined as
HSA-eligible plans purchased through our company,
eHealthInsurance, by individuals and families.
I am encouraged and, frankly, somewhat surprised by the
growing acceptance of HSAs in the market across many age and
income brackets. When HSAs were first introduced in January of
2004, many believed these products would be for the young and
the wealthy. The results of our most recent survey show they
have a much wider appeal.
If somebody could turn the projector on for me. Can you
see----
Chairman THOMAS. [Presiding.] Do we have our very
expensive, high-tech digital equipment available?
Mr. LAUER. While we are doing that, why don't I keep
moving. What you will find in the written testimony are several
charts from our study. The first shows that in 2005,
nationwide, 42 percent of all purchasers are at least 40 years
of age, and in fact, the age distribution of HSA purchasers in
2005 closely approximates the age distribution of the
population across the United States.
Secondly, 45 percent of purchasers have household incomes
of $50,000 or less----
Chairman THOMAS. Are you referring to the charts you
included in your testimony?
Mr. LAUER. Yes.
Chairman THOMAS. So, if anyone wants to follow them
notwithstanding the failure of the high-tech digital equipment,
they are in the testimony included by Mr. Lauer.
Mr. LAUER. In fact, on that point, I am on chart 3 right
now. Twenty-five percent of purchasers, or one in four, earned
$35,000 or less annually. Overall, 41 percent of purchasers
were uninsured previous to buying their HSA plan; and
interestingly, the lower the income level, the higher the rate
of people being uninsured previously.
Nationally, individual purchasers paid $114 monthly in 2005
for an HSA plan; a family paid $261. Contrast that to premiums
paid in 2004, which were actually more expensive than 2005.
Seven out of 10 Americans cite affordability as the main
reason they are uninsured. Any action that makes health
insurance more affordable, we believe will result in more
uninsured people finding coverage. I believe our data supports
this.
I have three quick ideas today on the affordability issue.
First, employers are allowed to deduct the cost of health
insurance from their taxes, yet individuals who purchase their
own health insurance cannot. Individuals and families should be
able to deduct the cost of health insurance from their taxes
just like businesses do. This would make health insurance more
affordable for individuals and families who purchase health
insurance on their own. It seems to us that equal tax treatment
here is about fairness and equality.
Secondly, provide tax credits to low-income people who buy
their own health insurance but don't earn enough to make the
tax deduction a financial benefit. This refundable credit
should be provided regardless of the type of health insurance
they buy. The point here is to simply get families covered who
were previously uninsured.
Finally, almost 57 percent of small businesses don't offer
any health insurance coverage to employees. They would be,
maybe, willing to make a contribution to their employees'
health coverage, but many small businesses don't want the
hassle of offering employee benefits or find it is too
expensive to offer.
Today, both employers and employees can contribute to an
HSA tax-free, but the savings of the HSA account cannot be used
to pay for individual health insurance premiums. Allowing
employees to use this money to pay for health insurance that
they buy would encourage more small businesses to provide
simple, affordable and predictable funding to their employees
who would then have the opportunity to use their savings
account to pay for health insurance they buy.
We think it is a simple and affordable solution for small
businesses to get back in the game of helping to fund health
care for employees. It is also my understanding that this
solution is potentially tax revenue neutral.
The debate over how to provide cost-effective health care
for all Americans continues. I don't see a universal solution
to this problem. I also don't pretend to believe that HSAs will
solve the problem for everyone, but clearly HSAs appear to have
broad appeal to a large segment of the American population.
Thank you very much.
[The prepared statement of Mr. Lauer follows:]
Statement of Gary Lauer, Chief Executive Officer, eHealthInsurance,
Mountain View, California
Introduction
Chairman Thomas and Congressman Rangel, thank you for the
opportunity to testify today and let me thank you both, and the Members
of this Committee, for your interest in, and work on behalf of, the
nation's small businesses and uninsured. I am present today to tell you
about the experience of eHealthInsurance with Health Savings Account-
eligible health insurance plans and to provide information to help you
address enhancements which may assist more individuals, families, and
small businesses in taking advantage of these new plans.
If I may, I'd like to take just a moment to tell you my background
and the reasons I saw such great opportunities at the intersection of
the Internet and health insurance. I come from a long background in
technology. I spent many years with IBM, Silicon Graphics, and Meta
Creations before becoming CEO of eHealth almost seven years ago at the
company's beginning. I have seen advanced technologies bring new
efficiencies to old industries, and provide expanded access to new
products and services for consumers who may have been excluded from
markets in the past.
At eHealthInsurance's inception, we saw the opportunity to use the
Internet to reach people who previously may not have known where to go
to get health insurance, or who assumed health insurance was just too
expensive. I became passionate about the chance to be part of the
solution for one of the most debated issues confronting our great
nation today. Just as I've come to believe that eHealthInsurance can be
part of the solution by helping consumers find the right health
insurance, I also believe that Health Savings Accounts can be a viable
solution for many small businesses and families who are looking for a
simple and affordable health insurance option. HSAs allow these small
businesses and families to take more control over how and where their
health care dollars are spent.
Helping Real People in Need
eHealthInsurance is the leading online source of health insurance
for individuals, families, and small businesses. We are licensed to
market and sell health insurance in all 50 states and the District of
Columbia. Given our unique experience marketing various types of health
insurance across the nation, we have been invited here to share our
experience with HSA-eligible health insurance plans. As a company, we
have invested significant time and resources in building a scalable,
proprietary e-commerce platform, and we have developed partnerships
with over 140 of the nation's leading health insurance carriers,
enabling us to offer more than 5,000 health insurance products online.
Our e-commerce platform can be accessed directly through our Web site
addresses at www.eHealth.com and www.ehealthinsurance.com, as well as
through our broad network of partners. We organize and present
voluminous and complex health insurance information in a user-friendly
and understandable format, enabling individuals, families, and small
businesses to research, analyze, compare, and purchase health insurance
products that best meet their needs.
Forty percent of the people who purchase plans through
eHealthInsurance state on their application that they have been
uninsured for a significant period of time. A number of people approach
eHealthInsurance with the misperception that health insurance is
prohibitively expensive, but when they see the range of options,
starting with some very low prices, many of them find they can afford
health insurance.
After using our Web site to find and compare various HSA plans,
many of our customers have become champions of this innovative
solution.
Here are some of their actual stories:
1. Greg Heloski, 37-year old construction worker from Philadelphia,
knew he was throwing the dice for more than four years when he didn't
have heath insurance. He was concerned something ``major'' would happen
but thought the high cost of health insurance outweighed the benefits.
Greg has seen accidents on the job and even on the neighborhood
basketball court where he plays regularly. Greg was surprised to find
an HSA-eligible plan for $120 a month with a $2,600 deductible. Greg
has put enough money away to cover his deductible. So far, he hasn't
needed his HSA funds, but he's comforted knowing they are readily
available should he need to cover any qualified expenses before his
deductible is met.
2. Mark and Noreen Eccleston from Greenwood, Ark. bought their own
health insurance ever since Mark left his job to start his own
business, some 20 years ago. They found a low-cost plan through an
association for the self-employed. Over the years, the Ecclestons saw
their premiums rise from $250 per month to $1,000 per month.
Now in their 60s and sick of the spiraling costs, they went to
eHealthInsurance.com to shop for individual policies. They chose an
HSA-eligible plan with a $2,500 deductible for about $330 a month and
are making tax-favored contributions to their Health Savings Account to
pay for out-of-pocket expenses. Because they've had few medical
expenses since buying the policy, they've been able to save money they
can use over the next few years, even after they qualify for Medicare.
3. Bill Lomel, who owns a roofing company in Atlanta, Ga., was an
early convert to HSAs. ``I was just so discouraged about the cost of
health insurance,'' he told Kiplinger's. He was already struggling to
pay $750 a month for insurance for himself and his three children when
he got a notice that the cost of the group policy for his employees was
going to soar. ``I thought, `There's no way I can charge enough for
anything in my business to cover that expense. I want to offer good
competitive benefits to my employees, but I can't.' ''
Now he knows that he can. Bill started by searching
eHealthInsurance.com for his options for his family. He selected an
HSA-eligible plan, and is currently paying $250 per month for himself,
his wife and three children. The deductible is $5,000 per year, but
Bill is saving at least $6,000 a year in premiums from his previous
health insurance. In more than two years of fully funding his HSA, Bill
has saved about $8,000 in his Health Savings Account. He uses the HSA
to pay for some extra out-of-pocket expenses, but since his family has
been healthy, he is mostly using it to save for future healthcare
expenses.
Bill was so impressed with his HSA experience that he offered an
HSA-eligible insurance plan as an option to his employees alongside a
``traditional'' health insurance plan. For the majority who selected
the HSA-eligible insurance plan, he gave them the money saved on the
premiums plus some additional money to help fund their HSAs to use for
out-of-pocket costs, or savings for the long term.
4. Roman Botcharnikov of Maryville, Tenn., is the business director
for his family-owned hair salon. Roman was concerned about the rising
cost of healthcare and when he kept receiving increases to his family
health plan, he decided to shop around. Roman's prior health insurance
that he had more than two years ago covering himself, his wife and his
teenage son, was $485 a month, totaling $5,820 per year.
Roman went on eHealthInsurance.com in early 2004, learned about
HSAs and purchased a health insurance plan. Today he pays $305.23 a
month, or $3,662.76 a year, to cover his family with a $3,600
deductible plan. He contributes the maximum amount to his HSA bank
account. Roman remains a staunch HSA supporter, appreciative of his
health plan's simplicity and opportunity for savings. ``I go to the
dentist and I just write him a check from the HSA account, and I don't
have to mess with the insurance,'' he said. Last year, Roman was
especially grateful to have his HSA when his wife needed surgery. While
it required them to use money from the HSA to pay the deductible, after
that their health insurance paid 100% of the bills, saving thousands of
dollars.
Roman has advocated switching his employees to HSA plans, but
admits it's been a tough sell gaining support for change in something
as complex as health insurance. In particular, Roman said his employees
in lower-income brackets don't yet see an advantage in switching to
HSAs.
Real Data about Real People Purchasing HSA-Eligible Health Insurance
eHealthInsurance serves individuals, families, and small businesses
as they search for quality, affordable health insurance solutions. Our
strategy and business model has always been to present products in an
unbiased, objective way. Our goal is to help people find a health
insurance product which best meets their needs. Because of this, we
have had a keen interest, for many years, in the development of public
policy and legislation related to health insurance, and the plight of
the uninsured in America.
Several years ago we found that policymakers and influencers
seeking to help uninsured individuals, families and small businesses
have a real need for accurate information about the cost and benefits
of health insurance offered and purchased in the market. Consequently,
we survey our national member base on a semi-annual and annual basis to
ascertain what people are really spending for health insurance, and
what benefits they really get.
When HSAs were first introduced and the market was responding with
new products following HSA guidelines, we knew it would be beneficial
to those same policymakers and influencers to have information
available on the adoption of HSA-eligible plans. Therefore, we have
produced semi-annual and annual reports on the characteristics of those
individuals and families across the U.S. purchasing HSA-eligible plans
from eHealthInsurance since they were first introduced to the market.
This leads me to new information I would like to share with the
Committee today. In May 2006, eHealthInsurance released its most recent
report providing a snapshot of the HSA market, defined as HSA-eligible
plans sold by eHealthInsurance to individuals and families from January
1 through December 31, 2005. This report was created:
To identify and compare key demographics of HSA-eligible
health insurance plans;
To present and compare the monthly premiums for HSA-
eligible health insurance plans;
To outline the health insurance benefit levels included
in the HSA-eligible plans purchased by consumers from January 1,
through December 31, 2005; and
To compare the latest figures to those provided
previously, highlighting key changes in 2005.
The report is based on a sample of more than 12,000 HSA-eligible
plans purchased between January 1 and December 31, 2005 through
eHealthInsurance.com by individuals and families across the United
States. In our report, an HSA-eligible health insurance plan is defined
as those health insurance plans designated by health insurance
companies to be in concurrence with the U.S. Department of the
Treasury's HSA guidelines. In 2005, these included:
Deductibles of a minimum of $1,000 for individuals and
$2,000 for families; and
Out of pocket limits of $5,100 for individuals and
$10,200 for families per year.
Premium data included in the report is based on actual premiums
paid by the individuals and families who purchased plans through
eHealthInsurance. The premiums shown in this report are not quoted
premiums, but represent what real people paid in real premiums.
This report does not address consumers' participation in the Health
Savings Account banking portion of the HSA solution, although my
company is presently working on compiling survey results on our
customers' HSA banking activities. We will, of course, make that
information available as soon as it is ready.
HSA-Eligible Plans in 2005
Characteristics of HSA-Eligible Plan Purchasers
I am encouraged and somewhat surprised by the growing acceptance of
HSAs in the market across many age and income brackets. When HSAs were
first introduced in January 2004, many believed these products would be
for the young and the wealthy. The results of our most recent study
show HSAs have a much wider appeal.
Across 2005:
42% of purchasers are at least 40-years-old
45% of purchasers have household incomes of $50,000 or
less
25% of purchasers have household incomes of $35,000 or
less
Overall, 41% of purchasers were uninsured previous to
buying their HSA plan. Note, the lower the income level, the higher the
rate of being previously uninsured.
Nationally, individual purchasers paid $114 monthly in
2005 for an HSA plan, and a family paid $261. I'd also like to note
that premiums paid in 2005 were less than premiums paid in 2004.
I realize that HSAs may not be for everyone. For those in the
lowest income brackets these products may not be the solution without
some kind of subsidy, but certainly these data indicate that HSA
products can serve the needs of a broad segment of the American
population.
Age Distribution of HSA-Eligible Plan Purchasers
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Overall, 41% of 2005 HSA-eligible plan purchasers did not have prior
health insurance.
The $35,001--$75,000 income brackets showed the largest increase in
previously uninsured HSA plan buyers.
Percent of Previously Uninsured HSA-Eligible Plan Purchasers By Income
Category HSA-Eligible Plan Costs and Benefits
Key findings on pricing also indicate some encouraging news.
Individuals paid 17% less for their HSA coverage in 2005 than consumers
buying plans in 2004. These savings were achieved because more plans
were introduced into the market, which provided individuals and
families more choices and lower premium rates. In 2005, many consumers
chose higher deductibles which resulted in lower monthly premiums.
Average Monthly Premiums for HSA-Eligible Plans
------------------------------------------------------------------------
Average Average
2004 2005 % Change in
Premium Premium Premium
------------------------------------------------------------------------
Plans covering Individuals $138 $114 -17%
------------------------------------------------------------------------
Plans covering families $277 $261 - 6%
------------------------------------------------------------------------
The plans consumers purchased in 2005 continue to provide
comprehensive benefits once the deductible is met. More than two-thirds
of HSA plans cover regular office visits, and three-fourths cover OB/
GYN office visits at 100% after the annual deductible is met. Nearly
80% of plans provide prescription drug benefits, and over 70% of plans
cover benefits at 100% once the annual deductible is met.
Benefits Typically Included in HSA-Eligible Plans
----------------------------------------------------------------------------------------------------------------
0% Co- 20% Co- 30% Co- 50% Co- No
Benefit Insurance Insurance Insurance Insurance Coverage Other
----------------------------------------------------------------------------------------------------------------
Office Visits 69% 16% 3% -- 12% --
----------------------------------------------------------------------------------------------------------------
Prescription Drug Benefits 71% 5% 3% 1% 17% 3%
----------------------------------------------------------------------------------------------------------------
Hospitalization, Lab and X-Ray 79% 18% 3% -- -- --
Services
----------------------------------------------------------------------------------------------------------------
OB/GYN Visits 79% 18% 3% -- -- --
----------------------------------------------------------------------------------------------------------------
Emergency Room Service 79% 18% 3% -- -- --
----------------------------------------------------------------------------------------------------------------
Recommendations
Seven out of ten uninsured Americans cite affordability as the main
reason they are uninsured. (Source: Harvard School of Public Health,
May 2004) Any action that makes health insurance more affordable, we
believe, will result in more uninsured people finding coverage. I
believe our data supports this.
My ideas today are focused on the affordability issue:
1. Employers are allowed to deduct the cost of health insurance
from their taxes, yet individuals who purchase their own health
insurance cannot. I suggest equal tax treatment of health insurance
premiums for everyone. All individuals and families should be able to
deduct the cost of health insurance from their taxes, just like
business can. This would make health insurance more affordable for
individuals and families who must purchase health insurance on their
own. It seems only fair that people who need the health insurance the
most have the same tax treatment as employers.
2. Provide tax credits to low-income people who buy their own
health insurance but don't earn enough to make the deduction a viable
option. This refundable credit should be provided regardless of the
type of health insurance they buy. The point is to get these families
covered.
3. Finally, 56.8% of small businesses don't offer any health
insurance coverage to their employees. (Source: Kaiser Family
Foundation, 2003) They may be willing to make a contribution to their
employees' health coverage, but many small businesses simply don't want
the hassle of offering employee benefits or they find it is too
expensive to offer. Many small businesses simply avoid employee
benefits because they fear they will be exposed to double-digit premium
increases in the future.
Today, both employers and employees can contribute to an HSA tax
free, but the savings in the HSA cannot be used to pay for individual
health insurance premiums. Allowing employees to use this money to pay
for health insurance they buy would encourage more small businesses to
provide simple, affordable, and predictable funding to their employees,
who would then have the opportunity to use their savings account to pay
for their health insurance premiums.
It's a simple and affordable solution for small businesses to get
in the game of helping to fund health care for their employees. And it
assists employees by providing an additional funding mechanism for
their health insurance premiums. It is my understanding that this
solution is essentially tax revenue neutral.
Conclusion
The debate over how to provide cost effective health care for all
Americans continues. I don't see a universal solution to the problem.
While HSAs may not meet the needs of every American, they appear to
have broad appeal to a fairly large segment of the American population.
HSAs more and more appear to be a viable solution for many people and
businesses looking to have affordable access to care, while insuring
themselves against catastrophic financial loss.
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Chairman THOMAS. Thank you very much. Mr. Lutey.
STATEMENT OF LARRY W. LUTEY, VICE PRESIDENT OF HUMAN RESOURCES,
LUTHERAN SOCIAL SERVICES OF ILLINOIS, DES PLAINES, ILLINOIS
Mr. LUTEY. Chairman Thomas, Ranking Member Rangel, Mr.
Weller, distinguished Members of this historic Committee, I am
Larry Lutey, Vice President of Human Resources of LSSI, a not-
for-profit, and with some prayer and good management, a not-
for-loss social services agency in the beautifully diverse
State of Illinois. I am privileged to be here today,
representing the 2,100 employees who are the most effective and
committed individuals I know doing social services in that
State.
The LSSI made the shift to a full replacement, high-
deductible plan with an HSA due to a health care death spiral
that was leading our organization into uninsurability. As
health care trends began to rapidly increase, we looked at our
mix of high- and low-risk employees in our current Health
Management Organization (HMO), and we shared, as the increases
went up, those increases with our plan participants, reducing
coverage, and were unfortunately in a position where we had to
raise deductibles to a place that become unaffordable for many
of our individuals.
As our medical premiums increased 15 percent annually,
employees began to leave the plan, primarily low-risk
employees, leaving employees with significant health risk still
in our plan. Once again, premiums soared, benefit levels were
reduced, deductibles were raised and the cycle repeated itself.
The unintended, but most significant negative impact of
this cycle was on those in our organization who made less than
$30,000 per year, who were left with the choice of choosing
salary over and against health insurance. Today, 47 percent of
our individuals who are still insured fall into that income
category.
Last July, I am pleased to say that the death spiral was
broken, when we implemented a full-replacement HSA plan; and
since that implementation, our annual rates have held to about
5 percent each year. The LSSI employees received real back-to-
back cost-of-living increases as the agency was able to absorb
the more modest increases in premiums.
We moved to HSAs because we had to; we remain there because
we choose to. The unexpected result is a new sense of
partnership and collaboration around health care that we have
not seen before. In honesty, as I am representing all of our
employees, I must tell you the other side of the story as well.
Some have found the plan expensive and difficult to manage
and difficult to understand and have chosen to leave it for
other options. Contrary to popular critique, this has little to
do with income level or chronic illness.
I would recommend three changes to effect greater success
of HSAs for those who employ the working poor. First, allow me
to contribute higher amounts of money into the HSA accounts of
my lower-paid staff who can't afford pretax contributions into
the plan. We contribute 50 percent of the deductible into the
HSA for every HSA participant, but the problem is that for
those who make less than $30,000, contributing the remaining
half is still too much to ask.
During orientation, the choice that my employees have is
not between high plan or low plan; it is between health
insurance and rent. While there is pending legislation to allow
employers to place more dollars in the accounts of the
chronically ill, it seems to me that HSAs can have an even
greater impact if the comparability rules were also adapted to
provide flexibility for the employer to make contributions on
the basis of income level as well.
Second, allow me to incentivize my employees to wellness.
Help me to prevent large health claims from even fitting the
system by opening up the rules around prescription drugs. I
will have the ability to ultimately lower premium costs for my
employees and share with them the savings by making higher
employer contributions into their HSAs. That is simply the best
way that I know to make this model of health care accessible to
lower-income families.
Finally, allow me the option to provide comparable coverage
to the increasing number of retiring baby boomers who, instead
of rocking life away on a porch, wish to contribute something
back to their communities. I will be more than happy to hire
those retiring baby boomers as they move from the work arena in
their lives to the service arena, and I can do that if I can
offer them health care in the form of an HSA that is
complemented by their HRA, FSA or Medicare.
While it is true that consumer-driven health plans may not
be an end in and of themselves, I firmly believe that they are
the best option available for employers such as LSSI. More
importantly, I believe they can positively influence the
adverse selection issue facing the uninsured working poor by
allowing individuals, at any level, access to health care and
prescription drugs and wellness.
I would especially like to thank Representative Cantor this
morning for his work and keen understanding of the changes that
need to be made as reflected in H.R. 4511 and H.R. 5262. With
these proposals and, I would suggest, a few additional tweaks,
HSAs can have a positive impact on organizations such as LSSI.
I would like to thank the distinguished Committee for this
opportunity to speak to them about this very important issue.
[The prepared statement of Mr. Lutey follows:]
Statement of Larry Lutey, Vice President of Human Resources, Lutheran
Social Services of Illinois, Des Plaines, Illinois
Chairman Thomas, Ranking Member Rangel, and distinguished members
of the Committee on Ways and Means, I am Larry Lutey, Vice President of
Human Resources of Lutheran Social Services of Illinois, a not-for-
profit, and with some prayer and good management, a not for loss social
service agency in the beautifully diverse state of Illinois. We provide
a full range of social services to 65,000 Illinois residents every
year, through the dedicated work of our 2100 employees, on whose behalf
I have the privilege to speak with you this morning.
LSSI is affiliated with Lutheran Services in America, an alliance
of national Lutheran church bodies and their health and human service
organizations. LSA has more than 300 members providing services
throughout all 50 states and the Caribbean. Its members deliver over $8
billion in services to over one out of every 50 people in the United
States. The network of organizations serves the elderly, children and
families, people with mental and physical disabilities, refugees,
victims of natural disasters, and others in great need. Through these
efforts it is on the front lines of building self-sufficiency and
promise in millions of lives.
Lutheran Social Services of Illinois, LSSI, made the shift to a
full-replacement High Deductible Health Plan with an HSA on July 1,
2005 due to a health care ``death spiral'' that was leading our
organization to uninsurability. Seven years ago, LSSI had a workable
mix of low and high risk individuals covered under our traditional HMO
health plan. As health care trends began to rapidly increase, LSSI,
like many organizations, shared the premium increases with plan
participants, reduced coverage, and raised deductibles to what became
unaffordable levels.
As our medical increases reached double digits, for 7 consecutive
years, the result was that employees began to leave the plan. Each
year, more and more low-risk individuals shifted coverage to a spouse's
plan, or purchased insurance on their own, while the higher risk
employees remained. Our experience rates thus deteriorated, premiums
went up, benefits continued to decline, and the cycle repeated itself.
The death cycle for insurance coverage, is what we came to call it.
For seven years, we experienced a shift to providing coverage to a
pool of high-risk participants, who, as costs escalated, had little
alternative but to drive up experience ratios for our agency.
Contributions for both the employer and the employee escalated
between 12 and 15% annually. The impact? You know it. Turnover, morale
issues, pay increases absorbed by benefit expenses--but this too. The
greatest impact was on those in our agency who made less than $30,000
per year. Over the seven year time frame, LSSI's participation in the
plan dropped from 1320 participants, to 696 participating families
today. Of the 696 families still insured, 90% of them still earn less
than $50,000 annually, and 49% of those families earn less than
$30,000.
New Employee orientation for benefits was not a conversation about
whether the new employee would take the high plan, or the low plan, but
rather, whether they would take health insurance, or pay for rent. In
all honesty, we contributed to the pool of uninsured Americans in ways
we did not intend, nor could control. As the July 1, 2005 benefit
renewal period came to pass, the choice for us was not to provide a
choice between HMOs and HSAs. The choice was between health insurance,
and nothing.
Will Rogers once said, ``Even if you are on the right track, you
will get run over if you just sit there.'' The dangerous track LSSI was
on, was a track leading to uninsurability, disparate impact for the
working poor employed by our agency, and no relief for future cost
containment.
On July 1 of 2005, the death spiral that was affecting LSSI was
broken. Moving to a full-replacement HDHP with an HSA, premiums for
last year, and the coming fiscal year, have been held to 5% annually.
For the first time in 6 years, and now for the second consecutive year,
LSSI employees received a pay increase while the agency was able to
absorb the more modest increases in premiums. For 2 years, employees
received a true cost of living increase. Turnover has begin to decline.
That means jobs were not eliminated. It means programs were not cut,
and it means employees had a viable option for quality heath care that
was beginning to become affordable.
We moved to HSAs because we had to. We remain there because we
choose to. Participation in the LSSI health plan has begun to
stabilize. As our first open enrollment period ended only two weeks
ago, I was eager to see how many of our employees would opt to leave
HSAs, and how many, if any, would choose to come back to the plan after
leaving the former model. 42 participants left. 33 returned. In short,
our plan has begun to stabilize.
And while the process of education, promotion, and communication
are continuous, there is a new sense of partnership and collaboration
around health care that we have not seen before. LSSI moved from a
parental health care plan to a collaborative effort of employer and
employee working together to manage health care costs for our agency.
For us, it's not an employer thing. It's a partnership thing. To be
frank, ultimately, I do not believe that HSA's are the magic solution
to managing health care costs for our agency. Reducing claims, while
still maintaining health is ultimately the solution. With this new
model, every employee has a vested interest in making sound health care
decisions, utilizing the nurse-care support services, health
assessments, and other tools available to our staff. The plans works,
not because employees are spending dollars of which they perceive they
have a greater ownership, but rather because they value their own
health, and now have resources to manage it. And the gains we make--
together, employer and employee, are not money in our pocket. It is
money shared with employees through increasing contributions to the
HSA. That's the win, you see. For both of us.
To say it simply, HSAs have changed our focus. Wellness is
understood as our primary tool for healing. Our communication and
employee education strategy is simple: ``One Employee At A Time,'' and
to be honest, that's what open enrollment feels like when implementing
an HSA. As well it should. For the focus is the person, not the group.
That's what works for us in this plan.
But in truth, there is another side to this story as well. I don't
want to leave you with the impression that our employees have fully
embraced this plan, nor that they are completely satisfied and
supportive. I'm here today to also speak for those who are dissatisfied
with the plan, who find it expensive, and complex. If my position were
an elected one, I would not have remained in office the second year of
our HSAs.
Some have found it difficult to manage, difficult to understand,
difficult to access, and have chosen to leave the health plan for other
alternatives. Contrary to many critics of HSAs, this has had nothing to
do with income or chronic illnesses. Yet, their reasons are just. And I
think we need to learn from them, what it is that can be done to
improve these plans in the future.
LSSI contributes 50% of the high deductible into the HSA plan for
every participating employee. For us, that's a $2500 investment in
every employee's wellness. For those in the agency who are compensated
more highly than others, who have discretionary income, this is a
manageable set of circumstances. They withhold the balance from their
paychecks to cover the remaining high deductible.
But for the 50% who make less than $30,000 annually, contributing
the remaining half through pre-tax contributions is not attainable. The
critics of the HDHP with the HSA say that the plan hurts lower income
individuals, while assisting higher income individuals prepare a nest
egg for future health needs.
And while there is pending legislation to allow employers to bend
the comparability rules to place more dollars in the accounts of
chronically ill employees, it seems to me that this can be a far more
effective tool, if the comparability rules were also adaptable to
income levels, especially for the working poor. It seems to me that
this is, in fact, the very intent of HSAs: to provide savings for
future health care needs for everyone.
Allow me to contribute more money into the HSA accounts of my lower
paid staff, and lesser amounts into accounts of highly compensated
employees, who can better afford their own contributions to the plan,
and this model can work. Adjust the comparability rules, careful not to
benefit higher paid employees, but rather assist lower income
employees, and I believe that we can tame the disparate impact that is
still far too present.
Allow me to incent my employees to wellness. Help me to prevent
large health claims from even hitting the system by opening the rules
around prescription drugs for preventive care. This is the best way I
know to make this model of health care accessible to lower income
families. Allow lower income individuals to acquire preventive
medications as part of the preventive care component of HSAs, and I can
then teach them how to use HSAs to save for more catastrophic health
issues in the future. As an employer, I would much rather pay for the
cost of preventive drugs in my premiums than pay for the escalating
cost of significant health issues resulting from individuals perceiving
they cannot afford to purchase and take preventive care prescriptions.
Help me to address the problem of lower income employees choosing
to avoid taking basic, preventive medications because the negotiated
discount rate between pharmacies and insurance companies is still not a
discount for my staff when the cost comes out of their pocket because
they cannot afford their half of the deductible. Allow my employees to
manage their hypertension, cholesterol, diabetes and other diseases by
making their drugs prescriptive preventive care items to be covered
100% from dollar one, and I'll have the ability to ultimately lower
premium costs for all my employees, and share with them the savings in
pay increases by making higher employer contributions to their HSAs.
Allow me to provide comparable coverage to the increasing number of
retiring baby-boomers, who instead of rocking life away on a porch,
wish to contribute back to their communities by serving LSSI and other
employers as caregivers and valued employees.
Allow me to contribute to HSAs for our employees who are such an
integral part of our organization, who happen to be 65 or older, and I
will show you intergenerational communities who foster health in more
ways than I can speak today. I'll be more than happy to hire those
retiring baby boomers, as they move from the work arena to the service
arena in their lives. And I can do that, if I can offer them health
care in the form of an HSA that is complimented by their HRA, FSA or
Medicare.
I am aware of the initiatives that have been brought to this
distinguished House, specifically HR 4511 and 5262, and I would like to
thank Representative Cantor for his work and understanding of the
changes that need to be made. With these proposals, and I would
suggest, a few additional tweaks, HSAs can truly impact the number of
uninsured poor in our communities.
While it is true that Consumer Driven Health Plans ultimately may
not be the end, in and of themselves, I firmly believe that they are
clearly the best option available, and have the greatest potential, to
assist employers in addressing the growing number of uninsured
employees in our workforce, in reducing disparate impact around health
care for the working poor, and ensuring stability of organizations that
seek to serve both our clients, and caregivers by allowing us to manage
health care costs while still providing a quality health benefits plan
at an affordable price. Affordable--for everyone. HSAs can do this.
I sincerely appreciate your investment of time in listening to
these words, and I thank all of you who have worked to make the good
things happen for my employees over the past two years. I eagerly seek
to move into our future as an organization equipped for tomorrow,
having learned from today.
Chairman THOMAS. Thank you, Mr. Lutey. Dr. Collins.
STATEMENT OF SARA R. COLLINS, PROGRAM FOR THE FUTURE ON HEALTH
INSURANCE PROGRAM, COMMONWEALTH FUND, NEW YORK, NEW YORK
Dr. COLLINS. Thank you, Mr. Chairman, Ranking Member
Rangel, Members of the Committee, for this invitation to
testify on HSAs. The Committee is to be commended for focusing
attention on the manifold problems currently confronting the
U.S. health care system, steady growth in the number of
uninsured, rising health care costs and premiums, wide
variation in the quality and cost of care and inefficiencies in
the delivery of care.
Some maintain that HSAs, coupled with high-deductible
health plans are an important part of the solution for the
cost, quality and insurance problems that plague the health
system. Asking families to pay more out-of-pocket, the
reasoning goes, will create more prudent consumers of health
care, driving down growth in health care costs and improving
the quality of care as providers compete for patients; and the
tax incentives of HSAs will lure previously uninsured people
into the individual market, reducing the numbers of families
without coverage.
While it is comforting to believe that such a simple idea
could solve our health care problems, nearly all the evidence
gathered today about HSAs and high-deductible health plans
point to the contrary. Indeed, there is evidence that
encouraging people to join the plans might exacerbate some of
the very maladies that undermine our health care system's
ability to perform at its highest level.
Americans already pay far more out of pocket for their
health care than citizens in any other industrialized country,
and real per capita spending has been steadily rising over the
last decade. When you combine that with sluggish growth in real
incomes, families are spending increasing amounts of their
income on medical costs. High out-of-pocket costs lead patients
to decide against the health care that they need and reduce
their ability to save for the future.
The early experience with HSA-eligible high-deductible
health plans reveals low enrollment, low satisfaction, high
out-of-pocket costs and cost-related access problems. Few
people are currently enrolled in the plans; those who are
enrolled are much less satisfied with them than those in more
comprehensive plans. People in the plans allocate substantial
amounts of income to their health care, especially those who
have poor health or lower incomes. They are far more likely to
delay, avoid or skip health care because of costs, and problems
are particularly pronounced among those with poor health or
lower incomes.
People in the plans are more cost-conscious consumers of
health care. They are more likely to ask for lower-priced drugs
and to discuss treatment options and the cost of care with
their doctors, yet few Americans in any health plan currently
have the cost and quality information they need to make
decisions.
Moreover, it is unrealistic to expect that even with
adequate information and patient financial incentives, the
transformation of the health care system will be driven by
patients' choice of provider. Patients are in the weakest
position to demand greater quality and efficiency.
Most health care costs are incurred by very sick patients,
often under emergency conditions. Shopping for the best
physician or hospital is impractical in such circumstances.
Payers, Federal and State Governments, accrediting
organizations and professional societies are much better
position to insist on high performance.
Health Savings Accounts will not solve our uninsured
problem. Under current law, fewer than 1 million currently
uninsured people are expected to gain coverage as a result of
HSAs. This is primarily because 71 percent of uninsured
Americans are in a 10 percent or lower income tax bracket and
would benefit little from the tax savings associated with HSAs.
In fact, new proposals to expand HSAs may actually fragment
group insurance markets and increase the number of people
without coverage.
So, what needs to be done? We need to focus on more
promising strategies for expanding coverage, improving
affordability and lowering costs, and improving quality. These
strategies include expanding group insurance coverage like
employer-based coverage; eliminating Medicare's 2-year waiting
period for coverage of the disabled; letting older adults buy
into the Medicare Program; and building on Medicaid in the
State Children's Health Insurance Program to cover low-income
parents, young adults and single adults; ensuring affordable
coverage for families by placing limits on health care costs as
a percentage of income; greater transparency with regard to
provider quality and the total cost of care; pay-for-
performance incentives to reward health care providers that
deliver high quality and high efficiency; development of value
networks of high performing providers under Medicare, Medicaid
and private insurance; high cost care management and disease
management; improved access to primary care and preventive
services; and investment in health information technology.
Thank you.
[The prepared statement of Ms. Collins follows:]
Statement of Sarah R. Collins, Ph.D., Assistant Vice President, Program
for the Future on Health Insurance Program, Commonwealth Fund, New
York, New York
Executive Summary
Thank you, Mr. Chairman, for this invitation to testify on health
savings accounts (HSAs). The Committee is to be commended for focusing
attention on the manifold problems currently confronting the U.S.
health care system: steady growth in the number of uninsured Americans,
rising health care costs and premiums, wide variation in the quality
and cost of care, and inefficiencies in the delivery and administration
of care.
Some maintain that HSAs, coupled with high-deductible health plans
(HDHPs), are an important part of the solution for the cost, quality,
and insurance problems that plague the U.S. health care system. Asking
families to pay more out-of-pocket, the reasoning goes, will create
more prudent consumers of health care, driving down growth in health
care costs and improving the quality of care as providers compete for
patients. And the tax incentives of HSAs will lure previously uninsured
people into the individual market, reducing the numbers of families
without health insurance.
But while it is comforting to believe that such a simple idea could
help solve our health care problems, nearly all evidence gathered to
date about HSAs and HDHPs points to the contrary. Indeed, there is
evidence that encouraging people to join such health plans might act as
salt on a wound, exacerbating some of the very maladies that undermine
our health care system's ability to perform at its highest level.
Higher Patient Cost-Sharing Is the Wrong Prescription
Americans already pay far more out-of-pocket for their
health care than citizens in any other industrialized country.
Real per capita out-of-pocket spending has been steadily
rising since the late 1990s. Combined with sluggish growth in real
incomes, families are spending increasingly more of their incomes on
medical costs.
There is considerable evidence that high out-of-pocket
costs lead patients to decide against getting the health care they
need.
Rising out-of-pocket costs reduce people's ability to
save for the future.
Earily Experience with HSA-Eligible HDHPs Reveals Low Enrollment, Low
Satisfaction, High Out-of-Pocket Costs, and Cost-Related Access
Problems
Few people are currently enrolled in HSA-eligible HDHPs;
those who are enrolled are much less satisfied with many aspects of
their health care than adults in more comprehensive plans.
People in these plans allocate substantial amounts of
income to their health care, especially those who have poorer health or
lower incomes.
People in HDHPs are far more likely to delay, avoid, or
skip health care because of cost. Problems are particularly pronounced
among those with poorer health or lower incomes.
People in these plans are more cost-conscious consumers
of health care: they are more likely to ask for lower-priced drugs and
more likely to discuss with their doctors different treatment options
and the cost of care.
Few Americans in any health plan have the information
they need to make decisions. Just 12 to 16 percent of insured adults
have information from their health plan on the quality or cost of care
provided by their doctors and hospitals.
Patients' Use of Information Alone Is Not Likely to Dramatically Reduce
Health Care Costs or Improve Quality
It is unrealistic to expect that even with adequate
information and patient financial incentives, the transformation of
health care system will be driven by patients' choice of provider.
Patients are in the weakest position to demand greater quality and
efficiency.
Most health care costs are incurred by very sick
patients, often under emergency conditions. Shopping for the best
physician or hospital is impractical in such circumstances.
Payers, federal and state governments, accrediting
organizations, and professional societies are much better positioned to
insist on high performance.
HSAs Will Not Solve Our Uninsured Problem
Economists Sherry Glied and Dahlia Remler estimate that
under current law, fewer than 1 million currently uninsured people are
expected to gain coverage as a result of HSAs. This is primarily
because 71 percent of uninsured Americans are in a 10-percent-or-lower
income tax bracket and would thus benefit little from the tax savings
associated with HSAs.
New Proposals to Expand HSAs May Fragment Group Insurance Markets,
Increasing the Number of Uninsured
Additional tax incentives proposed by the
Administration's 2007 fiscal year budget aim to equalize the tax
treatment of HSAs in the individual market to those in the employer
market, with premium tax deductibility and tax credits. Economist
Jonathan Gruber estimates that the Adminstration's proposals would
actually increase the number of uninsured Americans by 600,000. While
3.8 million previously uninsured people would become newly insured
through HSA-eligible HDHPs in the individual market, many employers,
especially small employers, would drop coverage. Some 8.9 million
people would lose their employer-based health insurance.
What Needs to Be Done
We as a nation should focus on more promising strategies for
expanding coverage, improving affordability, and lowering costs. These
strategies include:
Expanding group insurance coverage, with costs shared
among individuals, employers, and government. This could be done by
expanding employer-based coverage, eliminating Medicare's two-year
waiting period for coverage of the disabled, letting older adults ``buy
in'' to Medicare, and building on Medicaid and the State Children's
Health Insurance Program (SCHIP) to cover low-income parents, young
adults, and single adults.
Ensuring affordable coverage for families by placing
limits on family premium and out-of-pocket costs as a percentage of
income (e.g., 5% of income for low-income families).
Greater transparency with regard to provider quality and
the total costs of care.
Pay-for-performance incentives to reward health care
providers that deliver high quality and high efficiency.
Development of ``value networks'' of high performing
providers under Medicare, Medicaid, and private insurance.
High cost care management and disease management.
Improved access to primary care and preventive services.
Investment in health information technology.
HEALTH SAVINGS ACCOUNTS:
WHY THEY WON'T CURE WHAT AILS U.S. HEALTH CARE
Sara R. Collins, Ph.D.
Thank you, Mr. Chairman, for this invitation to testify on health
savings accounts (HSAs). The Committee is to be commended for focusing
attention on the manifold problems currently confronting the U.S.
health care system and our collective need to find solutions to solve
them.
National health care spending is climbing by more than 7 percent
per year and is expected to continue to outpace growth in the economy
by a substantial margin.\1\ The average annual cost of family coverage
in employer-based health plans, including employer and employee
contributions, topped $10,880 last year, more than the average yearly
earnings of a full-time worker earning the minimum wage (Figure 1).\2\
Many employers, particularly small companies, are coping with rising
premiums by passing along more of their costs to employees or
eliminating coverage altogether (Figures 2 and 3).\3\
---------------------------------------------------------------------------
\1\ Stephen. Heffler, et al., ``U.S. Health Spending Projections
for 2004-2014,'' Health Affairs Web Exclusive 23 Feb 2005; C. Smith, et
al., ``National Health Spending in 2004,'' Health Affairs (Jan/Feb
2006): 186-196.
\2\ Jon Gabel et al., ``Health Benefits in 2005: Premium Increases
Slow Down, Coverage Continues to Erode,'' Health Affairs 24 (September/
October 2005): 1273--1280.
\3\ Ibid.
---------------------------------------------------------------------------
Consequently, the number of people without health insurance in the
United States is climbing steadily: in 2004, nearly 46 million people
were uninsured, an increase of 6 million over 2000 (Figure 4).\4\ An
additional 16 million people could be considered ``underinsured'' as a
result of their high out-of-pocket costs relative to income.\5\
Americans, meanwhile, experience significant variation in the quality
and cost of their health care, depending on where they live and where
they go for care. Adding to these problems are inefficiencies in the
delivery and administration of care.
---------------------------------------------------------------------------
\4\ C. DeNavas-Walt, B.D. Proctor, C.H.Lee, Income, Poverty, and
Health Insurance Coverage in the United States: 2004, Current
Population Reports (Washington, D.C.: U.S. Census Bureau) August 2005.
\5\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren, ``Insured
But Not Protected: How Many Adults Are Underinsured?'' Health Affairs
Web Exclusive, June 14, 2005, W5-289--W5-302.
---------------------------------------------------------------------------
Some maintain that HSAs, coupled with high-deductible health plans
(HDHPs), are an important part of the solution for the cost, quality,
and insurance problems that plague the U.S. health care system.\6\
Asking families to pay more out-of-pocket, the reasoning goes, will
create more prudent consumers of health care. As patients shop around
for the cheapest, and best, providers, the market for health care
services will ultimately look more like the market for other goods and
services, driving down growth in health care costs and improving the
quality of care as providers compete for patients. And the tax
incentives of HSAs will lure previously uninsured people into the
individual market, reducing the numbers of families without health
insurance.
---------------------------------------------------------------------------
\6\ R. Herzlinger, Consumer-Driven Health Care: Implications for
Providers, Payers and Policy Makers, Jossey-Bass, 2004.
---------------------------------------------------------------------------
While it might be comforting to believe that such a simple idea
could solve our collective health care problems, nearly all evidence
gathered to date about HSAs and HDHPs points to the contrary. Indeed,
there is evidence that encouraging people to join such health plans
might act as salt on a wound, exacerbating some of the very maladies
that undermine our health care system's ability to perform at its
highest level.
Higher Patient Cost-Sharing Is the Wrong Prescription
Increasing patient cost-sharing is a misguided solution for reining
in U.S. health care costs. The claim that Americans spend too much on
health care because they are protected from the real cost simply is not
borne out by evidence. Americans already pay far more out-of-pocket for
their health care than citizens do in any other industrialized country
(Figure 5).\7\ Furthermore, real per capita out-of-pocket spending has
been steadily rising since the late 1990s (Figure 6).\8\ Higher
spending on health care, combined with sluggish growth in real incomes,
also means that families are spending increasingly more of their
earnings on medical costs. A Commonwealth Fund report by Mark Merlis
found that the percentage of households spending 10 percent or more of
their income on out-of-pocket costs rose from 8 percent during the
years 1996--97 to 11 percent in 2001--02 (Figure 7).\9\ Including
premiums, 18 percent of all families spent more than 10 percent of
income on health care.
---------------------------------------------------------------------------
\7\ B.K. Frogner and G.F. Anderson, ``Multinational Comparisons of
Health Systems Data, 2005,'' The Commonwealth Fund, Forthcoming.
\8\ C. Smith et al., ``National Health Spending in 2004: Recent
Slowdown Led by Prescription Drug Spending,'' Health Affairs 25, no. 1
(January/February 2006).
\9\ M. Merlis, D. Gould and B. Mahato, Rising Out-of-Pocket
Spending for Medical Care: A Growing Strain on Family Budgets (New
York: The Commonwealth Fund) February 2006.
---------------------------------------------------------------------------
There is considerable evidence that high out-of-pocket costs lead
patients to decide against getting the health care they need. The RAND
Health Insurance Experiment found that greater cost-sharing reduced the
use of both essential and less-essential health care.\10\ Similarly, a
study by Robyn Tamblyn and colleagues found that increased cost-sharing
reduced the use of both essential and nonessential drugs, and it
increased the risk of adverse health events (Figure 8).\11\ In
addition, a review by Rice and Matsuoka of more than 20 studies
examining the impact of cost-sharing on health care use and the health
status of people 65 and older found that increases in cost-sharing
nearly always reduced the health care use and/or the health status of
this population.\12\ Cathy Schoen and colleagues, using data from the
Commonwealth Fund Biennial Health Insurance Survey, found that insured
people with out-of-pocket costs high relative to income were nearly as
likely to report not accessing needed health care because of costs as
were people without any coverage at all.\13\
---------------------------------------------------------------------------
\10\ J.P. Newhouse, ``Consumer-Directed Health Plans and the RAND
Health Insurance Experiment,'' Health Affairs 21(6):107-113, November/
December 2004.
\11\ R. Tamblyn et al., ``Adverse Events Associated With
Prescription Drug Cost-Sharing Among Poor and Elderly Person,'' JAMA
285, no. 4 (2001): 421--429.
\12\ T. Rice and K. Y. Matsuoka, ``The Impact of Cost-Sharing on
Appropriate Utilization and Health Status: A Review of the Literature
on Seniors,'' Medical Care Research and Review 16 (December 2004):
415--452.
\13\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren,
``Insured but Not Protected: How Many Adults are Underinsured?'' Health
Affairs Web Exclusive (June 14, 2005): W5-289--W5-302.
---------------------------------------------------------------------------
Early Experience with HSA-Eligible HDHPs: Low Enrollment, Low
Satisfaction, High Out-of-Pocket Costs, and Cost-Related Access
Problems
Given that American families are already spending large shares of
their income on health care, it should not be surprising that
enrollment in HSA-eligible HDHPs remains low. These health plans
currently comprise a very small share of the insurance market. The
Employee Benefit Research Institute (EBRI) and Commonwealth Fund
Consumerism in Health Care Survey (2005), a national online survey of
adults ages 21 to 64, found that as of October 2005, just 1 percent of
the adult population had a HDHP and an HSA or health reimbursement
arrangement (HRA) (Figure 9).\14\ An additional 9 percent had an HSA-
eligible HDHP but had not yet opted to open an account. Other studies
have found similarly slow take-up. The General Accountability Office
(GAO) found that as of March 2005, only 7,500 federal employees,
retirees, and dependents out of 9 million covered lives had opted to
enroll in the HDHP/HSA product offered by the Federal Employee Health
Benefits Program (FEHBP) (Figure 10).\15\ A recent study by America's
Health Insurance Plans estimates that there are currently about 3.2
million people enrolled in HSA-eligible HDHPs, though the study did not
indicate how many people had opened an account.\16\ The U.S. Treasury
Department estimates that under current law only 14 million people will
ever enroll in HSA-eligible HDHPs--still a relatively small share of
the overall market.\17\
---------------------------------------------------------------------------
\14\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund) December 2005. The EBRI/Commonwealth Fund Consumerism in Health
Care Survey was a national online survey conducted in Fall 2005 of 1200
adults ages 21-64 and an oversample of those in HSA-Eligible HDHPs with
and without savings accounts that can be rolled over year to year (both
HSAs and Health Reimbursement Arrangements or HRAs). There were 1061
people in comprehensive plans, 463 in HSA-eligible HDHPs without a
savings account, and 185 in HDHPs with either an HSA or an HRA.
\15\ Government Accountability Office, Federal Employees Health
Benefits Program First-Year Experience with High-Deductible Health
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006;
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
\16\ America's Health Insurance Plans, January 2006 Census Shows
3.2 Million People Covered by HSA Plans, March 9, 2006; C.L. Peterson,
Data on Enrollment, Premiums and Cost-Sharing in HSA-Qualified Health
Plans, Congressional Research Service, CRS Report for Congress, May 13,
2006; E. Park, Informing the Debate About Health Savings Accounts: An
Examination of Some Misunderstood Issues, Center on Budget and Policy
Priorities, June 13, 2006.
\17\ U.S. Department of the Treasury, Fact Sheet: Dramatic Growth
of Health Savings Accounts (HSAs).
---------------------------------------------------------------------------
Reflecting the fact that people in higher income tax brackets have
the greatest tax benefits associated with HSAs, HDHPs have
disproportionately attracted people who have higher incomes. In
addition, higher deductibles have also attracted those who are in
better health. The GAO study of enrollment in FEHBP's HDHP/HSA product
found that 43 percent of those enrolled in the HDHP/HSA plans had
incomes of $75,000 or more, compared with 23 percent of those in all
FEHBP plans (Figure 11).\18\ Rates of enrollment in the plans were
higher among federal employees under age 54 than among those ages 55 to
64 (Figure 12). In the EBRI/Commonwealth Fund Survey, people with HSA/
HDHPs were slightly more likely to be in excellent or very good health
than those with more comprehensive insurance.\19\
---------------------------------------------------------------------------
\18\ Government Accountability Office, Federal Employees Health
Benefits Program First-Year Experience with High-Deductible Health
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006;
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
\19\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund) December 2005; General Accounting Office, 2006.
---------------------------------------------------------------------------
Yet, unlike federal employees, most workers who were enrolled in
HSA-eligible HDHPs in the EBRI/Commonwealth Survey did not have a
choice of plans: less than half of those enrolled in the plans had a
choice (Figure 13).\20\ Among those in the plans who did have a choice,
lower premiums and the ability to open a savings account were the
primary reasons for selecting the plan. Those in comprehensive plans
chose them for low out-of-pocket costs.
---------------------------------------------------------------------------
\20\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund) December 2005.
---------------------------------------------------------------------------
Low satisfaction with plans. Few Americans who are currently
enrolled in HDHP/HSA plans are satisfied with them. The EBRI/
Commonwealth Fund survey found that people with HDHPs, both with and
without accounts, were far more likely than people in more
comprehensive plans to report dissatisfaction with quality of care,
out-of-pocket costs, and overall satisfaction with their plans (Figures
14-15).\21\ More than half of those in the plans were not satisfied
with their out-of-pocket costs. Moreover, one-third of those in the
plans would change plans if they had the opportunity to do so, and only
one-third or less would recommend the plan to a friend or co-worker
(Figures 16-17).
---------------------------------------------------------------------------
\21\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund) December 2005.
---------------------------------------------------------------------------
High out-of-pocket costs. The high rates of dissatisfaction with
the costs of HSA-eligible HDHPs likely stem from the substantial amount
of income people in these plans allocate to their health care,
particularly those individuals with health problems or in lower-income
households. The Kaiser/HRET Employer Health Benefits Survey 2005 found
that employer costs of HSA/HDHP products are lower relative to other
plans offered, but the costs to their employees are higher relative to
other plans (Figure 18).\22\ The EBRI/Commonwealth Fund survey found
that two-thirds of adults who are enrolled in a HDHP with an HSA or HRA
and who have incomes of less than $50,000 spent 5 percent or more of
their income on out-of-pocket costs and premiums--twice the rate of
those with similar incomes in more comprehensive plans (Figure 19).
People with health problems in HSA-eligible HDHPs, both with and
without accounts, were also vulnerable to spending large shares of
their income on out-of-pocket costs and premiums: more than half (53%)
of those in HDHPs without accounts and 38 percent of those in HDHPs
with an account spent 5 percent or more of their income on out-of-
pocket costs.\23\ People with health problems in comprehensive plans
were much better protected by comparison: 17 percent spent 5 percent or
more of their income on out-of-pocket costs.
---------------------------------------------------------------------------
\22\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a National Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
\23\ Health problem was defined as reporting fair or poor health or
one of eight chronic health conditions: arthritis; asthma, emphysema or
lung disease; cancer; depression; diabetes; heart attack or other heart
disease; high cholesterol; hypertension, high blood pressure or stroke.
---------------------------------------------------------------------------
The majority of those in HDHPs have deductibles substantially above
the level required for HSA eligibility. According to the EBRI/
Commonwealth Fund survey, nearly three of five adults (59%) who had
individual HDHPs with accounts had deductibles of $2,000 or more.\24\
Among those with family coverage in HDHPs with accounts, two-thirds
(67%) reported a deductible of $3,000 or more; 24 percent had a
deductible of at least $5,000.
---------------------------------------------------------------------------
\24\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund) December 2005
---------------------------------------------------------------------------
Cost-related access problems. The early experience with HSA-
eligible HDHPs reveals that their high deductibles are leading many
enrollees to delay, avoid, or skip health care. The EBRI/Commonwealth
Fund survey found that one-third of those in HDHPs with and without
accounts had delayed or avoided getting health care when they were sick
because of cost, nearly twice the rate of those in more comprehensive
plans (Figure 20). People with health problems or incomes under $50,000
reported particularly high rates of avoiding care. Nearly half of
adults in HDHP/HSAs with incomes of less than $50,000 reported delaying
or avoiding care; this was nearly twice the rate of people in the same
income group in more comprehensive plans. People enrolled in HSA-
eligible HDHPs without accounts were more likely to skip doses of their
medications, in order to make them last longer, or to not fill their
prescriptions at all. The rates of skipped medication were highest
among people with health problems (Figures 21 and 22).
Risk of medical debt. When people with high-deductible health plans
access health care, they are at risk of accumulating medical debt.
Karen Davis and colleagues examined data from the Commonwealth Fund
Biennial Health Insurance Survey (2003) and found that adults with
deductibles of more than $500 were more likely than those in lower-
deductible plans to report that they had problems paying medical bills
or that they were paying off medical debt over time (Figure 23).\25\
Medical bill problems included not being able to pay bills, being
contacted by a collection agency about medical bills, or having to
change your way of life in order to pay bills.
---------------------------------------------------------------------------
\25\ K. Davis, M.M. Doty and A. Ho., How High is Too High?
Implications of High Deductible Health Plans (New York: The
Commonwealth Fund) April 2005.
---------------------------------------------------------------------------
Other research has found that rising out-of-pocket costs are
reducing people's ability to save for retirement. The 2005 EBRI Health
Confidence Survey found that 29 percent of insured adults under age 65
reported that they financed increased health care spending by using up
all or most of their savings, while 45 percent had decreased
contributions to other savings (Figure 24).\26\
---------------------------------------------------------------------------
\26\ R. Helman and P. Fronstin, ``2005 Health Confidence Survey:
Cost and Quality Not Linked,'' EBRI Notes (Washington, DC: EBRI),
November 2005, Vol 26, No 11.
---------------------------------------------------------------------------
Information Currently Available to Enable Patients to Make Informed
Choices Is Inadequate
The theory most central to the consumerism in health care movement
is that prudent choices in the use of health care will drive the health
services market to look more like markets for other goods and services,
lowering costs and improving quality as providers compete for patients.
But patients' ability to make informed choices is dependent on the
extent to which they have access to useful information.
The EBRI/Commonwealth Fund survey finds that Americans, regardless
of the health plan they are in, continue to encounter a yawning gap
between the cost and quality information they need to make decisions
and what is actually available. Just 14 to 16 percent of insured
adults--whether enrolled in a comprehensive plan or a high-deductible
health plan--had information from their health plan on the quality of
care provided by their doctors and hospitals (Figure 25).\27\
Similarly, 12 to 16 percent had cost-of-care information for their
doctors and hospitals.
---------------------------------------------------------------------------
\27\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund), December 2005.
---------------------------------------------------------------------------
There is evidence that people in HSA-eligible HDHPs are more cost-
conscious consumers of health care than those in more comprehensive
plans. The EBRI/Commonwealth Fund survey finds that three of five of
those enrolled in HDHPs, both with and without accounts, said that they
had checked whether their health plan would cover their costs prior to
receiving care, and about one-third checked the price of a doctor's
visit or other health service (Figure 26). People in HDHPs also
appeared to be somewhat more willing than those in comprehensive plans
to discuss the cost of their care with their doctors or ask them to
recommend a less costly prescription drug.
Patients' Use of Information Alone Is Not Likely to Reduce Health Care
Costs Dramatically or Improve Quality
It is unrealistic to expect that even with adequate information and
patient financial incentives, the transformation of health care will be
driven by patient choice of provider. Patients are in the weakest
position to demand greater quality and efficiency. Payers, federal and
state governments, accrediting organizations, and professional
societies are much better positioned to insist on high performance.\28\
Most health care costs are incurred by very sick patients--those with
heart attacks, strokes, cancer, mental illness, fractures, and
injuries--often under emergency conditions. Ten percent of the sickest
patients account for about 70 percent of all health care spending
(Figure 27).\29\ Shopping for the best physician or hospital is
impractical in such circumstances. Moreover, to the extent that
consumer-driven plans encourage people to skimp on preventive care or
chronic disease management, they could fuel growth in health care costs
over time.
---------------------------------------------------------------------------
\28\ See also S.R. Collins and K. Davis, Transparency in Health
Care: The Time Has Come, Invited Testimony, Energy and Commerce
Committee, Subcommittee on Health, U.S. House of Representatives,
Hearing on ``What's the Cost?: Proposals to Provide Consumers with
Better Information About Healthcare Service Costs,'' March 15, 2006.
\29\ A.C. Monheit, ``Persistence in Health Expenditures in the
Short Run: Prevalence and Consequences,'' Medical Care 41, supplement 7
(2003): III53--III64.
---------------------------------------------------------------------------
Patients are also unaccustomed to seeking information on price or
quality, or trusting the information that is available. The EBRI/
Commonwealth Fund survey found that the most trusted source of
information on the quality of providers is the patient's own physician
(Figure 28).\30\ The least trusted sources of information are health
plans and government agencies--with only one of 20 trusting those
sources of information. Yet health plans and government agencies are
far more likely to be able to assemble the required information.
---------------------------------------------------------------------------
\30\ P. Fronstin and S.R. Collins, Early Experience with High-
Deductible and Consumer-Driven Health Plans: Findings From the EBRI/
Commonwealth Fund Consumerism in Health Care Survey, (EBRI/Commonwealth
Fund), December 2005.
---------------------------------------------------------------------------
Still, studies regularly find that public information on quality is
not used by patients. New York and Pennsylvania were pioneers in
publishing information on cardiac surgery mortality by name of surgeon
and hospital, yet few patients in these states avail themselves of this
information.\31\ The data were valuable because hospital CEOs
investigated the reasons for poor performance and took necessary
action--not because patients voted with their feet.\32\
---------------------------------------------------------------------------
\31\ M.N. Marshall, P.G. Shekelle, S. Leatherman and R.H. Brook,
``The Public Release of Performance Data: What Do We Expect to Gain? A
Review of the Evidence,'' JAMA 283, no. 14 (April 2000): 1866--1874.
\32\ M.N. Marshall, P.G. Shekelle, S. Leatherman and R.H. Brook,
``The Public Release of Performance Data: What Do We Expect to Gain? A
Review of the Evidence,'' JAMA 283, no. 14 (April 2000): 1866--1874.
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Provider response to public information is, in fact, one of the
strongest arguments for public reporting. The National Committee for
Quality Assurance has found that those managed care plans that report
their quality data publicly are more likely to improve.\33\ Hospitals
that report such information take steps to improve the care they
deliver.\34\ And a recent study found that the top-performing medical
groups were those that reported quality data publicly, either
voluntarily or because of local reporting requirements.\35\
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\33\ National Committee for Quality Assurance, The State of Health
Care Quality, 2005 (Washington, D.C.: NCQA, 2005).
\34\ J.H. Hibbard, J. Stockard and M. Tusler, ``Hospital
Performance Reports: Impact on Quality, Market Share, and Reputation:
Evidence from a Controlled Experiment,'' Health Affairs, July/August
2005 24(4):1150-60; J.H. Hibbard, J. Stockard and M. Tusler, ``Does
Publicizing Hospital Performance Stimulate Quality Improvement
Efforts?'' Health Affairs, March/April 2003 22(2):84-94.
\35\ S.M. Shortell, J. Schmittdiel, M.C. Wang et al., ``An
Empirical Assessment of High-Performing Medical Groups: Results from a
National Study,'' Medical Care Research and Review 62, no. 4 (August
2005): 407-434.
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HSAs Will Not Solve Our Uninsured Problem
The combination of HSAs and HDHPs will not significantly reduce the
nation's growing number of people who are uninsured. The Commonwealth
Fund Biennial Health Insurance Survey of 2005 found that more than one-
quarter (28%) of U.S. adults ages 19 to 64, or 48 million people, were
either uninsured at the time of the survey or had experienced a time
without coverage in the previous 12 months (Figure 29).\36\ Lack of
insurance coverage continues to be highest among families with incomes
under $20,000, with more than half (53%) uninsured for at least part of
2005. But uninsured rates are climbing rapidly among adults in
moderate-income families--those with incomes between $20,000 and
$40,000 (under 200 percent of poverty for a family of four)--rising
from 28 percent in 2001 to 41 percent in 2005. Young adults ages 19 to
29, meanwhile, are the fastest growing age group among the uninsured, a
reflection of two factors: their loss of dependent coverage on their
19th birthday, or more importantly in terms of sheer numbers, their
reclassification as adults at 19 by Medicaid and the State Children's
Health Insurance Program (SCHIP).\37\ Nearly 70 percent of uninsured
young adults are in families with incomes under 200 percent of poverty
(Figure 30).
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\36\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren,
Gaps in Health Insurance: An All-American Problem, Findings from the
Commonwealth Fund Biennial Health Insurance Survey (New York: The
Commonwealth Fund) April 2006.
\37\ S.R. Collins, C.Schoen, J.L. Kriss, M.M. Doty, Rite of
Passage? Why Young Adults Become Uninsured and How New Policies can
Help (New York: The Commonwealth Fund) updated May 2006.
---------------------------------------------------------------------------
Because HSAs allow people to use pre-tax dollars to pay for out-of-
pocket expenses not covered by health insurance, they are expected to
draw previously uninsured people into the individual insurance market.
People without insurance coverage have always had the option of
purchasing a HDHP in order to lower their premium expense. Indeed, the
majority of people in the EBRI/Commonwealth Fund Consumerism in Health
Care Survey who had purchased an HSA-eligible HDHP, but not opened an
account, had done so because of the lower premium.
The marginal effect of HSAs on the overall number of uninsured
Americans depends on the degree to which uninsured individuals realize
enough tax savings on out-of-pocket spending to make insurance
affordable relative to their income. This will depend on expected out-
of-pocket expenditures and marginal income tax rates, as well as
savings from Medicare and Social Security taxes for employer-based
plans. Research by Sherry Glied and Dahlia Remler found that 71 percent
of uninsured Americans are in a 10-percent-or-lower income tax bracket.
Indeed, more than half (55%) of people without coverage have no income
tax liability at all (Figure 31).\38\
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\38\ S.A. Glied and D.K. Remler, The Effect of Health Savings
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund)
April 2005.
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Using data from the Medical Expenditure Panel Survey, Glied and
Remler calculated expected tax savings as a share of premiums, finding
that savings associated with HSAs ranged from zero percent for those in
the zero-percent tax bracket, to 6 percent for middle-income people in
employer plans. Assuming a range of take-up rates in response to such
savings, the authors estimated that the tax savings associated with
HSAs would help cover fewer than 1 million previously uninsured
people--even under their most generous assumptions of price sensitivity
and not taking into account the effect of existing medical savings
accounts, such as flexible spending accounts. In short, the major
beneficiaries of the protective tax status of HSAs will be healthier,
higher-income, insured taxpayers, who can afford to fund their accounts
and afford the financial risk posed by higher-deductible health
insurance plans.
New Proposals to Expand HSAs May Fragment Group Insurance Markets,
Increasing the Number of Uninsured
In its most recent 2007 fiscal year budget, the Administration
proposed additional tax incentives for people to purchase HSA-eligible
HDHPs in the individual market. The proposals, which aim to equalize
the tax treatment of HSAs in the individual market to those in the
employer market, would allow a tax deduction for premiums associated
with HSA-eligible HDHPs in the non-group market, along with a tax
credit of 15.3 percent to offset the premium cost. Or, low income
individuals and families could opt for a tax credit of $500 per child
and $1,000 per adult, and up to $3,000 per family premium.\39\ The
proposal also includes a 15.3 percent tax credit to be applied to HSA
contributions, which are already tax-exempt.
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\39\ These tax credits would be phased out at incomes between
$15,000 and $30,000 for individuals and between $25,000 and $60,000 for
families.
---------------------------------------------------------------------------
Jonathan Gruber, an MIT economist, estimates that the
Adminstration's proposals would actually increase the number of
uninsured Americans by 600,000.\40\ While 3.8 million previously
uninsured people would become newly insured through HSA-eligible HDHPs
in the individual market, many employers, especially small employers,
would respond to the equal tax treatment of some policies in the
individual market by dropping coverage. Consequently, Gruber estimates
that 8.9 million people would lose their employer-based health
insurance. While some people who lose their coverage would buy
insurance in the individual market, about 4.4 million would become
uninsured.
---------------------------------------------------------------------------
\40\ J. Gruber, The Cost and Coverage Impact of the President's
Health Insurance Budget Proposals, Center on Budget and Policy
Priorities, February 15, 2006.
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What Needs to Be Done?
Armed with the right information, patients can contribute in a
small way to better care by exercising and eating well, by getting
regular preventive care, by becoming educated about the risks and
benefits of elective procedures, and by sharing their medical history
with all their providers to reduce duplication of tests. But placing
greater financial burdens on the sickest and poorest patients is not
the right prescription for what ails the health care system. Nor is it
the right prescription for people when they are ailing. High-deductible
health plans increase the risk that patients will fail to get care
early on, before a health condition becomes serious, and fail to get
medications that could control their risk factors and chronic
conditions.
Health care costs are high because of the fragmented way we
organize and deliver health care, and because we provide the wrong
financial incentives to hospitals and doctors. If we want to transform
the health care system, we will need to make fundamental changes in
current payment methods. Medicare's physician group practice
demonstration (Figure 32) is a step in the right direction and should
yield valuable insight into whether gains in efficiency and quality can
be achieved simultaneously. Some state Medicaid programs, particularly
Rhode Island's RIte care (Figure 33), have had excellent results in
both slowing the rate of increase in premiums and improving
quality.\41\ A Fund-supported evaluation of the PacifiCare pay-for-
performance initiative in California also found promising results.\42\
Yet, these programs are just the beginning, and Medicare, Medicaid, and
private payers need to do much more to change financial incentives for
providers so that they systematically reward high quality and
efficiency.
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\41\ S. Silow-Carroll, Building Quality into RIte Care: How Rhode
Island Is Improving Health Care for Its Low-Income Populations, The
Commonwealth Fund, January 2003.
\42\ M.B. Rosenthal, R.G. Frank, Z. Li et al., ``Early Experience
with Pay-for-Performance: From Concept to Practice,'' Journal of the
American Medical Association, October 12, 2005, 294 (14): 1788--93.
---------------------------------------------------------------------------
To achieve transparency in quality and costs in our health system,
Medicare needs to take a leadership role in making total cost and
quality information by provider and by patient condition publicly
available. Medicare should also forge public--private partnerships to
create a multi-payer database, uniform quality metrics, and transparent
methodologies for adjusting quality and costs.
Conflicting quality metrics used by different parties, however,
have the potential to add to administrative burden on providers. The
Institute of Medicine has called for creation of a National Quality
Coordination Board located within the U.S. Department of Health and
Human Services to set priorities, oversee the development of
appropriate quality and efficiency measures, ensure the collection of
timely and accurate information on these measures at the individual
provider level, and encourage their incorporation in pay-for-
performance payment systems operated by Medicare, Medicaid, and private
insurers.\43\
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\43\ Institute of Medicine, Performance Measurement: Accelerating
Improvement, National Academies Press, Washington, DC: December 2005.
---------------------------------------------------------------------------
Investment in health information technology is essential to ensure
the right information is available at the right time to patients,
providers, and payers. While many have called for such change, the
current state of affairs is inadequate. Only about one of four
physicians has electronic health records, demonstrating that the
benefits of modern information technology (IT) are far from being
realized.\44\ Some private insurers have begun to build rewards for IT
into their payment systems. Medicare and Medicaid should consider doing
the same, at least on an initial basis, to encourage the adoption and
utilization of IT.
---------------------------------------------------------------------------
\44\ A-M. Audet, M. Doty, J. Peugh, J. Shamasdin, K. Zapert and S.
Schoenbaum, ``Information Technologies: When Will They Make It Into
Physicians' Black Bags?'' Medscape General Medicine, December 7, 2004
---------------------------------------------------------------------------
But we will never achieve a high performing health care system when
millions of Americans are without adequate health insurance coverage.
The Commonwealth Fund Biennial Health Insurance Survey (2005) finds
alarming evidence that adults without health insurance who have chronic
conditions are far more likely to skip medications or not fill
prescriptions for controlling their conditions. They are also far more
likely than their insured counterparts to have gone to the emergency
room or to have spent the night in the hospital (Figure 34).\45\
Uninsured adults are also far more likely to report inefficiencies in
their care, such as receiving duplicate tests (Figure 35).
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\45\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren,
Gaps in Health Insurance: An All-American Problem, Findings from the
Commonwealth Fund Biennial Health Insurance Survey (New York: The
Commonwealth Fund) April 2006.
---------------------------------------------------------------------------
Health care needs to be made more affordable--not less affordable--
for patients. We need to cover the nation's 46 million uninsured,
building on group forms of coverage that we know pool risk and provide
affordable, meaningful protection to people.
The individual market is not a solution for our uninsured problem.
The administrative costs of individual coverage comprise 25-40 percent
of each premium dollar compared to 10 percent of group coverage.\46\
This means premium dollars buy fewer benefits in the non-group market
than they do in employer group markets. Research has shown that few
plans in the individual market, even with low deductibles and higher
premiums, provide maternity benefits without a special rider.\47\ A
report by the Commonwealth Fund found that of adults who had considered
purchasing individual insurance coverage, 35 percent said that it was
very difficult or impossible to find a plan that met their needs.\48\
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\46\ J. Gabel, et al., Are Tax Credits Alone the Solution to
Affordable Health Insurance? Comparing Individual and Group Insurance
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
\47\ S. R. Collins, S.B.Berkson, D.A. Downey, Health Insurance Tax
Credits: Will They Work for Women? (New York: The Commonwealth Fund)
December 2002; J. Gabel, et al., Are Tax Credits Alone the Solution to
Affordable Health Insurance? Comparing Individual and Group Insurance
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
\48\ L.Duchon and C. Schoen, Experiences of Working Age Adults in
the Individual Insurance Market: Findings from the Commonwealth Fund
2001 Health Insurance Survey (New York: The Commonwealth Fund) December
2001.
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In addition, to remain competitive and to be responsible to their
shareholders, insurers in the non-group market necessarily estimate
risk and set premiums sufficiently high to cover risk. Unless we can
tolerate our sick and old neighbors, friends, and family members being
charged far more than the healthy and the young, or being left out of
the market altogether, it is imperative that we pool risk.\49\ New
forms of pooling are needed to allow people who lose, or have never had
access to, employer-based coverage an affordable place to buy
meaningful coverage. Particularly promising are strategies that expand
employer-based coverage, eliminate the two-year waiting period for
coverage of the disabled under Medicare, let older adults ``buy in'' to
Medicare, and build on Medicaid and the State Children's Health
Insurance Program to cover low-income parents, young adults, and single
adults.\50\
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\49\ S.R. Collins, C. Schoen, M. M. Doty, A. L. Holmgren, S, K.
How, Paying More for Less: Older Adults in the Individual Insurance
Market (New York: The Commonwealth Fund), June 2005.
\50\ K. Davis and C. Schoen, ``Creating Consensus on Coverage
Choices,'' Health Affairs Web Exclusive, April 23, 2003.
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In many cases, patient cost-sharing is far too high and deters
access to needed care. Approximately 16 million adults in the U.S. are
underinsured and report difficulty obtaining needed care as well as
heavy financial burdens.\51\ Rather than insisting on minimum
deductibles of $2,100 per family, our nation's health policy should be
geared toward setting maximum limits on family cost-sharing, for
example, 5 percent of income for those in the lower tax brackets and 10
percent of income for those in higher brackets. Guaranteeing
affordability of care for all Americans will help ensure that patients
receive appropriate preventive care, detect serious conditions in early
stages, and control chronic conditions that would otherwise undermine
health and functioning and lead to higher costs later in life.
---------------------------------------------------------------------------
\51\ C. Schoen, M.M. Doty, S.R. Collins and A.L. Holmgren,
``Insured But Not Protected: How Many Adults Are Underinsured?'' Health
Affairs Web Exclusive, June 14, 2005, W5-289--W5-302.
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Chairman THOMAS. Thank you very much. Ms. Therrien.
STATEMENT OF JEAN THERRIEN, EXECUTIVE DIRECTOR, NEIGHBORHOOD
FAMILY PRACTICE, CLEVELAND, OHIO
Ms. THERRIEN. Thank you, Mr. Chairman, Ranking Member
Rangel, and Members of the Committee. My name is Jean Therrien;
I am Executive Director of Neighbor Family Practice, a
federally qualified community health center on the west side of
Cleveland in a very densely populated urban neighborhood.
I appreciate the opportunity to present this testimony
before the Committee today on the topic of HSAs, and especially
their impact on low-income Americans and the safety net
providers, like Neighborhood Family Practice, that serve these
individuals.
As a nurse and public health professional, I am deeply
concerned about the growing number of Americans who have high-
deductible health plans under the HSA design. These patients
have no coverage for primary health care and prescription
medication.
I believe one of our goals in health policy should be
healthy children and a healthy workforce. Americans who are at
low income, like our patients, cannot afford to pay for care up
front. Patients in high-deductible plans in my area do not have
any savings accounts and are seeking care from safety net
providers because this represents their only choice.
I will describe some of the unintended consequences of the
policies that promote high-deductible plans.
Cleveland is one of the poorest cities in the country and
one that has experienced a longer-than-average economic
downturn. Cleveland is filled with low-income families, many
unhealthy citizens, and struggling small businesses.
High-deductible plans are receiving a lot of discussion and
contribution in Cleveland as companies seek ways to control
rising health care premiums and stabilize those costs. Many
employers are offering high-deductible plans as their only
health insurance option for employees, and in most cases they
are not able to contribute anything to those employees' HSAs.
The plans being marketed locally are also not covering
preventive services and they do not provide prescription drug
coverage.
Our experience at Neighborhood Family Practice is that we
are seeing more and more of these patients each day.
In our 25 years, we have a rich history of providing
medical care to families.
We became federally funded in the year 2000, and we want to
sincerely thank the Congress for their support, their
bipartisan support, of the Federal Health Centers Program. It
is the only reason that our organization is currently
surviving.
In 2006, we served over 11,000 patients, most below 200
percent of Federal poverty guidelines. A large number of young
families and working adults come to us for care; a growing
number of these have lost their health insurance and are now
uninsured, and a growing number of them are now underinsured
and have been switched to these high-deductible plans.
The number of uninsured patients has doubled in the past 2
years from 1,200 to 2,500 in the year 2005. I do not yet have
any statistics for 2006, but I imagine it will be even
significantly higher and a significantly higher percentage of
our population. We do not turn away anyone because they cannot
pay for medical care, and that would include insured and
uninsured patients.
Every day new patients are seen at our health centers with
stories about how their prior provider of care would no longer
take them as a patient unless they put the cash up front. Those
who seek care at our health center, who are enrolled in high-
deductible plans and those who are uninsured have the same
coverage when they arrive at our health center; they have no
coverage for that primary care visit. That means they don't
have any insurance coverage to pay for the office visit, any
laboratory testing that may be required, or any prescription
drug that they may need. Yet, many of the patients who are
enrolled in high-deductible plans are counted as insured in our
statistics and are a hidden cost to us.
The ability of Neighborhood Family Practice to provide
charity care is because of our Federal grants. The discounts
provided to these poorly insured patients are draining needed
dollars from the increasing number of completely uninsured
patients, and as the numbers of these patients have grown, our
funding has remained the same over the past 5 years.
We are also not able to offer the same types of financial
assistance to underinsured patients that we would to uninsured
patients. The Cleveland Free Clinic is experiencing something
similar, with 15 to 20 percent of its adult patient volume
being patients from high-deductible plans because they cannot
afford medication.
Health insurance models that do not provide preventive care
increase health disparities. A bill of even $100 is
overwhelming for many low-income families.
Two recent stories at our health center: one, a woman
arrived at the window in tears; she had been just switched to a
high-deductible plan and could no longer afford the
prescription medication for her severely mentally ill son.
Another patient was just hospitalized after deferring care for
a recurring condition.
I would like to mention quickly a couple of implications
for health policy. I would suggest, with respect, that there be
thought given to exempting preventive and primary health care
services from the high deductible, establishing mechanisms for
all low-income individuals to obtain needed medication,
especially for chronic illnesses and infections; and requiring
employers to fund the HSAs of low-income individuals and also
investigate strategies to help provide financial stability for
safety net providers like ours that are overwhelmed with under-
and uninsured patients.
Thank you, and I would be happy to entertain questions.
[The prepared statement of Ms. Therrien follows:]
Statement of Jean Therrien, Executive Director, Neighborhood Family
Practice, Cleveland, Ohio
Mr. Chairman and Members of the Committee:
My name is Jean Therrien. I am Executive Director of Neighborhood
Family Practice (NFP), a Federally Qualified Community Health Center in
an urban neighborhood on the West Side of Cleveland, Ohio. I appreciate
the opportunity to present testimony before the Committee today on the
topic of Health Savings Accounts, and especially their impact on low-
income Americans and the safety net providers who serve them.
As a nurse and public health professional I am deeply concerned
about the growing number of Americans who have high deductible health
plans (HSA design). These plans do not provide coverage for primary
health care and medications. With the growth in total health care
costs, policies that discourage families from seeking care to stay
healthy are short sighted. Plans designed only for the financial and
tax impact without examination of the impact on the public's health are
harmful in the long run. Health policy needs to keep in mind the goals
of healthy children and a healthy workforce. Policies also need to
consider the long term economic income of increasing health disparities
between low and high income Americans. Furthermore, Americans who are
low income and cannot afford needed primary care are overwhelming
community safety net providers. They seek the ability to take care of
themselves and their families and to obtain the medication they need. I
will describe for you some of the unintended consequences of the
policies that promote high deductible health plans. I will refrain from
referring to these plans as Health Savings Account plans, because for
the patients in my community there is no savings account, only more
health care bills.
The Reality of High Deductible Health Plans in Cleveland
As one of the poorest cities in the country and one that has
experienced a longer than average economic downturn, Cleveland is
filled with low income families, unhealthy citizens and struggling
small businesses. High deductible plans are receiving a lot of
discussion and consideration in Cleveland as companies seek ways to
control rising premiums and stabilize their costs. COSE, the Council of
Smaller Enterprises, a small business coalition that markets health
insurance has been ``pushing'' these types of plans. One small business
owner that does work for our health center mentioned that she had
reviewed the plans. She considered the plan because of the cost
savings. A local insurance broker I spoke with stated that many of his
clients are considering these plans. According to him, the average
deductible chosen by the firms that have selected this option are $2500
individual and $5000 for a family. However, he has seen plans selected
with up to a $10,000 deductible. Many of the employers offer the high
deductible plan as their only health insurance option for employees,
and--in most cases--do not contribute anything to a savings plan to
cover these high deductibles. In fact, the savings account plan does
not exist to cover the high deductibles. While the company benefits by
stabilizing their costs, they pass the risk for escalating health costs
to their workers. Further, none of the plans being marketed locally
covers extensive preventive services. In a few cases, a well women exam
and equivalent male checkup are included. However, no plan has well
child or maternity care included prior to satisfying the high
deductibles. He states, ``But the reason many of my clients do not take
the plan is that no prescription card is included, even after the
deductible is met.'' Even after the employee meets the deductible they
must pay for their prescriptions up front and then submit documentation
for reimbursement through their carrier. ``Most people don't have the
discretionary income to do that, even middle income people.''
The health center where I work, Neighborhood Family Practice, has
faced the same pressures as many of the small employers referenced
above. We have seen double digit percentage increases in our health
insurance costs each year. Almost half of our employees make less than
$14/hour and support families. Because many of our employees and their
families receive care at our health center, we never want to be put in
the position of economically rationing care for our co-workers.
Therefore, as an organization we have tried to keep deductibles low
enough that they would never create a financial catastrophe for an
employee's family. However, we have had to shift to higher co-pays for
office visits and pass more of the premium cost to the employees to
balance our budget the past few years.
Neighborhood Family Practice Background
Established over 25 years ago, Neighborhood Family Practice (NFP)
became federally funded in 2000, and has grown rapidly since that time.
We sincerely appreciate the strong, bipartisan Congressional support
for the Federal Health Centers program. In 2006 we served over 11,000
individuals, the vast majority of who live within Federal poverty
guidelines. We serve a large number of young families and working
adults, a growing number of whom are uninsured and underinsured. We
have a philosophy of access and best practices. We are not just a
``clinic,'' but a medical home. In that spirit we have become actively
involved in solving problems presented by our ``underinsured'' patients
and advocating for changes to benefit their health. We do not turn
anyone away because they cannot pay for needed care.
Problems for Safety Net Providers with Increasing Use of High
Deductible Health Plans
Low income patients who are enrolled in high deductible plans are
increasingly turning to safety net providers for assistance. Every day
new patients are seen at our health center. Many tell stories about how
their prior provider of care began demanding cash up front for the cost
of the visit in order for them to obtain needed care. Patients at our
health center who have difficulty paying for medical services and are
within Federal Poverty guidelines are offered discounts under our
sliding scale fee policies. The patients who seek care at our health
center who are enrolled in high deductible plans and those that are
uninsured are indistinguishable from one another in their inability to
pay for needed services. They do not have first dollar coverage for
preventive care, office visits, lab testing and prescription drugs.
Yet, they are counted as insured in our statistics.
Because our organization has a philosophy of access and services
delivered without regard to ability to pay, we work with patients to
help them access the care they need. This first includes offering them
a discount consistent with our policies. In the past we have considered
not offering ``insured'' patients the sliding scale discount. But then
the choice is to deny the care if they do not have the money or bill
the patient and have more bad debt. Then the patients who seem to need
it most do not come for needed care.
The ability of Neighborhood Family Practice to provide extensive
charity care is because of our funding as a Federally Qualified Health
Center. Many of the patients enrolled in high deductible plans are
below 200% of poverty which is defined as up to $19,600/year for a
single person and up to $40,000/year for a family of four. We discount
the cost of the office visit from 60-95% per our policies. Most of our
patients are below 150% of Federal poverty guidelines. The discounts
provided to these underinsured patients drain needed dollars from the
growing burden of the completely uninsured patients. The number of our
uninsured patients has risen from 1223/year in 2003 to 2548/year in
2005 (doubled!) while our overall volume has grown from 8886 total
patients in 2003 to 11,070 patients in 2006 (25% increase). The amount
of our Federal grant has not increased anywhere near this amount, from
$665,322 to $706,066 in 2006 (6% increase). (For 2006 NFP received the
mandated 1% Federal program cut, so our funding actually decreased.)
The ``base grant adjustments'' that we have received have been largely
based on increases in the number of uninsured, which does not include
the growing number of underinsured.
Other difficulties are presented for the patients because they
technically have insurance. If the patient is not aware of the high
deductible, the billing staff has to work more closely with them. The
patients may need extensive help identifying medications they can
afford and where they can obtain specialty and diagnostic care. We are
not able to access State funding for the uninsured to cover their
visits. We are also not able to provide the same discounted reference
lab work. Lastly, these patients are not eligible for prescription drug
assistance programs offered by the drug companies in the same way that
uninsured patients are. Yet, the organization must devote its time and
financial resources to help the patients get their medications and stay
healthy.
Neighborhood Family Practice is not the only Federally Qualified
Health Center with a growing concern about this trend. Another health
center executive states that she sees the number of patients with these
types of plans is growing. She believes this represents a shifting of
the burden from private sector to government funded organizations. The
most notable financial impact is that fact that the ``collection'' of
money is now the risk of the provider. Many companies are encouraging
their employees not to pay for services until it is clear that the
insurance plan is denying the charge as a part of the deductible. This
means cash flow is really delayed and the health center incurs the cost
of billing (at least once if not many times) to collect directly from
the patient. So, payment from patients is not always forthcoming due to
lack of money. They have patients who have high deductible plans that
are only funded by the patient, not their employer. So, for these
people there is often no money to cover cost. She states, ``I
understand the concept that these accounts should make healthcare
consumers more ``involved.'' The real issue is who gets stuck with the
risk. At this juncture, I say we do.''
A Cleveland free clinic is overwhelmed by new ``underinsured''
patients. The Medical Director estimates that between 15 to 20% of the
adult medical visits are by people who are ``underinsured.'' This
totaled almost 1500 adults last year. He mentioned that this is a
growing concern to the Board of the organization and they are beginning
to evaluate their policies about these patients. While their
organizational mission is to provide health care services to patients
that cannot afford them, they see an increased burden of ``insured''
patients who cannot obtain needed medications. ``They may have gone to
their regular doctor, who may have given them a discount on the
visit,'' he said, ``but then they can't afford their medication and
they do not know where to turn.''
The majority of safety net providers are reeling financially from
the growing number of uninsured Americans. The addition of underinsured
families to their patient populations is further weakening the
stability of these organizations.
Problems Presented by High Deductible Plans for Our Patients
Health Insurance models that do not cover preventive care increase
health disparities and further marginalize the health of low income
Americans. It is well demonstrated that patients who seek care early
for chronic illness and take care of the health care needs of their
children in a timely way are healthier and more productive citizens.
Healthy children do better in school. Healthy workers have less
absenteeism. This can result in a lower use of the emergency room and
lower hospitalization rates. In this way, high deductible plans are a
barrier to the health of our patients. These patients are facing
difficult choices given that they are in low-income families with
limited resources. Similar to uninsured patients they defer care that
is needed for chronic illness and do not fill necessary prescriptions.
A bill of even $100 is overwhelming for many of our low--income
families. Here are some of the examples of health care costs subject to
the high deductible under health savings account plans:
Prenatal care visits for pregnant women
Office visits for childhood illnesses
Office visit portion of well child visits that include
immunizations
Annual gynecologic exams including Pap smears
Medication for chronic illness such as diabetes and high
blood pressure
X-rays for broken bones
Last week one woman appeared at the registration window in tears.
Her employer had just switched her health plan to a high deductible
plan. Her teenage son, who had a diagnosed serious mental health
condition, was on two medications, which cost over $500 per month. She
had no way of filling the prescriptions from her low wage job. Another
of our patients was just hospitalized with a serious blood clot in his
leg. This is a recurrence of a problem from a year ago that almost cost
him his life. Because he has a $2000 deductible and no savings, he
waited for a week to seek treatment, even though the signs were there
that the condition had returned.
The free clinic shared two recent stories. One of a woman who had
come directly from a breast biopsy at a large local hospital. ``She was
literally bleeding through her blouse.'' She had just received a
diagnosis of breast cancer but was told that she could not be scheduled
for surgery until she got her blood pressure under control. She had
been unable to afford her prescriptions under her new insurance plan.
The hospital, as most in Cleveland, did not provide any assistance with
obtaining medication. The second story is of a local hot dog vendor,
with a high deductible plan, who was discharged from the hospital with
a diagnosis of heart failure. He needed additional treatment and
studies but was told they were not available to him unless he brought
in a cashiers' check for $1000. ``It might as well have been a
million!,'' he exclaimed.
Implications for Policy
When the Health Savings Account legislation was considered and
adopted, the themes of consumer choice and fiscal responsibility were
central. However, the patients seen at Neighborhood Family Practice do
not have Health Savings Accounts. They only have bad insurance! They do
not have any choice but to seek out safety net providers that will use
their time and resources to help them keep themselves and their
families healthy. People living in poverty have even fewer choices
under these plans because many medical providers will not give them
care unless they pay the full charges up front. Why does a rich nation
such as ours continue to ask its citizens to choose between needed
primary health care and basic necessities of life? Why would we
sacrifice the public health of many urban neighborhoods by further
promoting a plan that discourages those with the least from learning
how to keep themselves and their families healthy? I ask thoughtful
consideration of the following:
Exempt preventive and primary health care services from
the high deductible
Establish mechanisms for all low income individuals to
obtain needed medications including those for chronic illness and
antibiotics
Require employers to fund the health savings accounts for
low income individuals and their families up to the amount of the
deductible
Investigate strategies to provide financial stability for
primary care safety net providers such as Federally Qualified Health
Centers who are overwhelmed with uninsured and undersinsured patients
Thank you for your time and attention, Mr. Chairman and Members of
the Committee. I would be happy to answer any questions you may have.
Chairman THOMAS. Thank you very much. I want to thank all
of you. I apologize; occasionally, the real world creeps into
our lives, and I had to deal with it. Were I here at the
beginning, I would have complimented all of you.
I think this panel provides us with an opportunity--with
the various positions that you bring to the discussion--to
allow for, hopefully, some discussion among the panel members.
I hope, as some statements were made, some people felt
motivated; and as other statements were made, others felt
motivated. Sometimes, rather than our just asking the
questions, the discussion among yourselves is more enlightening
to us in terms of the various arguments.
For example, Ms. Therrien, I appreciate your examples. I
was most interested in the local hot dog vendor in terms of
your outlining his situation; and the question that immediately
came to mind was the hospital that told him he had to have a
cashier's check for $1,000, a not-for-profit hospital?
Ms. THERRIEN. Yes, sir, I would imagine that would be the
case.
Chairman THOMAS. You need to turn the microphone on.
Ms. THERRIEN. I apologize. That was a story that was
related to me by a colleague at the Free Clinic, so I am not
aware of the hospital; but there are no for-profit hospitals in
the city of Cleveland.
Chairman THOMAS. That means a not-for-profit hospital said
to a low-income person that they had to show up with a
cashier's check for $1,000 or they wouldn't get needed
treatment.
You are aware that the not-for-profit hospitals don't have
to pay income taxes on the basis of their serving low-income
and indigent, so I think perhaps as we address hearings on not-
for-profit hospitals, that your example will be presented.
In fact, I will find out the hospital, and we will pursue
that because those are not the kind of responses you are
supposed to get from tax-advantaged hospitals.
Ms. THERRIEN. Thank you, Chairman Thomas. I would be happy
to provide you with additional information.
Chairman THOMAS. I appreciate that. Dr. Collins, I always
appreciate your testimony. I guess my big problem is, it almost
sounded like HSAs were not in law, and people before you
testified of the increasing numbers, notwithstanding the
difficulty of fitting this new structure in, that your
statements were kind of a priori what we heard prior to HSAs
becoming law.
Both of you, are you aware of the Treasury Department
Notice 2004-23? The purpose of the notice provides a safe
harbor for preventive care benefits allowed to be provided by a
high-deductible health plan without satisfying the minimum
deductible under section 223(C)2 of the Internal Revenue Code.
For those individuals who have the high deductible, that
aren't getting the kind of preventive care--perhaps you heard
testimony from others in which that is one of the key things
they have done is to create a wonderful, preventive care
structure; and especially it should be available to the low
income.
You might check on the Internet. There may be somebody who
has information on the Internet. I believe there was testimony
to such effect that these people could be directed to the kind
of policies that you say are deficient. They certainly could be
provided, because they are being provided, and it is now in
statute that you have this safe harbor in terms of preventive
care.
Notwithstanding the fact that we have try to move forward,
Mr. Lutey, I especially appreciate your testimony. One of the
problems I have seen most often is that we aren't--it is not
that we aren't spending enough money for health care in this
country; it is the maldistribution of who gets the benefits
from health care.
We have heard the plea for individuals. We have got the
employer benefits. We have tried in the past to at least create
a reasonable cap above which decisions are going to have to be
made on a hierarchical basis.
If I just went down the line, and mindful of my time and
others, if you could give me a rough ``yes'' or ``no.'' Or if
you have to add a word or two qualifier, that is fine:
Would you be supportive of a reasonable cap on the employer
deduction, savings from which could be redirected to the low
income as a subsidy, so that they could get some of the
benefits, notwithstanding their employers aren't able to
provide that kind of a deduction? Mr. Cava, yes or no?
Mr. CAVA. I believe so, Mr. Chairman.
Chairman THOMAS. Obviously, the number is critical.
Probably somewhere around 10,000 now. We tried at 5,000, years
ago. At some point, you don't keep letting folks run it up and
others have no opportunity. Ms. Ignagni?
Ms. IGNAGNI. We would be concerned about that, Mr.
Chairman.
Chairman THOMAS. I understand why: Cash flow and adding
additional benefits which are then paid by a tax-preferred
structure are really a sweetheart deal for collectively
bargained arrangements.
You heard about individuals trying to make their way, and I
think it makes sense if you are going to begin to augment
through subsidies or tax credits that you don't leave an open-
ended program open-ended. Mr. Jackson?
Mr. JACKSON. I think I would support it, sir.
Chairman THOMAS. Thank you. Mr. Lauer?
Mr. LAUER. Anything we can do to help people who can't
afford health insurance is a good thing. My concern, however,
would be that we are seeing a trend where there are large
employers not offering health benefits because of the rising
costs. I think this could actually perpetuate that.
Chairman THOMAS. The key is to control the rising costs,
not just to leave it open-ended so nobody has to feel the pain
of a decision to create a priority of what you want. If it is
open-ended, you don't feel it. Mr. Lutey?
Mr. LUTEY. I believe I would support that, Mr. Chairman.
Chairman THOMAS. Dr. Collins?
Dr. COLLINS. I think we have to be concerned about breaking
up the group market. It is the only form of risk pooling that
works well.
Chairman THOMAS. That is a good point, but you will be
amazed at how creative we are becoming. I lay in front of you
the most recent effort by the State of Massachusetts, and I
love to repeat that, State of Massachusetts, with a creative
market arrangement where they took the fire hose of subsidy to
hospitals, turned it toward the individuals in the insurance
market and created a pooling, in essence, group arrangement by
individuals through a State structure. Portions of that, I
think, could be duplicated in a number of other States.
Ms. Therrien, would be you interested in capping the
employer deduction so all those folks that line up at your
window have, without additional expense to the taxpayers, the
ability to get some of those benefits?
Ms. THERRIEN. I can't speak to the tax implications, but
anything that would improve access for the patients that we
serve, I would support.
Chairman THOMAS. Thank you. I think I won a majority, but
obviously it is not going to be unanimous.
Those are the kind of decisions we need to begin to make.
Do you allow one structure, completely open-ended, to
continue to move forward and then complain that there are
others who don't get benefits? You have to look at creating a
balance and a harmonious relationship between one group that
gets everything and another group that doesn't get anything.
When you talk about low income, obviously they need help,
they need subsidies. Don't talk as though they can't get
preventive care and medicines without additional cost, because
we have provided that in the law and enlightened providers of
these kinds of insurance policies are available to allow that
to occur. You heard that in testimony from others. You just
have to be a little creative.
The gentleman from California. Do you want the time or do
you want me to move on? I can come back to you. Okay. The
gentlewoman from Connecticut, the Chairman of the Subcommittee
on Health.
Mrs. JOHNSON OF CONNECTICUT. Thanks very much. Certainly,
in my mind, a key to the success of the HSAs is some degree of
employer contribution, because certainly the low-wage earners
are not going to be able to contribute enough to this account
to manage basic expenses.
Certainly, the movement of the plans toward coverage of
preventive benefits is very, very important and happening
rapidly because employers are finding that that cuts the costs.
Two things I would like to ask. First of all, those of you
who have these kinds of plans, would you send the Committee the
educational materials you use for your employees? This is a
complete change of mind-set; it is different from our current
health system which treats illness and focuses entirely on
treating illness.
Health Savings Accounts can help us focus on prevention,
early identification of small symptoms so we can prevent people
from getting sicker. It has enormous possibilities for the
well-being of participants, but educational materials are key.
Then on this issue of employer contribution, should we be
having a requirement that employers who provide a high
deductible also provide some contribution to an HSA; maybe not
the same contribution every year, maybe starter contributions,
but the law is silent on this aspect. I am looking to hear your
comments on whether the law should remain silent on preventive
benefits or on contribution.
Ms. Ignagni.
Ms. IGNAGNI. Thank you, Madam Chair. I think there are
three things. One is that in order of priority we ought to
think about a policy where employers can income-relate their
contributions. That would do a lot for individuals at the lower
end of the income distribution.
Second, we think that it is very important for the
Committee to take a very hard look at the issues emanating from
chronic care. What more can we do to incentivize the provision
of disease management and strategies of that sort?
Third, I think that the Committee will have a discussion
that should be a broad discussion, not simply in the HSA
context, about individual responsibility, employer
responsibility and government responsibility. We have a
significant amount of cost-shifting now going on from
underfunding, that recent data shows is becoming a much more
serious problem.
I think all of those needs should be looked at very
broadly.
We also join with many of my colleagues on the panel who
have indicated a need for a level playingfield in terms of
individual tax treatment as well.
Mrs. JOHNSON OF CONNECTICUT. Thank you.
Would anyone else like to comment?
Mr. Jackson.
Mr. JACKSON. In our specific case, in year one of our HSA
plan, we funded almost all of the contributions to the savings
accounts. Then we switched to our second year of having an HSA
at the request of our employees. We are a small company, so we
can sit down and talk about these issues, and they preferred to
have a lower deductible, better policy where there were no
contributions made by the company. Clearly, that should be able
to continue to be an option. While we feel that it's important
to give affordable insurance, I don't think making mandatory
contributions is the answer.
Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Cava, what kind
of contribution do you make to your employees' plans?
Mr. CAVA. Madam Chair, we contribute 60 percent of the
deductible of each of the three types of funds that we offer.
Even though we do and we feel that this is the appropriate
amount at this point, we believe we should have more
flexibility in terms of comparability to design plans that deal
with chronically ill; and I think to that point, we would
warrant the flexibility to offer plans with no employer
contribution if, at some point, that is deemed to be the most
appropriate mix of plans. That is not our plan at this time.
Thank you.
Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Lutey?
Mr. LUTEY. I appreciate the question. First of all, I would
strongly support some type of requirement for the employers to
contribute. I feel that the plan would be in great jeopardy if
there was not some sort of contribution by the employer. I
would also suggest that the issue raises a number of other
issues as well. The amount of money that our organization has
put into the plan, is not something that we give to the
employee, but is seen as that springboard for partnership. If
we can work on the wellness of employees and ultimately reduce
premiums, those are dollars that we can share with those
employees in their HSAs, and ultimately, it is a win-win. This
raises, for me, the issue of prescriptive drugs. If HSAs are
truly designed to be preventive in nature, then I, as an
employer, would be very happy to pay for some of those
preventive drug costs for our employees by including those in
the preventive care items rather than having it come out of the
HSA account for employees.
Mrs. JOHNSON OF CONNECTICUT. Thank you. Anybody else wish
to comment? Oh, my time is expired. I am sorry.
Chairman THOMAS. Anyone who believes they haven't got a
chance to respond and you don't want to respond, the record
will remain open, and you can provide us written comments.
There is no way we can get into the depth that we need to in
responses between questions, and the Chair would invite
opportunities for cross-fertilization of the testimony.
Gentleman from Washington wished to inquire?
Mr. MCDERMOTT. Yes. Thank you, Mr. Chairman. I appreciate
your having this panel here today. Since 1993, 1994, when we
killed the last attempt to get universal coverage, when we had
35 million people unemployed, we now have 46 million people
unemployed, and if Ms. Collins is close to correct, we have
another 16 million underinsured. So, we have got somewhere over
50 million people in this country who do not have adequate
health insurance.
Now, I would like to ask those of you who are actually
purchasers of health care, I think Mr. Cava and Mr. Jackson and
probably Mr. Lutey, what percent of payroll do you spend on
health care in your operation?
Mr. CAVA. Mr. Chairman, Representative McDermott, I don't
have the exact statistic as a percent of payroll but I can say
that we spent approximately $40 million of the company's money
last year for our employees' health care.
Mr. MCDERMOTT. What is that, $40 million out of what? What
is your intake or what is your expenses of the company? Do you
have any idea at all?
Mr. CAVA. Our general and administrative expenses?
Mr. MCDERMOTT. Yes.
Mr. CAVA. This would be a rough guess. Approximately less
than 10 percent.
Mr. MCDERMOTT. Less than 10 percent.
Mr. CAVA. Yes, sir.
Mr. MCDERMOTT. So, you wouldn't have a problem with 10
percent if everybody was covered and you wouldn't have to deal
with this at all, you would be willing to do it for 10 percent,
somebody would do it for you?
Mr. CAVA. May I think about that, Representative?
Mr. MCDERMOTT. Okay. How about you, Mr. Jackson? What do
you spend?
Mr. JACKSON. Well, as I testified, our current premium is
$115,000.
Mr. MCDERMOTT. I want to know against what, what percent of
your payroll costs goes to health care.
Chairman THOMAS. Can the gentleman yield briefly? If you
will just give us dollar amounts. One is $20 million. Yours is
$115,000. We have no ability to relate that to the costs of the
company carrying this unless we know what it is, as the
gentleman from Washington is asking, a rough percentage. You
don't need to be precise. Just kind of ballpark.
Mr. JACKSON. I would guess it is in the 4 or 5 percentage.
Mr. MCDERMOTT. Can I ask you, you have about 20 people. Are
all 20 people covered?
Mr. JACKSON. No. There are some employees who opt out
because they have spousal coverage.
Mr. MCDERMOTT. So, the President of the company is the
professor of the University of Colorado of some sort or
another, she covered under the University of Colorado plan?
Mr. JACKSON. That is correct. Not the President, but she is
the owner.
Mr. MCDERMOTT. Her husband is also covered on that same
plan?
Mr. JACKSON. That is correct.
Mr. MCDERMOTT. So, the top two people are not covered by
your plan. Who else isn't covered? Where is their coverage
coming from?
Mr. JACKSON. We have a number of employees that some of
them, their spouses are employees at Kaiser, and they have no
cost insurance through Kaiser, so opt to do that coverage.
Mr. MCDERMOTT. So, this is a plan basically for your low-
paid employees who don't have any spousal coverage anywhere
else, don't have good insurance anywhere else.
Mr. JACKSON. Well that includes me, and I don't consider
myself one of the low-paid employees, but yes, it does
primarily affect our lower-paid employees.
Mr. MCDERMOTT. Okay. How about you, Mr. Lutey? What percent
of payroll do you spend on health care?
Mr. LUTEY. Depending on the plan, between 9 and 11 percent.
Mr. MCDERMOTT. So, 10 percent wouldn't be too big of a bite
for you to handle. So, if we could have universal coverage in
this country and have everybody covered for 10 percent of
payroll, why would the business community, rather, leave those
51 million out there and try to dance around with the insurance
companies and dodge the costs? Why do you want to do that? What
is your objection to having universal coverage?
Mr. LUTEY. If I may respond, sir, I believe that for me,
the huge win in this is a collaborative nature toward wellness.
A universal plan simply is, go to the doctor, get the pill, go
home and get well. In the HSA, we have developed a sense of
collaboration around doing things that make you well for the
long term. There is a knowledge base that our employees have
now that they didn't have before about medical conditions and
what is going on with them. There is an investment that they
have, which has nothing to do, by the way, with dollars. There
is an investment about wanting to be well and doing things in
the workplace to keep them well.
Mr. MCDERMOTT. So, you've saved money up front? Dr.
Collins, tell me what is going to happen long term here. They
have saved money up front. You are telling us they are doing
better, and they think they have got it all knocked. How's this
going to work out?
Dr. COLLINS. Well, there is evidence from the Employee
Benefit Research Institute (EBRI) Commonwealth 2005 Survey of
Consumerism in Health Care that people do skimp on care, and
also I have to say, in terms of the preventive care exclusions
and the deductible, the Kaiser Family Foundation and Health
Research and Educational Trust (HRET) 2005 Survey of Employer
Health Benefits found that only 30 percent of employers who
offered HSA-eligible high deductible health plans in 2005
actually did exclude preventive services from the deductible.
So, we really do have to be concerned about giving people
incentives that are going to cause them not to get preventive
care, not to manage their chronic conditions, and perhaps end
up with very expensive health conditions down the road. So, it
really doesn't address the major cost problems in our system.
Mr. MCDERMOTT. So, it is sort of penny-wise and pound
foolish to save money on not paying for preventive care, not
the Pap smear and then wind up with the cancer that comes with
it.
Dr. COLLINS. That is right.
Mr. MCDERMOTT. Mr. Chairman, I think it is time for us to
talk to a real solution that is going to solve this for the
American people. We are having more and more companies go into
bankruptcy, and what they do is they take off their pension
costs and their health care costs, and that is going to be a
continuing problem. This is a Band-Aid at best.
Chairman THOMAS. One of the things the Chair may need to do
periodically is to make sure that, obviously, I read all the
testimony, and statements are being made, and I want to try to
go back, and I will try not to take a lot of time, but as I
recall, Mr. Cava, in your testimony, given the size and scope
of your company, moving in the direction that you have moved,
you have actually increased--I believe your statement was you
have increased the preventive care aspect. So, when comments
are made that somehow HSAs in this structure denied preventive
care as though that were a fact, then I have a problem when I
read what I read in your testimony. What would you respond to
that?
Mr. CAVA. Mr. Chairman, thank you. We provide 100 percent
coverage, preventive care, and I did list the specifics in my
testimony, and that is part of our commitment. This isn't just
a strategy for the more efficient spending of health care
moneys. It is about the search for continuous and sustainable
improvement in health. We have seen an increase in access to
preventive care from 50 percent of our users to 75, 76 percent
of our users. They have access to preventive care under our new
plan. So, I am not quite sure where the information is coming
from, but the information I have is pretty significant and
pretty compelling that we are helping to change behavior.
Chairman THOMAS. It may be an attitude as to how you
approach this insurance. If you don't think it is any good, you
don't look at the options and the various things that are
available, and you are dismissing it rather than working with
it. Mr. Lutey, I appreciate your comment as well. Now, I will
call on Members. I don't want to abuse this, but it seemed to
me that what you said was your experience completely
contradicted some of the points that were being made about the
lack of preventive care under this kind of insurance structure.
Gentleman from Louisiana wish to inquire?
Mr. MCCRERY. Yes, Mr. Chairman. Mr. Cava, I just want to
follow up. I want to make clear what you just said. I thought I
heard you say that since you have gone to the HSA high-
deductible plan, that more of your employees are taking
advantage of preventive care. Is that what you said?
Mr. CAVA. Mr. Chairman, Representative, yes, that is
absolutely the case.
Mr. MCCRERY. So, I assume you mean by that, that more of
your employees who are now covered under the HSA high
deductible plan are taking advantage of preventive care than
those employees who took advantage of preventive care under the
previous health care plan that was not high deductible in HSA.
Is that correct?
Mr. CAVA. That is correct.
Mr. MCCRERY. Well, that is very curious. You mean, there
are some non-HSA, non-high deductible plans that don't cover
100 percent of preventive care?
Mr. CAVA. That is absolutely--that is absolutely correct.
Mr. MCCRERY. My goodness. Do you mean that it is up to the
employer to decide how to structure the benefits in his
employer-provided plan? It is up to the employer how to
structure those benefits, what to purchase? Of course it is. It
is just as easy for an employer to provide preventive care
under an HSA high deductible as it is under some low deductible
plan, just as easy. It is just amazing to me how we can have
testimony from the real world time after time after time after
time; not just from people who have an interest in making money
off of this. Mr. Lutey is certainly not in that category, and
then the last two witnesses have studies that refute all that
real-world experience. That is amazing to me.
Mr. MCDERMOTT. Would the gentleman from Louisiana yield?
Mr. MCCRERY. I would be happy to yield.
Mr. MCDERMOTT. If I can put this in perspective, I think
the testimony is that you have 7,000 workers covered by this
HSA, and you have 43,000 employees that are eligible for it or
are not covered by it. Is that correct? Have I got my numbers
right?
Mr. MCCRERY. Reclaiming my time. I would be happy to yield
for the gentleman to discuss this, but I am not going to give
you another 5 minutes to ask questions of the witnesses.
Mr. MCDERMOTT. I am just trying to get the facts.
Mr. MCCRERY. The facts are that have been stated by various
witnesses that the number of people opting for this coverage
has tripled in the last couple of years. That is a fact. The
facts are that about 31 percent of those in the individual
market who have high deductible HSAs were previously uninsured.
They had no insurance. So, they couldn't get preventive care
unless they went to someplace that gave it to them. So, what
they now have is some form of insurance. So, I just want to try
to bring this back down to the real world here and get people
to pay attention to facts that are being testified to by
witnesses here today and the experience that people are having
in the real world.
Now, one of my colleagues in his opening statement said
that some measly percentage of people with high deductible
plans actually contributed to an HSA. I don't know where he got
those figures. There is some Treasury Department data that
could be interpreted that way that is about 2 years old, but
the most recent Treasury Department data does not indicate
that. So, even if employees are not contributing and there is
no data yet to establish that, we know from testimony that
employers are contributing to HSAs, and that gives them
something to start with, and in the case of Mr. Jackson, he
can--how much of the deductible for an individual do you
contribute, Mr. Jackson, to his HSA?
Mr. JACKSON. On last year's plan I contributed 100 percent,
but this year when we reduced the deductible, they pay it
themselves, and every employee opted to pay the full amount.
Mr. MCCRERY. So, last year, you, the employer, contributed
100 percent of the HSA, 100 percent of the deductible to the
employees' HSA. So, it wouldn't have been very smart for him to
contribute to the HSA.
Mr. JACKSON. No. I don't think he would have been able to
last year.
Mr. MCCRERY. It wouldn't have been legal for one thing and
for the other thing, why should he? This year, your testimony
is, your employees are opting to contribute to their own HSAs.
Is that right?
Mr. JACKSON. That is correct. We offered them the option.
Mr. MCCRERY. Another real world example of what is really
happening out there and what choices people, intelligent
people, whether they are rich or poor, are making in the
marketplace, and that, I believe, is what we have got to
continue to do is create a real marketplace in the health care
industry, not by abdicating costs, not by hiding costs; by
making the system more transparent, by making prices more
transparent and by making consumers more aware of what they are
doing. There is a lot more I would like to say, but I will save
it. I yield back.
Chairman THOMAS. The gentleman's time has expired. Does the
gentleman from California wish to inquire?
Mr. STARK. Thank you, Mr. Chairman. Just to help my friend
from Louisiana, in 2004, which is the last Treasury Department
data available, there were perhaps a million people enrolled in
HSAs, and only 90,000 of them had active HSA accounts. Whether
there was any money in the accounts or not, we don't know; but
it has never been all of the people taking advantage of it. I
want to ask Dr. Collins.
Chairman THOMAS. Gentleman yield briefly on my time? It
won't detract from yours. I appreciate using Treasury data from
2004, but what we have heard is----
Mr. STARK. We used enrollment data from 2004 too.
Chairman THOMAS. --in 2005 and 2006, we had a virtual
tripling. At some point, Treasury's data will catch up with
reality. So, I appreciate your citing Treasury, but if they
were in the real world, as we know, they would be have been out
of business a long while ago if you are looking that far in the
past as to what decisions you are going to be making. Thank the
gentleman. This will not come off your time.
Mr. STARK. I thank the Chair. In the real world, where
people have ever worked in the real world outside of the public
trough, they might understand a little bit more about health
care costs to employers. In the eHealthInsurance plan--I am
puzzled; Dr. Collins, if you could help me. It seems to me that
an individual who signs on to an eHealthInsurance plan would be
$1,233 more out of pocket, if they had an HSA plan than a non-
HSA plan. For a family of three, they would be $2,300 more out
of pocket than they would be if they bought the non-HSA plan,
and even if you took the high amount that employers contribute
of 25 percent, the poor folks who are $2,300 bucks more out of
pocket, might have a $600 contribution but no tax savings if
they are in the lower income.
I am often puzzled--if you can explain to me whether your
studies would shed any light on--except for the fact that you
can't trust most insurance salesmen--why anybody would sign
onto that kind of a plan. I am going to ask a series of
questions, and maybe you can pick up on answering some of them.
You mentioned the high administrative costs of purchasing
insurance in the individual market. Perhaps you could elaborate
to us why it is so important to pool risk and how the HSAs
really undermine the pooling aspect and cause a highly adverse
selection for people who need insurance most. Then could you
just repeat what percentage of plans do provide preventive
care. That is optional.
I think Ms. Therrien testified that nobody in the Cleveland
area has coverage for preventive care. So, perhaps you could
tell us, Dr. Collins, across the country how many offer
maternity care, which if you have to pay for that out of pocket
eats up--does it count to your deductible and more than
increase your out-of-pocket costs? Then Ms. Ignagni, showing
the for-profit plans, as she does for high pay, but she won't
ever let the plans come to testify, talks about HSAs taking off
in the group market, and I wonder if that is something that we
shouldn't be alarmed by because it means that as I understand
the workers who are at risk of losing more comprehensive
coverage and then explain to us what happens to the costs for
more expensive group coverage as younger and healthier people
move to HSAs. Can you kind of review those things for us as you
choose.
Dr. COLLINS. When the employer group market is really our
only----
Chairman THOMAS. Dr. Collins, you are obviously not going
to have as much time, but he gets another minute and a half.
These are important questions. We would hope they would be
offered in written response to that, and any of you who want
to--because this is a hearing that we are trying to lay a base
for. I appreciate the gentleman's questions, and we will leave
you some reasonable time to try to respond to some of those,
but don't think the universe of response has to be in the
minute and a half that the gentleman has left.
Dr. COLLINS. The individual and employer group market is
really our only natural form of risk right now that we have for
private coverage. The individual market, by contrast, does not
pool risk. The administrative costs are 25 to 40 percent of the
premium costs. So, it actually buys many fewer benefits,
including maternity benefits. If you go to
ehealthinsurance.com, and we have actually done this at the
Commonwealth Fund, there are very few plans in the individual
market that actually offer maternity benefits without a rider.
So, that benefit is basically not available to women in the
individual or families in the individual insurance market. The
other thing that the individual market does is it underwrites
each person.
So, this necessarily means that if you have a pre-existing
health condition, if you have diabetes, if you have a chronic
heart problem, it means that your premium will actually be
higher than my premium, a relatively healthy person. So, I
guess the question is, can we tolerate this kind of different
pricing for people who are our neighbors, who are our family
members, who are our friends simply because they have worse
health conditions than we do?
So, it is not a particularly good place for us to push
everybody without insurance coverage into the market. We do
notice that people in the individual market buy high deductible
health plans. They have always had the option to buy it. It is
nothing new. Thinking in terms of the tax incentives that would
bring more people into this market, 31 percent was cited, but
it is really not clear whether that 31 percent are long-term
chronically uninsured--have they been uninsured for the past 3
months, have they been uninsured for the past 3 years? So, it
is really not clear what experience those people have had prior
to buying coverage in this market.
Chairman THOMAS. Thank the gentleman. My understanding is--
Mr. Lauer, in his testimony, indicated that his definition of
uninsured was anyone who didn't have insurance for the last 6
months. Dr. Collins, do you believe there is anything in this
new Massachusetts plan that is new or creative in helping to
create in essence a group market out of individuals with the
central structure that has been provided by the State?
Dr. COLLINS. Well, I think that Massachusetts should be
commended for this effort and particularly on the protections
of people under 300 percent of poverty. It is a lot less
certain--although it has really received most of the bulk of
the attention on what will happen to people above 300 percent
of poverty--whether those premiums will actually be affordable
to people, whether the individual mandate would be able to be
applied.
Chairman THOMAS. Well, I was hoping your remarks would
focus on the point about the State creating a connector which
produces group insurance by collecting individuals through a
State-inspired structure, which would solve the problem of the
individual market.
Dr. COLLINS. It would help in terms of pooling, but again,
it really remains to be seen how much that pooling will
actually pull down premiums.
Chairman THOMAS. Oh, exactly remains to be seen, and
obviously, this is an ongoing change, and it will be modified
as we go forward, and I appreciate the fact that you have
indicated that the Massachusetts plan has a possibility of
offering some solutions that otherwise were automatically
rejected because the individual market couldn't solve problems.
Creativity can solve a lot of problems rather than simply
repeating the past. Gentleman from Pennsylvania wish to
inquire?
Mr. ENGLISH. Thank you, Mr. Chairman. I do. I want to thank
the panelists for very thought-provoking testimony.
Ms. Ignagni, your industry is playing a key role in
developing insurance products that speak to the needs of some
of those who choose to provide for their medical coverage
through HSAs in addition to the traditional employer-based
coverage. What we have heard is that those opposing the
development of HSAs and consumer-directed health care options
are arguing that adverse risk selection will result from
younger, healthier consumers using the HSA option, and in turn,
creating an adverse reaction in the risk pool. Is this a
problem that you have seen developing? Is it a valid concern?
Are your member companies seeing any actual evidence of adverse
selection?
Ms. IGNAGNI. I am very glad you asked the question. I have
a number of pieces of data that I have before me, which I would
like to submit for the record.
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Ms. IGNAGNI. We have the most comprehensive survey not only
on HSAs, but on the individual market and to the question that
was just posed by Congressman Stark about coverage for various
benefits, particularly pregnancy, I can tell you that the
coverage is very comprehensive. Again, it is the most
comprehensive survey. Would be delighted to submit it for the
record, number one. Number two, when Dr. Collins--I read her
statement last night and had an opportunity to look at the
study to which she refers, I did notice that it is a study of
Internet users who agreed to participate in the research. So,
we are talking about a sample of 185 individuals. We have a
sample of 3 million.
I did have an opportunity to talk with--I saw it too late,
unfortunately, and I apologize to Dr. Collins. I didn't have a
chance to talk to all of our members, but I did talk to the top
five members of ours that are the top five in the HSA market
today--who are also, by the way, selling HMOs and PPOs, so they
offer a range of coverage options. They all report that the
preventive care utilization is up, that the prescription drug
fill is up and very consistent with what the physicians are
requiring, which is so important for disease management.
We also know that health status right now, according to the
data, and I can only talk to you about right now what we are
seeing in the data, are roughly equivalent, and I think that is
explained by the fact that those who are under and over 45 are
roughly equivalent.
So, there is a distribution age-wise that I think no one
expected 3 years ago when we were talking about these products.
On the back end, sir, I think this is also very important, our
members are offering comprehensive coverage. This is a high
deductible, meaning a roughly $1,000 deductible for the
individual, $2,000 for the family. On the back end, there is
complete comprehensive coverage, which is very important from
the standpoint of protecting risk and providing a safety net,
which individuals are interested in.
So, from our perspective, it is not our choice to decide
what people purchase. It is our responsibility to offer a range
of products, and that is what we are trying to do.
Mr. ENGLISH. Thank you. Dr. Collins, I was interested to
read in your survey that the use of consumer-driven health
plans appears to have led to greater cost awareness by
consumers. You also state that individuals may have delayed or
avoided health care due to cost, and yet there was also a
finding, I believe, that these individuals are more cost
conscious in their decisionmaking. I guess my question is, do
markets work? Do you believe that cost-conscious decisionmaking
can be a good thing in terms of injecting market discipline
into the health care system and generating lower costs through
higher competition for many procedures.
Dr. COLLINS. Certainly we did find that consumers in these
plans are more cost conscious. I also want to mention that this
was a random survey. The EBRI Commonwealth Survey was based on
a random national sample pulled from a 4-million member panel
of online users who agreed to participate in surveys. So, we
did--we did actually find that people are more cost conscious,
but that they didn't have the information they needed to make
decisions. Certainly giving people more information about
quality of care, cost of care will contribute in small ways to
improving the health care system and maybe lowering costs a
little bit, but it is really unlikely to be transformational.
It is not going to dramatically change the way we conduct
business. We really need more focus on the provider, paying
providers for efficient care, for high-quality care, coming up
with quality measures so focusing on how we pay providers is a
much more realistic and promising strategy to control costs in
the system.
Mr. ENGLISH. I don't think they are mutually exclusive, and
I don't think HSAs have ever been offered as a panacea, at
least I have never viewed them that way. My time is up, but Mr.
Chairman, I appreciate the opportunity to pose these questions.
Chairman THOMAS. Thank you. The usual answer is all of the
above. Gentleman from Michigan wish to inquire?
Mr. LEVIN. Thank you. Mr. Cava, let me ask you a few
questions. I hope you don't think they are hostile. Our family
goes to your establishment. We eat salads as part of our
preventive care.
Mr. CAVA. Thank you.
Mr. LEVIN. Just so the record is clear, you say 10,000 in
your statement, 10,200 are eligible. How many overall employees
are there?
Mr. CAVA. Mr. Chairman, Representative Levin, there are in
our company, approximately 45,000 employees in the United
States, which would obviously be eligible for U.S.-based
benefits.
Mr. LEVIN. So, there is 45,000 and so that means that less
than 25 percent are eligible?
Mr. CAVA. Yes, sir.
Mr. LEVIN. Okay. By the way, we have asked the Treasury
Department 2 years running for income distribution tables on
HSA holders, and they have not given them to us. Mr. Chairman,
we would appreciate if you would press the Treasury Department
to do that.
Chairman THOMAS. I will. Your phrase was that they have not
given them to you. Part of the problem is they probably don't
have them. That is one of the difficulties in trying to deal
with government collection of information. I am asking all of
you, although some of you will contradict yourselves or argue
the others' information isn't accurate, whatever you give us is
at least contemporary as opposed to the historical viewpoint
from Treasury. So, I certainly will send these.
Mr. LEVIN. I think that information is available. It is our
understanding.
Chairman THOMAS. I will join you in pressing them.
Mr. LEVIN. Okay. Mr. Cava, in terms of preventive care, by
the way, it is our understanding that 70 percent of the
insurance plans under HSAs do not cover preventive care. So, if
anybody has contrary information, I would like to have that.
You are, therefore, in the minority. Quickly because I want to
ask some other questions, what kind of preventive care do you
cover?
Mr. CAVA. Mr. Chairman----
Mr. LEVIN. People don't have to use their deductible for?
Mr. CAVA. That is correct. Mr. Chairman, Representative
Levin, I have listed in my testimony, we cover annual physical,
non-age qualified, you don't have to be a particular age. It is
just an annual physical, associated preventative tests, Pap
smears, prostate exams, different--mammography, vaccinations,
childhood vaccinations. This is not a comprehensive list, but
it is a good representation of the care that we provide.
Mr. LEVIN. How about child care? Did you say it gets
covered?
Mr. CAVA. As it would qualify as an annual physical or as
an annual visit, yes.
Mr. LEVIN. Otherwise not?
Mr. CAVA. Childhood vaccinations it does cover, yes.
Mr. LEVIN. That is much more than that.
Mr. CAVA. Yes.
Mr. LEVIN. All right. So, I think before you log the
preventive care, the results, you need to look at the whole
picture.
Mr. Lauer, our talented legislative expert has calculated
for each of the examples what people have to pay before they
get health care coverage, insurance coverage, and here is how
it comes out.
For Mr. Heloski, he would have to pay $4,040 out of pocket
before he gets one dime. For the Ecclestons, they have to pay
$6,460 before they get coverage. For Mr. Lomel, he could pay
$8,000 without getting any coverage at all. Mr. Botcharnikov
would have to spend--he was spending $5,820 in this plan. He
could spend $7,262 before getting any help from insurance.
Those are very high health care expenditures. Before
anybody tries to applaud HSAs as an answer for the needs of
most people, they had better look at this because in essence,
what you end up with is high deductibles in so many cases and a
tax benefit, and we need to look as to whom this tax benefit
accrues.
Mr. LAUER. I would agree with you that those are high
numbers and I can't speak for each of them. I don't know
whether that is through choice or not. I would assume it may
be.
Mr. LEVIN. When you say ``choice,'' meaning what?
Mr. LAUER. Well, they may have chosen that they wanted that
higher deductible because they had been paying for health care
out of their pocket up to this point anyway, and wanted to fund
against catastrophic or financial loss. That is not unusual.
Another point I wanted to make, and I think it is an
important one when it comes to businesses and several of the
examples we cited in the written testimony, which you have
talked about come from that. In the business environment,
hopefully, we don't all assume that a business that provides
employer-sponsored health coverage that everything is covered,
because that is not the case in most cases. For example, in my
company where we have pretty robust coverage, I have a wife and
three children. We have a deductible for each individual in the
family. I make a contribution out of every paycheck for the
health insurance. We have copays for physician visits,
prescription visits and so on. That is very common. It is not
$7,000 or $8,000, by the way, that you just cited.
Mr. LEVIN. How much is it? My time is up.
Mr. LAUER. We are about $400 per individual.
Mr. LEVIN. You are in a high income bracket.
Mr. LAUER. That that is for every employee in my company,
Congressman.
Mr. LEVIN. In your case. So, you are talking about $400 per
person. You multiply that by five?
Mr. LAUER. Yes, $2,000.
Mr. LEVIN. Okay. Compared to what exists for these people.
Twice, three four times that. My time is up.
Chairman THOMAS. Briefly, Mr. Cava, you seem to be the
biggest employer around here. So, just to get an idea of why we
are holding the hearing now. How many of your employees had
HSAs 5 years ago?
Mr. CAVA. None.
Chairman THOMAS. How many had HSAs 3 years ago?
Mr. CAVA. None, Mr. Chairman.
Chairman THOMAS. How many had HSAs 2 years ago?
Mr. CAVA. None, Mr. Chairman.
Chairman THOMAS. How many had them last year?
Mr. CAVA. Over 7,000.
Chairman THOMAS. Okay. When someone cites a number, people
need to realize, that is in 1 year and if we bring you back
over the next 2 to 3 to 5 years, I think you'll begin to see
the roles they are going to play. Thank you very much.
Gentleman from Arizona wish to inquire?
Mr. HAYWORTH. Thank you very much, Mr. Chairman, and to the
witnesses assembled. Thank you all for taking time to join us
today for a hearing that has been both informative and, I
guess, Mr. Chairman, extending beyond the realm of the
informational, perhaps just given the nature of our institution
and perhaps where we are on the calendar, it, at times, becomes
adversarial.
The Chairman made mention of the fact that these changes
don't occur in a vacuum; that this is a program that has
really, for all intents and purposes, in the march of time,
just really started. It is interesting with a tip of the
rhetorical cap to the adversarial to hear the lament of the cup
half full, or perhaps one-quarter full, but I don't believe the
process of pouring has yet stopped, nor the process of
calibrating or evaluating information. This is an ongoing
process.
To that end, let me welcome in particular my neighbor from
comparatively nearby Colorado. Mr. Jackson, it is good to have
you here and to hear of your real-life examples. Not only do we
have a chance to hear the witnesses compare and contrast their
different philosophies and their different experiences, but
looking ahead, mindful of the fact that very seldom do we pass
a new initiative without re-evaluating and attempting to offer
some perfections.
Mr. Jackson, let me just put it to you, are there any
changes to HSAs that would make it easier for small businesses
to participate in HSAs or high deductible health plans, such as
a refundable tax rebate for contributions made to their
employees' HSA or any other things. If you had to rank things,
if you were writing the program again based on what you see and
what you know of other small businesses, what would you
suggest?
Mr. JACKSON. Well, certainly, any tax advantages to the
company to allow them to contribute to the employees' HSAs
would be a significant benefit. One of the things--I don't know
that it directly relates to HSAs, but the pooling arrangement
is significant, and we either need associated health plans,
small business health plans, a State-run pooling arrangement,
we need some kind of arrangement so that small businesses have
an opportunity. Obviously, my company of 20 employees can't
compete price-wise on insurance with Wendy's with their number
of employees.
I would say that was one of the biggest issues that I see
is one, allowing us some mechanism to pool our resources to get
lower premiums in general. I would like to comment that writing
the--the company last year funded my HSA. For the first time in
my life, I was writing a check when I went to the pharmacy to
get a prescription. Quite honestly, I was shocked. I just
assumed that prescriptions were a little over $20. That is what
I always paid. When I take out my checkbook and write a check
for $400, it changed my way of looking. To that effect, in
order for the HSAs to become effective, we have to offer them
some mechanism to be able to shop. There is a couple of Web
sites in Florida that I had mentioned to Mr. Beauprez that
allow you to go online and shop for your specific prescription
at various drugstores. I can tell you, I asked my drugstore
what the price was and they said, ``we can't tell you that
until we ring it up.'' If you want to make a purchase, we will
tell you the price.
I contacted my doctor's office and asked about the price of
a simple procedure, and it was like they had never had that
question presented to them before, and no one knew what to say.
For HSAs to be effective, there has to be some mass media
mechanism to allow--I absolutely believe that people will be
good shoppers if we give them the opportunity to be good
shoppers, and particularly when they are spending their own
money because if they don't spend it, they get to keep it in
their account.
Mr. HAYWORTH. The power of the markets. Well, imagine that.
Mr. JACKSON. Absolutely.
Mr. HAYWORTH. I know there are tons of discrepancies
between those academics that like to cite the empirical and
somehow would like to deny the anecdotal, but I think your
firsthand experience as versed as you are in the world of
business is very instructional to us in terms of the fact that
when it came to health care and the cost of prescription drugs,
because you had not had real contact with the reality of
pricing, your assumption was something far different from what
the market brought to bear. I think that is very instructional
to us all, and I think as we have made much of the fact that
this is the information age, and as we see the health care of
all utilizing the Internet, your suggestions are well taken,
especially as a smart shopper. My time has expired, Mr.
Chairman. I thank you for the opportunity to inquire.
Chairman THOMAS. Thank the gentleman. Gentleman from
California, Mr. Becerra, wish to inquire?
Mr. BECERRA. Thank you, Mr. Chairman. Thank you all for
your testimony. Let me see if I can concentrate right now on a
couple of questions to Mr. Cava. You are getting lots of
questions regarding the establishments because I think so many
of us are very familiar with Wendy's. My understanding, from a
Securities and Exchange Commission (SEC) filing, is that that
there are about 57,000 employees that Wendy's employs. Is that
because some of these folks beyond the 45,000 are
internationally based?
Mr. CAVA. That is correct.
Mr. BECERRA. In terms of health insurance, do you offer any
of the 12,000 of those employees, that are internationally
based, HSA accounts?
Mr. CAVA. Mr. Chairman and Representative Becerra, no. We
provide U.S.-based benefits according to sovereign law and
regulation of the United States and for our non-U.S. employees,
we are subject to the laws of those countries.
Mr. BECERRA. Thanks for making sure we compare apples with
apples. So, let me make sure I understand this: of the 45,000,
10,200 are eligible for your health insurance coverage now, in
the form of HSAs?
Mr. CAVA. That is correct.
Mr. BECERRA. The remaining 35,000 or so are not eligible
for any type of health insurance coverage under Wendy's?
Mr. CAVA. Not exactly. We have some specific markets that
we do provide more traditional health care to in what we call
our midwest and northeast markets, but not the HSA-based, not
the high deductible plans.
Mr. BECERRA. Of the 10,200, about 7,000 employees who are
eligible for the HSAs have established an HSA account?
Mr. CAVA. That is correct.
Mr. BECERRA. Okay. In terms of the preventive benefits that
you offer, are those--I want to make sure I am clear about the
answers you gave to Mr. Levin from Michigan. You provide
coverage for preventative care before or after the deductible
is paid?
Mr. CAVA. That is deductible free, so to speak. It is free
care and it is not charged to the deductible.
Mr. BECERRA. Good. Does that preventative care include
paternity care?
Mr. CAVA. It does not, in particular. It would only only
cover the items which I had mentioned, and I would like to
provide more information to you about the plans.
Mr. BECERRA. Appreciate that if you would. Thank you. Of
your 45,000 domestically-employed employees, how many are
female?
Mr. CAVA. I do not have that information.
Mr. BECERRA. Would you provide that for us? Also, you might
as well break it down for the 10,200 eligible for the HSAs and
the 7,000 who have established HSAs, what percentage of female.
Primary care.
[The written response from Mr. Cava follows:]
Chairman THOMAS. Would the gentleman yield briefly? If we
are going to do that, then you want to break out the female
group as those who are of child-bearing age versus those who
aren't. There are a lot more senior employees.
Mr. BECERRA. Good point. Primary care. Do you provide
primary care services such as flu, fever visits that the family
may have to make because a child has 103 fever, is suffering
from the latest flu that is attacking the country?
Mr. CAVA. The health care plan provides access to physician
visits, it provides access for emergency care.
Mr. BECERRA. Does it pay for them?
Mr. CAVA. I am sorry.
Mr. BECERRA. Does it pay for them?
Mr. CAVA. After the deductible. Excuse me, Representative.
We also contribute 60 percent of that deductible. So, in
essence, it could end up costing the employee nothing.
Mr. BECERRA. Well, after they have paid the deductible?
Mr. CAVA. No, sir. It could end up costing them nothing.
Our company provides----
Mr. BECERRA. If I have a child who has the flu----
Mr. CAVA. Yes.
Mr. BECERRA. I go to a physician, physician says, well,
this is not a preventive benefit that is offered through your
HSA, I charge you $150 for this visit for your child, your
deductible is $250, how much of that will you cover?
Mr. CAVA. It could be nothing because the company has paid
60 percent of that deductible, which would have exceeded that
$150 into your account.
Mr. BECERRA. Wait, if I have a $250 deductible and you
cover 60 percent of a deductible----
Mr. CAVA. No, sir, the HSA deductible is contributed at a
rate of 60 percent.
Mr. BECERRA. You are talking about the total deductible
which could be--what could a deductible be?
Mr. CAVA. It could be $1,500, $1,200.
Mr. BECERRA. Before I get--if my child gets sick in
February and I have not yet reached my deductible of $1,500 you
won't cover it, I have to cover out of pocket for that flu
visit?
Mr. CAVA. Actually, it probably would have been contributed
because we contribute it on a quarterly basis.
Mr. BECERRA. February, the first quarter.
Chairman THOMAS. Will the gentleman yield? It might be
better, since we are using usual insurance terms, when you say
deductible, the idea of an HSA is that you put money in a bank
account and then you draw down that account, but you have to
use your own money until the full 100 percent kicks in. The
point the gentleman is making that he puts in 60 percent of
that money, and he puts it in on a quarterly basis. If your
doctor visit costs $150, you would take $150 out of the account
and pay the doctor, but it could easily be the money that was
put in by the company. Therefore, no money would come out of
your pocket to pay for that. That is the concept of the HSA.
Thank the gentleman. That doesn't come out of his time.
Mr. CAVA. Thank you, Mr. Chairman. I am sorry. I apologize,
I wasn't making that clear.
Mr. BECERRA. No. I thank the Chairman for trying to bring
some clarity to that. Let me ask this other question. This is a
bit more personal. Mr. Lauer actually got into this. If you are
interested in answering it, you don't need to, of course, if
you don't wish to. How many of you have established HSAs?
Mr. CAVA. I am sorry. I have one.
Mr. BECERRA. Anyone else? I am just trying to figure out
how many folks.
Mr. CAVA. So does our CEO.
Mr. LAUER. We are in transition to it.
Mr. BECERRA. Okay. I have always heard people say, if you
work for General Motors (GM), you should buy GM, not Ford. If
you work for the manufacturer of Crest toothpaste, you should
buy Crest, not Colgate. If you work for the manufacturer of
Tide detergent, you should buy Tide, not All. I suspect
probably the best source for the American people to know
whether or not this HSA product is good is if the inventors and
advocates, proponents of it, meaning the Members of Congress
here, also have HSAs. I am not sure how many Members of
Congress have taken up the opportunity to establish HSAs, but I
would be very interested and intrigued to find out how many of
my 534 other colleagues in the House and in the Senate have
actually established HSAs to see how valuable they really are
to the American public. With that, I will yield back the
balance of my time.
Chairman THOMAS. Gentleman from Illinois, Mr. Weller.
Mr. WELLER. Thank you, Mr. Chairman. I appreciate the panel
being with us here. Mr. Lutey, my Illinois constituent, I am
going to direct questions to you.
You are not-for-profit; you are not in the business of
making money. You are in the business of providing social
services. So, you want to make ends meet, and you had indicated
in your testimony you found HSAs to be, frankly, a successful
way to reverse a trend that you had stated in your testimony,
the trend 2 to 3 years ago was more and more the responsibility
of the financial burden for health care coverage was being
shifted to the employees.
Mr. LUTEY. Correct.
Mr. WELLER. As a result of using HSAs you reversed that,
and you as an employer, as a not-for-profit, were able to
increase your share of those costs and provided more as an
employee, a benefit. As part of your testimony though, you--as
part of our oversight, we are always looking for ways to make
things better, and while you had some positive statements, you
also had some recommendations about how you feel HSAs can be
improved, both from an employer's perspective, but also for the
health of the employee.
One of the recommendations was dealing with comparability
rules regarding income levels and the amount of contributions
that you can make. You suggest contributing more to lower-
income employees because higher-income employees could afford
to contribute more in their share. Can you further elaborate on
that idea and how that would work from your perspective as well
as the employees?
Mr. LUTEY. I would be glad to, and I appreciate the
question. We are doing this not because of tax advantages and
we are not doing this because somehow we are going to be
gaining from this process. We are doing it because we believe
that this truly is a way that can promote wellness in our
organization, and a way to truly affect the employee base and
attract new employees to our company.
In my organization, 90 percent of the employees in the plan
make less than $50,000, and 47 percent of the employees in the
plan make less than $30,000 a year. If I had the opportunity
and the ability to put more money into the HSA accounts of
those individuals who made less than $30,000, and individuals
who had the ability to deposit more pre-taxed contributions out
of their own salary, I would be better able to address the
adverse impact issue. I would be able to address the issue of
employees perceiving that the plan is too expensive when they
are standing there at the pharmacy, wondering, how am I going
to pay for this?
As I said earlier, for many of my employees, the choice
they make is not between high plan and low plan. It is between,
``can I afford insurance or will I buy milk for my kids?'' So,
if there are ways that I can increase the dollars that are
available to them and have less out of pocket for them to pay,
I believe the plan could truly be successful and impact
positively those individuals who are uninsured and who are
coming to us to work.
Mr. WELLER. So, these lower-income workers for your not-
for-profit would be able to essentially have more take-home pay
because they would be required to put in less because the
employer would be putting in more?
Mr. LUTEY. Exactly right. I know some of my colleagues may
disagree with me here at the table, and to be quite frank, you
may not hear this again from a witness: I am not asking you for
more money. I am asking you to allow me to rebalance the
dollars I have; to be able to put more money into the HSAs of
low-income employees rather than the higher ones so the working
poor who can have greater ability to use those dollars for
health care needs.
Mr. WELLER. You have also suggested greater flexibility and
your point is, in the long term, we can prevent large health
claims by encouraging better preventive measures, and one of
those suggestions was opening the rules around prescription
drugs for preventive care. Can you elaborate on that?
Mr. LUTEY. Yes. One of the questions earlier--I believe Mr.
English asked the question--what could happen to improve HSAs
for me is, anything you can do to help describe preventive care
with a broader definition. Anything you can do to assist
employees to make good decisions around their health care would
be beneficial. I would far prefer to pay for Lipitor and other
preventative medications for my employees who have diabetes and
other chronic diseases than to pay for the complications of
those diseases when the employees choose not to take the
prescribed medications because they don't believe they can
afford it.
So, whatever you can do to make preventative prescriptive
drugs available for them would be helpful. In addition, if I
may refer back to another question asked earlier, one of the
key differences for us, that we talk about with our employees,
is the reality that there are no lost dollars with an HSA. With
HMOs you go in and you also have copays. Well, where do copays
go? They just disappear into thin air. In our HSA plan, every
dollar that an employee spends counts toward their deductible.
Dollars are simply gone out the window. If I can help employees
understand that better; if they are willing to make that
investment in purchasing their prescription drugs. The plan can
move forward.
Mr. WELLER. I thank you for your testimony. I see my time
has expired. Thank you, Mr. Chairman.
Chairman THOMAS. Mr. Lutey, I really appreciate your ideas.
You need to understand though, the fraternity of witnesses may
not allow you to join if you continue to repeat that you are
not here asking for more money. I just want you to appreciate
the consequences of your statement.
[Laughter.]
Chairman THOMAS. Gentleman from North Dakota wish to
inquire?
Mr. POMEROY. Yes, I do, Mr. Chairman. I begin with a
question of the Chair. Today's Roll Call has an editorial
entitled Tax Exempt Corruption, and it includes in its first
paragraph, ``It is time for the Ways and Means and Senate
Finance Committees to follow up with probes of the misuse of
tax exempt foundations.'' It goes on to call for hearings to
expose the practice of using foundations as conduits for
special interest political money. This gets to the kind of
Abramoff schemes that detailed somewhat in the editorial, but
publicized of late and it has been a matter of inquiry for the
Senate Committee on Finance.
I know the Chairman has been interested in tax exempt
entities. We have had hearings on nonprofit hospitals, we have
had a hearing on the credit unions and I have asked the
Chairman whether hearings are anticipated on these nontaxed
foundations that have been involved in the political corruption
allegations.
Chairman THOMAS. Would the gentleman yield?
Mr. POMEROY. I yield.
Chairman THOMAS. The answer's absolutely. We are stating--
we have begun as the gentleman noted a systematic study of the
not for profits. We thought we would start with those that
involve the most billions of dollars of taxpayers' money--that
was the hospitals--and the second largest group was the credit
unions and we will continue on down the line looking at all of
the not for profits and their structures. This is going to be
an ongoing investigation. It hasn't been done for a quarter of
a century, and we will finish with then having some
understanding of where we need to go back and make some
changes. Clearly, if something shows up of immediacy, for
example, somebody telling someone, go get a cashier's check for
$1,000 before you can get services from a not for profit
hospital, we will make corrections as we go forward, but the
goal is to have a thorough hearing of the nonprofit area and
move for changes.
Mr. POMEROY. Reclaiming my--thank you, Mr. Chairman.
Chairman THOMAS. This won't come out of the gentleman's
time.
Mr. POMEROY. Thank you. Then I would just add, even though
the dollars relative to the class of foundations that Members
have an interest in would probably be small relative to the
broad array of nontaxed entities, because of the potential of
corruption or undo influence related to those nontaxed
foundations, I think it needs to play a much higher role than a
systematic review of what is taxed and what is not taxed. This
really gets to the integrity of the function of Congress. It
involves squarely a tax issue and ought to be, as the editorial
says, a matter of, in my opinion, immediate Committee on Ways
and Means inquiry.
Chairman THOMAS. Gentleman yield?
Mr. POMEROY. Yes.
Chairman THOMAS. That is always a possibility although when
you talk about squandering money or corruption and
misrepresentation, I invite you to the billions and billions of
dollars involved in those entities we have already examined,
and it is in the eye of the beholder, to a certain extent. Had
we used some other structure, we would have been accused of
going after particular groups. We could choose alphabetical. We
could choose the dollar amounts involved, but I agree with the
gentleman that clearly when something pops up and presented to
us, we might be able to move them to the head of the queue. As
was indicated by nonprofit hospitals that might have someone
come up with $1,000 cashier's check, in a tax preferred
mission, we should not allow that to happen. So, clearly the
gentleman--reordering based on current events, and I think that
will come out of the gentleman's time because of the focus on
the current hearing.
Mr. POMEROY. I thank the Chairman. I look forward to the
hearing. Question for the panel: where I am very concerned
about HSAs is where we are going from here. The Administration
has proposed taking the amounts of HSAs up significantly
higher, and then allowing those attempts to be used in
individual health insurance. What I think we are seeing here is
a move to try and move health coverage provided through the
employer group format into a defined contribution type of
contribution by the employer rather than the present defined
benefit. Right now the employer buys a coverage. Whatever copay
or deductible is allowed to the employee, the coverage is
provided and pays the claims incurred.
What I believe is afoot behind the Administration's
proposals is to transition this type of group benefit into a
fixed cash amount which would be given to the employee under a
benefit structure and the employee is then responsible to go
buy their own individually-sold health insurance.
I used to be a State insurance commissioner. I believe this
change would significantly short-sell individuals in the
workforce. I believe it would ultimately lead to the demise of
our private pay health insurance.
I would ask Ms. Ignagni whether or not this transition from
a defined benefit to defined contribution, from group coverage
to individual coverage, albeit with some employer sponsorship
is a trend that they support.
Ms. IGNAGNI. Mr. Pomeroy, I think, as you know, our view is
that employers and individuals should decide what products are
best for them, point number one. Point number two, we don't
think that anything should be done to exacerbate the burden on
employers, which is why I answered the Chairman's question the
way I did.
At the same time we I think all recognize that the nature
of work is changing. There are many individuals who are
retiring relatively early who are doing consulting type of
work, independent contractor type of work, and enter the
insurance arena themselves as opposed to being sponsored by an
employer.
So, in that regard we believe in a level playingfield; that
we ought to maintain what we have for employers but at the same
time offer the same opportunities for individuals purchasing on
their own who may very well be in that early retirement
category, somewhere between 50 and 65, which is why we have
testified to the fact that there should be a level
playingfield.
Right now if you are an individual purchasing--if you are
in that category and unsponsored by an employer, you can't
deduct that, of course, until you hit a certain percent, as you
know, of adjusted gross income.
Mr. POMEROY. I have worked long and hard for self-employed
deductibility, but the transition of employer group coverage to
employer-sponsored, individually purchased coverage by the
employee I believe is a serious development and a very adverse
one relative to health insurance.
Ms. IGNAGNI. I want to make it very clear in terms of where
we are. We are not advocating a product, we are not advocating
a type of structure. Our job as insurance plans is to be there
to offer the range of choices that employers and individuals
want. We take that very seriously, we have tried to do that.
I might say also to the question that was going back and
forth about the numbers of people who have opened up accounts,
the GAO has information about that: 50 to 60 percent of
individuals in the HSA arena have opened up accounts. We have
cited that in our testimony, which I think, Mr. Pomeroy, also
bears on your question.
Chairman THOMAS. The gentleman's time has expired but you
may respond briefly.
Mr. LAUER. Only an observation, but we are seeing more
employees in companies coming into the individual market for
various reasons. I think a lot of it is market-driven.
We are finding, more and more, employers don't want to make
the decisions for employees about how best to cover them; that
they want the employee to make the decision.
We are also seeing, for example, and you saw it this week,
some 45,000 people that took the buyout from General Motors.
Those people are coming in the way--this point was made, many
are older, pre-retiree age, and they are going to need a good
option.
Chairman THOMAS. Obviously, if you are interested in
preventive care and wellness, we can't have a paternally
structured arrangement. You have to get the participation of
the individual.
The gentleman from Virginia, Mr. Cantor, wish to inquire?
Mr. CANTOR. Mr. Chairman, thank you. First of all, I want
to thank you and your staff for holding this hearing and for
doing excellent work to get such a terrific panel. I have
enjoyed the discussion. I think it has been tremendously
helpful as we deliberate on the issue of health care,
specifically HSAs today.
I want to respond to my colleague and friend from North
Dakota on the other side of the aisle about his concern of our
move away from employer or group coverage. I have to agree with
the panel that it really is being dictated by the marketplace.
First we have to consider the cost on employers. Mr. Lauer
testified that, frankly, we don't want to do anything to
provide disincentives for employers to provide coverage because
the fact is they are having a hard enough time trying to keep
up with the escalation in health care costs. It is just the
reality of the market.
Several have testified as well that more and more
individuals in independent contracting positions, retirees, and
so forth, move into the market, obviously plans have gravitated
in that way too.
So, it really just concerns me as I hear some on the other
side attack HSAs as somehow the evil incarnate that awaits us.
I would say that, as the gentleman from Pennsylvania suggested
earlier, HSAs are not a panacea. They are being utilized as
just one more option in the buffet of health care options
provided by employers and that hopefully are going to be chosen
by individuals.
To me it seems that some of the panelists have indicated
opposition to HSAs. Why would you do that? The facts are
clearly laid out for the individuals who have had this real
world experience and that they are working and the demographics
and distribution of population participating in HSAs don't seem
that much different than the traditional plans.
Now the purpose I see of expanding and liberalizing HSAs is
to really try and change behavior; it is not immediately about
saving money, although it will result. If I could quote Mr.
Cava: There has to be a sustained change in behavior that leads
to a sustained improvement in health. With this change in
behavior we will begin to see more health conscious activity,
and frankly, more value conscious patients. This will
ultimately bring down costs. As we know, wellness participation
will lead to less acute care utilization. Bringing down costs
will increase access.
Now I want to respond to some of the testimony having to do
with emergency room situations or if someone experiences a
heart attack and the notion that we are going to expect
individuals to be consumers in that instance. Of course we are
not. That is clearly not the issue. Health Savings Accounts
provide against major medical expenses and they also provide a
way for individuals to save tax-free for routine health care,
and again, that is the bulk of health care activity, health
care attention by individuals.
So, if I could turn for a question to Mr. Cava on the
ownership question, the question that we are providing a way
for individuals to save and own their account, the notion of
portability has been raised here. As an employer, can you share
a little bit of insight as to your thinking on--you provide
this money, and unlike traditional health care coverage with
where the money is provided, the benefit is either used or not
and the year is up and we go to the next, that an employee may
take the money, take the benefit and leave.
Mr. CAVA. Well, thank you, Mr. Chairman, Representative
Cantor. This is a debate, it is an important debate, and I do
believe it is about a long-term change in behavior and not just
about saving a dollar or two today.
What we have been excited about is that we have created
ownership amongst 90 percent of our employees. They have
positive balances in their HSAs. That is currently 95 percent
in fact.
We are a higher turnover business and it is encouraging to
see that of those 90 percent, now 95 percent of the people who
do have positive balances in their HSAs, that equals over $4
million, closer, I think the latest, it is $5.6 million as of
today, the latest statistics, that we have now transferred to
our employees. That money would have gone somewhere else. I am
not quite sure where, but I know it wouldn't have gone to our
employees.
They are accumulating wealth for the purpose of taking
better care of their health. We are seeing changes in attitudes
about behavior associated with preventive care, real measurable
changes as a result of making people part owners in their
health care. We are making it a number one priority like buying
health insurance should be.
These are folks in my business, general managers of
restaurants, shift supervisors of restaurants who make
decisions about renting houses, buying cars, who make decisions
about sending their children to school, who make decisions
about all the same things that everybody here makes decisions
about. Now what they are showing us is they have the capability
to make great decisions about themselves and their health care.
It is about ownership, it is about partnership, and it is
absolutely directionally where we need to go. Having said that,
can we improve? Absolutely. There are some fixes that we can
make to the HSA structure that could be helpful to us.
Chairman THOMAS. Thank the gentleman from Virginia. Does
the gentlelady from Ohio wish to inquire?
Ms. TUBBS JONES. Thank you, Mr. Chairman. Just for the
record I want to be sure that the American people know that as
Congresspeople working on health care, it is not about a
paternally structured arrangement, it is about access to health
care for all people in America, paternal, maternal whatever the
heck you want to call it. It is about the people who are not in
a position to make real decisions about health care coverage
because they have no dollars to save. It ain't about paternal,
it is about the need for us to put in a structure that will
allow all people in America to have health care; the richest
country in the world, where people come from all over the world
to get health care and the people right down the street can't
access it.
I had to say it for the record because everybody else is
talking about paternally structured and wellness participation
and all this other stuff. It is about access to health care for
all Americans, however we do it.
Let me just quickly ask Mr. Cava, what is the wage you pay
a student, or older worker that walks up to Wendy's and says I
want a job? No experience. You use up too much of my time
saying ``Mr. Chairman.'' Could you just answer the question?
Mr. CAVA. Could you repeat the question, please?
Ms. TUBBS JONES. The question is the person who walks----
Chairman THOMAS. Will the gentlewoman yield? Any courtesies
by Mr. Cava will not come out of your time.
Ms. TUBBS JONES. Mr. Cava, someone walking up to Wendy's,
getting a full-time job, how much do they make an hour?
Mr. CAVA. It depends upon the position for which they are
applying.
Ms. TUBBS JONES. Entry level.
Mr. CAVA. Entry level, crew level, our average wage for the
system is somewhere $7.50 an hour.
Ms. TUBBS JONES. $7.50 an hour. Of the 10 percent, 10,000
who have an HSA or participate in HSA, how many of them are
workers who make $7 an hour?
Mr. CAVA. Very few.
Ms. TUBBS JONES. Why is that?
Mr. CAVA. Why is that?
Ms. TUBBS JONES. Let me make it plain. Why is that?
Mr. CAVA. That is a very global question, Representative,
and let me think and reflect on that.
Ms. TUBBS JONES. I think it is going to take too long to
reflect with the minutes I have. Can you give me something back
in writing? I guarantee you, Mr. Cava, most people making $7.95
an hour can't access an HSA because they are paying $3 a gallon
for gasoline, $3.50 for a loaf of bread, and so forth. It is
not to say--all I am suggesting to you is it sounds like a
great idea but if you are not making enough money to eat,
sleep, saving for health care is a difficult process, even
though they want to participate in wellness, because being
well, participation is an expensive proposition and all the
studies say that most low income people are not healthy because
they can't afford to be healthy. I thank you for your testimony
and I want to be as polite to you, Mr. Cava, as I can but I
can't allow the stuff that is being said in this hearing to go
without being challenged.
I am going to go to my constituent. Please answer why most
low income people or people at that level are not participating
in HSAs and please respond as to what is the problem with your
provision of health care through a practice with HSA. Who are
you seeing, why are they coming to you?
Ms. THERRIEN. The primary reason they would come to us is
either that they are completely uninsured, which sounds like
many of your workforce for whatever reason is uninsured, or if
they have an HSA account and if there are no funds, or even if
there were funds in the account, they would first need to come
to us where we would offer them a discount, then later if they
had any money in an account, which they wouldn't, they would be
able to get to that money. So, the primary reason that folks
are coming to us is simply because they have nowhere to turn.
If they are making $8 an hour, they meet Federal poverty
standards. Even as a single person they would meet Federal
poverty standards. We would offer a discount on the sliding
scale based on family size and income. It would be affordable
to seek care at our place, and we have a very heavy emphasis on
wellness and on prevention.
Ms. TUBBS JONES. The other problem that is presented by
creating individual health accounts is you reduce the pool of
healthy people available for an employer to have to be able to
provide health care for all.
Ms. THERRIEN. I really can't speak to that.
Ms. TUBBS JONES. I am going to go to the health care
people. Answer that question for me.
Ms. IGNAGNI. We do not see that happening because we have
an equal distribution of people over and under 40, roughly.
Ms. TUBBS JONES. How do you keep that equal distribution in
place?
Ms. IGNAGNI. What we do is we make sure that as health
insurers--I can't speak to what the employers decide to offer,
but I can tell you what we are providing for their
consideration. You have a robust system of preventive care,
including maternity, and you make sure that you have a
structure where there is disease management and there is
opportunities to handle----
Ms. TUBBS JONES. Let me ask this question, in most health
care programs the reason the employer has the ability to
provide the health care is the risk is for the whole pool, not
for an individual and that is what makes health care affordable
for a pool of people, because you have both the unhealthy and
the healthy.
Chairman THOMAS. The gentlewoman's time has expired.
Ms. TUBBS JONES. I guess you can't.
Chairman THOMAS. You certainly can, and all of us are
anxious to see the written responses to the various questions.
Does the gentleman from Colorado, Mr. Beauprez, wish to
inquire?
Mr. BEAUPREZ. I do, and thank you for holding this hearing.
It has been an exceptional panel and I think you have provided
us very current information. I appreciate it very much. Mr.
Cava, continue on that question. Did I understand right that
your company provides a 60-40 match, so 60 percent of the
contribution in HSA you are contributing, did I hear right, on
a quarterly basis?
Mr. CAVA. That is correct. We did contribute this last
year, half of the entire amount on January 3.
Mr. BEAUPREZ. So, that money would be there regardless?
Mr. CAVA. That is correct.
Mr. BEAUPREZ. The $7 an hour employee or somebody making
more than that wouldn't have zero money, they in fact would
have your contribution?
Mr. CAVA. Mr. Chairman and Representative Beauprez, I wish
I had time to respond.
Mr. BEAUPREZ. There wasn't much time.
Mr. CAVA. The hourly employee that works for us may indeed
have coverage, and that is hard for people to understand. These
are second jobs, they are second wage earners, they are part-
time employees who are covered by their parents or others. So,
it is very misleading to suggest that they do not have
coverage.
Mr. BEAUPREZ. Exactly. Mr. Jackson, I believe you stated
that a year or so ago your health care premium cost to Buffalo
Supply was $102,000. I am rounding. A 21 percent increase would
have gotten you to $123,000. I did just some simple arithmetic,
but if that 21 percent continued for 3 more years, in the
course of 4 calendar years your health care costs at Buffalo
Supply would have way more than doubled.
What is the single biggest reason for the drop in employer-
sponsored health plans, either the elimination of, or as I have
heard from a number of companies that used to provide 100
percent coverage, I can no longer do that, I am going to
provide half coverage, I used to provide dependent coverage, I
can no longer do that. So, the reduction or in some cases
elimination, what is the single business reason?
Mr. JACKSON. The cost.
Mr. BEAUPREZ. Sooner or later you can't keep up. Now what I
understand from my insurance commissioner back in Colorado, and
this is very fresh information as of last Saturday morning, is
that it is not 31, not 33 percent, but in Colorado, with
current information, 41 percent of the people that have opened
HSAs were previously uninsured. Now, by any measure, I think it
is irrefutable that one of our objectives here in Congress
should be to reduce the number of people that are uninsured and
by at least my information this has been successful.
I would submit to all of you, in the timeframe we are
talking about, since HSAs have been made available, has there
ever been anything that we have done, that we have created,
that we have incentivized that has had a more immediate or a
larger, more significant impact on reducing the ranks of the
uninsured?
Mr. JACKSON. No. I wouldn't think so.
Dr. COLLINS. The State Children's Health Insurance Program.
Mr. BEAUPREZ. This is a free market program. I think a
point that has been made, and I would submit to you that some
of us have a particular bias to incentivizng the marketplace to
do what we have seen happen here. I think it was Mr. Lauer, Mr.
Jackson, perhaps Mr. Lutey who spoke to the need of
transparency, I think maybe Mr. Lauer spoke most profoundly to
it, to empowering the individual to make choice. If I had no
idea what this suit would cost, I wouldn't care, especially if
somebody else was picking up the tab. I wouldn't care. I would
just get another suit, put it on the tab, especially if it was
the company tab.
We are all concerned in bending the curve, aren't we? I
hope we are, in the rising cost of health care. I think what
you have pointed out, Mr. Lauer, is clear indication of one way
to do that. Inform and empower the consumer, the end point, the
utilizer of health care, whether that is a pharmaceutical drug,
whether that is a medical procedure, to make that choice, to
make that choice. I think that is one of the most dramatic
cultural behavioral shifts we could have incentivized and
witnessed, and frankly I am here to celebrate that. Any of you
care to respond?
Mr. LAUER. My only comment would be, we find in our
membership base that when employees have information and
knowledge they make good decisions.
Mr. BEAUPREZ. I particularly thank the panel for the
recommendations you have made to improve HSAs. I think it is a
very, very good first step. I look forward to seeing them
improved and utilized even greater. Thank you all. Mr.
Chairman, I yield back.
Chairman THOMAS. Thank the gentleman. The Chair also
appreciates the panel. I think one of the things we need to
focus on is it needs to be a multi-faceted approach, especially
for low income people. We have got to talk about providing
their ability to have the wherewithal to participate. The
gentlewoman from Ohio is right. One of the things we need to do
is double our efforts to make sure those people who are
otherwise eligible for the low income programs on the book
through Medicaid and others, we maximize the number of people.
Now there are a number of people who are not utilizing those
services. We have to make sure they are available.
One of the points I hoped would occur in the discussion of
this new tool, HSAs, is as someone has said, they are not a
panacea. They weren't perfect coming out of the box. What we
are trying to do is adjust options for people to make choices.
I do believe, however, that as we move to preventive and
wellness without full participation by the consumers with the
wherewithal to make the choices and with transparency on the
part of providers in terms of what the costs are, you will
never be able to move forward and educate individuals. I don't
expect people to be total experts in this area. We all have
people who are experts available for advice. To assume
individuals cannot make decisions for themselves, and if they
have the information and the knowledge and the wherewithal,
they can't make decisions that will improve the overall health
care of Americans. This is not a panacea. It is an opportunity
to begin to look at incorporating individuals into helping us
control the costs rather than being simply consumers of a first
dollar, third party program in which neither the consumer nor
the provider has any idea of the cost.
I want to thank you very much. We will be back
occasionally. We do want to hear from the critics. We do want
to make adjustments. We want to make these available, not to
try to put this in a stark position, but to see and reflect how
the changing marketplace requires us to respond with changing
incentives.
The Massachusetts program I think cannot be copied
everywhere. There are some good ideas there, but more
importantly, take a look at the government programs that have
been out there for some time and somehow sometime, it seems to
me, that there is a relishment in how many people are uninsured
when in fact if we doubled our efforts to get them into the
programs that are already there, you would see a dramatic
reduction in the number of uninsured.
So, I want to thank you again. The Committee stands
adjourned.
[Whereupon, at 1:03 p.m., the Committee was adjourned.]
[Questions submitted from the Honorable Fortney Pete Stark
to Sarah Collins and her responses follow:]
Question: You mentioned the high administrative costs of purchasing
insurance in the individual market. Why is it so important to pool
risk, and how do HSAs in the individual market undermine this important
aspect of an insurance market?
Answer: The administrative costs of individual coverage comprise
25-40 percent of each premium dollar compared to 10 percent of group
coverage.\1\ This means premium dollars buy fewer benefits in the non-
group market than they do in employer group markets. For example,
research has shown that few plans in the individual market, even with
low deductibles and higher premiums, provide maternity benefits without
a special rider.\2\
---------------------------------------------------------------------------
\1\ J. Gabel, et al., Are Tax Credits Alone the Solution to
Affordable Health Insurance? Comparing Individual and Group Insurance
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
\2\ S. R. Collins, S.B.Berkson, D.A. Downey, Health Insurance Tax
Credits: Will They Work for Women? (New York: The Commonwealth Fund)
December 2002; J. Gabel, et al., Are Tax Credits Alone the Solution to
Affordable Health Insurance? Comparing Individual and Group Insurance
Costs in 17 U.S. Markets (New York: The Commonwealth Fund), May 2002.
---------------------------------------------------------------------------
In addition, to remain competitive and to be responsible to their
shareholders, insurers in the non-group market necessarily estimate
risk and set premiums sufficiently high to cover risk. This means that
people who are older, who are in poorer health, or have a chronic
health problem like diabetes or heart disease will either be charged a
higher premium than younger and healthier people, have their condition
excluded from their coverage, or be turned down for coverage all
together. Some states like Massachusetts, New Jersey and New York have
strong individual market regulations that require community rating
(everyone is charged the same premium regardless of age or health
status) or impose age rating bands which limit the degree to which
premiums charged to older people can exceed those charged to younger
people.\3\ But in states that have less regulated individual markets
such as Kentucky, Kansas, Washington and Iowa, there is no community
rating and carriers can reject applicants based on medical underwriting
criteria. In these four states Nancy Turnball and Nancy Kane found that
as many as 30-40 percent of applicants in the case of some insurance
carriers are rejected for coverage.\4\ In Kansas and Kentucky, carriers
can impose permanent exclusions for pre-existing conditions. Turnball
and Kane found that in Kentucky there is 14-17 fold difference in
premiums for the same insurance product based on health and age. While
a 25-year old Kentucky man could buy a $2,500 deductible plan for just
$624 a year, a 63 year-old man would be charged $2,736 for the same
product. If the 63 year-old had health problems and was eligible for
coverage in the Kentucky's high risk pool, the lowest premium for a
$1,800 deductible plan was $10,800 annually.
---------------------------------------------------------------------------
\3\ Nancy Turnball, Nancy Kane, Insuring the Health or Insuring the
Sick? The Dilemma of Regulating the Individual Health Insurance Market,
Findings from a Study of Seven States, (New York: The Commonwealth
Fund) February 2005.
\4\ Nancy Turnball, Nancy Kane, Insuring the Health or Insuring the
Sick? The Dilemma of Regulating the Individual Health Insurance Market,
Findings from a Study of Seven States, (New York: The Commonwealth
Fund) February 2005.
---------------------------------------------------------------------------
In its most recent 2007 fiscal year budget, the Administration
proposed additional tax incentives for people to purchase HSA-eligible
high deductible health plans (HDHPs) in the individual market. The
proposals, which aim to equalize the tax treatment of HSAs in the
individual market to those in the employer market, would allow a tax
deduction for premiums associated with HSA-eligible HDHPs in the non-
group market, along with a tax credit of 15.3 percent to offset the
premium cost. But based on what we know about the individual market--
much higher administrative costs and pricing (and exclusions) based on
age and health--it is unclear why we would want to encourage a shift
away from natural risk pools like large employer groups to the
individual market on either efficiency or fairness grounds. Individuals
are covered by employer group coverage by virtue of taking a job, not
because they incur, or expect to incur, a health problem. Such a
leveling of the tax treatment will lead to higher costs in the health
system and more uninsured people as employers, who no longer feel
compelled to offer tax-advantaged benefits, drop coverage. Jonathan
Gruber estimates that the Administration's proposals would actually
increase the number of uninsured Americans by 600,000.\5\ While 3.8
million previously uninsured people would become newly insured through
HSA-eligible HDHPs in the individual market, many employers, especially
small employers, would respond to the equal tax treatment of some
policies in the individual market by dropping coverage. Consequently,
Gruber estimates that 8.9 million people would lose their employer-
based health insurance. While some people who lose their coverage would
buy insurance in the individual market, about 4.4 million would become
uninsured.
---------------------------------------------------------------------------
\5\ J. Gruber, The Cost and Coverage Impact of the President's
Health Insurance Budget Proposals, Center on Budget and Policy
Priorities, February 15, 2006.
---------------------------------------------------------------------------
Moreover, if employer contributions to health benefits were made
all or partly taxable, as some policy makers have suggested, this would
burden lower-wage workers most as a percent of income. Thus it is
regressive, not progressive, to partly or fully reduce the tax
exemption for employer provided benefits when the benefit is correctly
measured as a percent of income.
Question: Ms. Ignani testified that HSA-compatible high-deductible
health plans are taking off in the group market. Isn't this something
we should be alarmed by? Doesn't this mean that workers are at risk of
losing more comprehensive coverage?
Answer: Yes, this means that people will have less comprehensive
coverage depending on what services employers exclude from deductibles,
and higher first dollar expenses, depending on the degree to which the
employer funds their employees' HSAs. According to the Kaiser Family
Foundation/Health Research and Educational Trust 2005 Survey of
Employer Sponsored Health Benefits, a national survey of 3,000
employers, employers who offered HSA-eligible plans in 2005 reduced
their annual premium contributions for an employee's single coverage on
average from $3,413 to $2,270.\6\ The average employee premium
contribution in HSA-eligible plans was $431 compared to $610 for all
plans. But the average deductible in HSA-eligible HDHPs was $1,901
compared to $323 in PPO plans. Moreover, employers on average
contributed $553 to employees' HSAs, just 30 percent of the deductible.
This average contribution includes the 37 percent of workers who
received $0 contribution from their employers. Thus workers' potential
contributions to HSA-eligible HDHPs including deductibles minus the
employer HSA contribution was $1,779 compared to $933 for all plans.
---------------------------------------------------------------------------
\6\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a national Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
---------------------------------------------------------------------------
Though employers are able under the law to exclude preventive
services from the deductible of HSA-eligible plans, the KFF/HRET Survey
found that in 2005 just 30 percent of workers covered by an HSA-
eligible plan had some preventive services covered within the
deductible.\7\ Also, the law does not allow for coverage of other
important preventive services such as primary care visits or chronic
disease management which could help prevent more serious and costly
health problems from developing in the future.
\7\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a national Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
Question: Can you explain for us what happens to costs for more
comprehensive group coverage as younger healthier people move to HSAs?
Answer: In the employer group insurance market, the average
deductible for a single person in a PPO plan according to the Kaiser
Family Foundation/HRET 2005 Survey of Employer-Sponsored Benefits was
$323, far lower than the average for HSA-eligible high deductible
health plans (HDHPs) of $1,901.\8\ When employers offer an HSA/HDHP as
a choice among other plans they are most likely to be attractive to
healthier, higher income employees. This is because these employees
have higher marginal tax rates and thus derive the greatest benefit
from the tax benefit. They also have higher saving rates, and will be
less likely to draw down their accounts to pay for health services so
that they will be able to accumulate balances over time.\9\ The General
Accountability Office (GAO) found in a study of enrollment in the
Federal Employee Health Benefits Program's (FEHBP) HSA/HDHP product
that 43 percent of those enrolled in the HDHP/HSA plans had incomes of
$75,000 or more, compared with 23 percent of those in all FEHBP
plans.\10\ Rates of enrollment in the plans were higher among Federal
employees under age 54 than among those ages 55 to 64.
---------------------------------------------------------------------------
\8\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a national Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
\9\ S.A. Glied and D.K. Remler, The Effect of Health Savings
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund)
April 2005.
\10\ Government Accountability Office, Federal Employees Health
Benefits Program First-Year Experience with High-Deductible Health
Plans and Health Savings Accounts, Washington, DC: GAO, January 2006;
OPM, http://www.opm.gov/insure/handbook/FEHBhandbook.pdf.
---------------------------------------------------------------------------
When an employer offers a product that is most attractive to
healthier employees, a significant shift of those employees into the
new product can leave an increasingly less healthy pool of employees in
non-HSA/HDHP health plans.\11\ This can have the effect of increasing
premiums in those plans, making them less affordable for employees in
worse health, and with lower incomes. As Sherry Glied and Dahlia Remler
point out, the worst case scenario is an escalating premium spiral that
might ultimately lead to the disappearance of more generous health
plans, even if they have been working efficiently prior to the
introduction of the HSA/HDHP product.\12\
---------------------------------------------------------------------------
\11\ S.A. Glied and D.K. Remler, The Effect of Health Savings
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund)
April 2005.
\12\ S.A. Glied and D.K. Remler, The Effect of Health Savings
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund)
April 2005.
---------------------------------------------------------------------------
Many small employers only offer one product--just one-third of
insured workers in firms with fewer than 200 employees have a choice of
health plan.\13\ If small employers fully replace more generous health
plans with HSA/HDHPs, this will disadvantage lower income, less healthy
employees who benefit less than higher income employees from the tax
benefits of HSAs and are less able to contribute to, or accumulate,
balances in HSAs.\14\ This increases the risk that lower income
employees, facing tradeoffs from other living expenses, might drop
coverage if the plans' total costs, including out-of-pocket
expenditures, are higher than those of more comprehensive plans they
were offered in the past.
\13\ Kaiser Family Foundation and Health Research and Educational
Trust, Employer Health Benefits, 2005 Annual Survey, (Washington DC:
KFF/HRET) 2005.
\14\ S.A. Glied and D.K. Remler, The Effect of Health Savings
Accounts on Health Insurance Coverage (New York: The Commonwealth Fund)
April 2005
Question: Is there any indication that savings employers are
realizing from switching to HSA plans is being given back to employees
in higher salaries?
Answer: There is no evidence to date that I am aware of that this
has occurred. National health care spending is climbing by more than 7
percent per year and is expected to continue to outpace growth in the
economy by a substantial margin.\15\ The average annual cost of family
coverage in employer-based health plans, including employer and
employee contributions, topped $10,880 last year, more than the average
yearly earnings of a full-time worker earning the minimum wage.\16\
Employers are coping with rising premiums by passing along more of
their costs to employees or eliminating coverage altogether. Many
employers have turned to HSA/HDHP products as a way of lowering their
health care costs. These plans alleviate the employer's cost-burden by
increasing cost-sharing among their employees. It is not as if overall
health care costs are declining, such that employers might be willing
to capture the windfall in the form of profits, larger annual salary
increases for their workers, or lower prices for consumers. Those
employers facing rising premium costs have explicitly sought to share
those increases with their employees in the form of much higher
deductibles, and with low contributions to HSAs on average.
---------------------------------------------------------------------------
\15\ Stephen. Heffler, et al., ``U.S. Health Spending Projections
for 2004-2014,'' Health Affairs Web Exclusive 23 Feb 2005; C. Smith, et
al., ``National Health Spending in 2004,'' Health Affairs (Jan/Feb
2006): 186-196.
\16\ Jon Gabel et al., ``Health Benefits in 2005: Premium Increases
Slow Down, Coverage Continues to Erode,'' Health Affairs 24 (September/
October 2005): 1273--1280.
---------------------------------------------------------------------------
It is an open question whether employers that experience year over
year declines in health care costs because their employees are paying
more out of pocket for their health care would increase their workers'
wages. According to economic theory, employers who do not offer
employee benefits compensate their employees through higher wages.\17\
Those companies that do offer health care benefits reduce wages such
that the total compensation package is equivalent to that of similar
workers employed by firms not offering benefits. In other words, the
cost of non-wage compensation is fully borne by employees. Yet there is
mixed empirical evidence that workers who do not have health benefits
receive higher wages. Indeed, higher wage earners are far more likely
to have health benefits through their jobs than lower wage workers.\18\
---------------------------------------------------------------------------
\17\ J. Gruber ``Health Insurance and the Labor Market.'' NBER
Working Paper no. 6762. (Cambridge, Massachusetts: National Bureau of
Economic Research) 1998.
\18\ S.R. Collins, K.Davis, M.M. Doty, J.L. Kriss, A.L. Holmgren,
Gaps in Health Insurance: An All-American Problem, Findings from the
Commonwealth Fund Biennial Health Insurance Survey (New York: The
Commonwealth Fund) April 2006; A. Monheit, M. Hagan, M. Berk, and P.
Farley,``The Employed and Uninsured and the Role of Public Policy.''
Inquiry 22(4) 1995: 348-364.
---------------------------------------------------------------------------
If health care costs for a firm are increasing, then companies that
offer employee health insurance likely will pursue some combination of
strategies that will help protect profits and shareholder earnings.
Employers may shift costs to employees by limiting the size of salary
increases or by scaling back other forms of compensation through
benefit reductions or greater employee cost-sharing. Employers may also
shift costs to consumers through price increases.
If health care costs are falling, or if companies are offering less
comprehensive benefit plans such as HSA-eligible HDHPs, employers might
reduce prices to consumers, increase the generosity of other employee
benefits, provide higher annual salary increases or increase profits.
But we do not know with precision whether those savings will be
provided equally to all workers, or just to workers who are younger or
less likely to be sick or injured or pregnant, or if they will be
diffused through a combination of higher wage growth, price reductions,
or higher profits.Information costs about worker health risks, the
minimum wage, and antidiscrimination laws likely preclude companies
themselves from achieving a precise offset of expected health care
costs with changes in compensation.\19\
\19\ L.H. Summers, ``Some Simple Economics of Mandated Benefits,''
American Economic Review 79(2) (1989): 177-83.
Question: Insurance industry studies have indicated that around
one-third of the people enrolled in HSA-qualified plans were previously
uninsured. Isn't this about the same number as the non-HSA individual
and small group market generally? Are HSA-eligible plans actually
contributing in any particular way to reducing the number of uninsured?
Answer: It has always been true that a high percentage of people
buying insurance in the individual market do so because they are
uninsured, and a large share of people in the non-group market have
high deductible health plans. According to the Commonwealth Fund 2003
Biennial Health Insurance Survey, 30 percent of adults 19-64 with
coverage in the individual insurance market had per-person deductibles
of $1,000 or more.\20\ This was prior to the introduction of HSAs.
Because a high percentage of people in the market were previously
uninsured it's not surprising that America's Health Insurance Plans
(AHIP) says that 31% of those buying individual coverage with high
deductibles were uninsured. But the new tax incentives to purchase HSAs
have little to do with this. The real way to judge the effect of HSAs
on the uninsured is how much higher the percentage of previously
uninsured in HDHPs in the individual market is than the historical
pattern.
---------------------------------------------------------------------------
\20\ S.R. Collins, M.M. Doty, K.Davis, C. Schoen, A.L. Holmgren, A.
Ho, The Affordability Crisis in U.S. Health Care: Findings from the
Commonwealth Fund Biennial Health Insurance Survey (New York: The
Commonwealth Fund) March 2004.
---------------------------------------------------------------------------
The individual insurance market has always served as a ``bridge''
or temporary home for individuals and families who could afford the
higher premiums during insurance transitions as a result of a change of
jobs, college graduates aging off parents' policies, people in waiting
periods for job-based benefits, early retirement or other changes. As a
result, in any given time period, a substantial share of new entrants
to this market were previously uninsured--but they typically are moving
through on the way to Medicare or group coverage. Klein, Glied and
Ferry find that 53 percent of those in the private non-group market
retain their coverage over a 2-year period compared with 86 percent of
those with private group insurance.\21\ Thus, the AHIP ``flow''
statistics repeat the historical patterns in this market. Unless we
start to see a decrease in the total number of uninsured, and an
increase in the percent of high risk groups insured, the ``flow''
statistics tell us little about the net effect of HSA-eligible HDHPs on
the total number of uninsured.
\21\ K.Klein, S. Glied, D. Ferry, Entrances and Exits: Health
Insurance Churning, 1998-2000 (New York: The Commowealth Fund)
September 2005.
Question: Prior to 2004, what were the median deductibles in the
individual and group markets? How have these levels changed as a result
of HSAs?
Answer: Deductibles in employer plans have risen sharply over 2000-
2005, as employers have sought to share more of their costs with
employees. According to the Kaiser Family Foundation/HRET 2005 Employer
Health Benefits Survey, among companies that offer coverage with fewer
than 200 employees, the average annual in-network deductible for a PPO
plan more than doubled over 2000-2005, climbing from $210 to $469.\22\
The average out-of-network deductible for a PPO plan in small companies
climbed from $383 to $676. For larger firms with 200 or more employees,
average annual in-network deductibles for PPO plans grew somewhat more
slowly than in smaller firms climbing from $157 to $254. Average out-
of-network deductibles in these larger firms rose from $319 to $510.
---------------------------------------------------------------------------
\22\ J.Gabel, J. Pickreign, Risky Business: When Mom and Pop Buy
Health Insurance for Their Employees. (New York: The Commonwealth Fund)
April 2004; Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits, 2005 Annual Survey,
(Washington DC: KFF/HRET) 2005.
---------------------------------------------------------------------------
In 2005, the average deductible for an individual in an HSA-
eligible HDHP across all firm sizes was $1,901. This is relative to an
average deductible in 2005 across PPO plans in all firm sizes of $323.
This is an increase from an average of $187 in PPO plans in 2000.
With so few workers enrolled in HSA-eligible HDHPs so far it is
hard to assess how much of the overall increase in deductibles in
employer group plans is attributable to more employees enrolled in
these HDHPs. But the trend since 2000 in employer group plans is toward
more employee cost sharing through higher deductibles especially in
small businesses, with HSA-eligible HDHPs being the extreme form of
such cost-sharing.
It is harder to get data on average deductibles of health plans
sold in the individual market. The Commonwealth Fund 2003 Biennial
Health Insurance Survey found that 30 percent of adults 19-64 with
coverage in the individual insurance market had per-person deductibles
of $1,000 or more.\23\ New preliminary evidence from the Commonwealth
Fund 2005 Biennial Health Insurance Survey shows only a slight increase
in the share of adults in the individual market with deductibles of
$1,000 or more. A large share of people in the individual insurance
market have always purchased high deductible health plans in order to
lower their premium costs. It is not clear whether the tax benefits of
HSAs will increase enrollment in these plans in the individual market.
\23\ S.R. Collins, M.M. Doty, K.Davis, C. Schoen, A.L. Holmgren, A.
Ho, The Affordability Crisis in U.S. Health Care: Findings from the
Commonwealth Fund Biennial Health Insurance Survey (New York: The
Commonwealth Fund) March 2004.
Question: How much of the reduction in premiums in HSA plans can be
attributed to higher deductibles?
Answer: According to the Kaiser Family Foundation/HRET 2005
Employer Health Benefits Survey, the average premium in 2005 for HSA-
eligible high deductible health plans for single coverage was $2,700
compared to $4,024 in all plans, or a $1,324 difference.\24\ The
average deductible was $1,900 compared to $323 in all plans, or a
$1,577 difference.
---------------------------------------------------------------------------
\24\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a national Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
---------------------------------------------------------------------------
Employers who offered HSA-eligible plans in 2005 reduced their
annual contributions to their employees' premiums for single coverage
on average from $3,413 in all plans to $2,270.\25\ The average
contribution to HSA accounts was $553 leaving the total employer
contribution to the cost of their workers coverage of $2,823, still a
$590 savings over their average contributions to single coverage in all
plans. In contrast, the average employee premium contribution in HSA-
eligible plans was also reduced to $431 compared to $610 for all plans.
But the reduced premium contribution for employees was more than offset
by the higher average deductible of $1,901. The average employer
contribution to the HSA of $553 was just 30 percent of the deductible,
leaving worker's contributions to the cost of their care at $1,779
compared to $933 in all plans, a $846 increase in employee costs.
\25\ G. Claxton, et al., ``What High Deductible Plans Look Like:
Findings from a national Survey of Employers, 2005,'' Health Affairs
Web Exclusive, September 14, 2005.
[Questions submitted by the Honorable Xavier Becerra to Mr.
---------------------------------------------------------------------------
Cava and his responses follow:]
Question: Thank you for appearing before the Committee on Ways and
Means on June 28 to discuss Health Savings Accounts (HSAs). As we
discussed, I have some specific questions about the health benefits
offered by Wendy's and your employee population. Given that your
business is frequently held out by proponents of HSAs as a model for
others, it is helpful to have a full understanding of your plan,
employees and other relevant data. Therefore, I would appreciate
answers to the following questions by July 14, 2006. Unless otherwise
specified, references to employees includes franchise employees and
others in the total domestic workforce.
1. As a percentage of your total domestic workforce for each year
in question, how many employees do you insure this year versus 2005 and
2004?
2. What was/is your insurance plan deductible before and after
adopting HSAs? What were/are premiums for self and family coverage
before and after HSAs? What was/is the employee contribution toward the
cost of premiums for self and family coverage before and after HSAs?
3. During the question period, you said that Wendy's has
approximately 45,000 employees in the United States. I would like to
get a better sense of coverage among your employee base. Your testimony
indicated that your 10,200 employees are eligible for HSAs and 7,000
participate, correct? You mentioned during questioning that some
additional U.S. employees have comprehensive coverage. Please tell us
how many employees are covered in non-HSA plans, and therefore how many
employees in total receive coverage through Wendy's.
4. Of those who are covered, what percentage are self-only policies
versus family coverage?
5. How many of your approximately 45,000 employees are ineligible
for coverage through Wendy's? Why aren't they eligible (e.g., minimal
level of hours worked per week, salary v. hourly, waiting period or
minimum required period of working prior to eligibility, and so
forth.)? What are the eligibility requirements at Wendy's?
6. Of those who are not covered, please provide, if you are able,
the number who have coverage elsewhere through (1) a spouse, (2)
individual coverage, (3) public programs such as Medicaid or Medicare,
or (4) other.
7. What is the average wage or income across all Wendy's employees?
What is the average wage or income for those who are eligible for the
HSA option? What is the average wage or income for employees who
participate in the HSA? What about for those who contribute to their
HSA?
8. What is the average age across all Wendy's employees? What is
the average age for those who are eligible for health coverage?
9. On page two of your testimony, you cite some statistics about
the number of your employees who have received a physical. Please
clarify the claim--e.g., do you mean the percentage of all employees,
those who are insured through Wendy's, or just among the 7,000 who
participate in the HSA?
10. What is the coverage or cost-sharing on your plan after the
deductible (e.g., 80 percent, 100 percent, and so forth.)? Are
enrollees required to use a network of providers designated by your
insurer?
11. During our discussions, you clarified that maternity benefits
are not covered until the deductible is met, which prompted a
discussion about the age and gender mix of your workforce. Please
provide us with the percentage of women, differentiated by age, in your
workforce versus those who participate in the HSA versus those who
participate in the non-HSA coverage.
Answer: Within the Quick Service Restaurant segment and in retail
generally, hourly crew level employees are not typically eligible for
health insurance although there are variances among industries and
between markets. These are most often entry-level, part time jobs with
high turnover and very low participation in employer provided health
plans.
Wendy's full time eligible workforce is approximately 10,200
employees. Critics predicted large numbers of workers would decline
coverage and enrollment would decrease dramatically when fully
replacing traditional plans with Health Savings Accounts (HSAs).
However, our participation rate varied only slightly and is currently
96% of what it was before changing plans in 2005 (68%--2006, 71%--2005,
70%--2004).
It's not possible to fairly compare deductibles between plans.
Before 2005, we offered a traditional Preferred Provider Organization
(PPO) with lower deductibles and higher premiums like those currently
offered by many employers. HSAs are required to be linked to a High
Deductible Health Plan (HDHP) with minimum deductibles of $1,050 for
single and $2,100 for family coverage.
Each year, Wendy's gives about 60% of the deductible to our workers
regardless of their plan choice or level of coverage (Le. single or
family). We deposit these funds directly into the employee HSA bank
account on a prorated basis at the beginning of the quarter. Wendy's
makes these grants to employees on a pre-tax basis to their own account
whether or not they contribute personally. Worker exposure to the
deductible is relieved both by employer contributions and the tax free
treatment of all contributions.
When planning our benefit structure for 2005 we were experiencing
our fifth straight year of double digit increase in health care costs.
Offering the same plan would require us to continue imposing higher and
higher deductibles, employee contributions and co-insurance rates so we
took appropriate steps to break the cycle.
Our current HSA plan has been a very good decision for our
employees and our company. Never before have we had 3 years in a row
where we've improved the benefit we offer employees at no additional
cost to them. Each year since changing to a Consumer Driven Health Plan
(CDHP) we've increased the amount the company gives employees for their
HSAs, expanded no-cost preventive care options and hope to continue
making more enhancements going forward.
From 2000 through 2004 Wendy's had a traditional PPO. Every year
employee deductibles increased 20-25% while worker contributions went
up 5-10%. There was no probability the trend would change. To offer the
same PPO type plan, employee contributions would have had to increase
at least 15-20%, employee coinsurance up 10% and deductibles up 15-20%
each year according to estimates.
Contributions per pay period (14 davs/2 weeks) under the old PPO
------------------------------------------------------------------------
Estimated
------------------------------------------------------------------------
Management & Administrative 2004 2006 2006
------------------------------------------------------------------------
Single $36.00 $42.00 $50.00
------------------------------------------------------------------------
Family 87.00 101.00 120.00
------------------------------------------------------------------------
Shift
------------------------------------------------------------------------
Single 19.00 22.00 26.00
------------------------------------------------------------------------
Family 46.00 54.00 64.00
------------------------------------------------------------------------
The contribution schedule below is for the new HSA. Rates are for
2005, 2006 and estimated for 2007 and have not changed for 3 years.
2005--2006 and Estimated 2007
------------------------------------------------------------------------
Management & Shift
Administrative ---------------
-------------------------
Plan A Plan S Plan C Plan O Plan E
------------------------------------------------------------------------
Single $ 43.00 $31.00 $21.00 $24.00 $15.00
------------------------------------------------------------------------
EE + CH 95.00 71.00 45.00 56.00 36.00
------------------------------------------------------------------------
EE + SP 98.00 74.00 48.00 59.00 39.00
------------------------------------------------------------------------
Family 123.00 95.00 54.00 70.00 45.00
------------------------------------------------------------------------
Currently 68% of Wendy's 10,200 eligible workers are enrolled in
the HSA plan.
It's important to note that Wendy's does offer a traditional PPO to
eligible crew level employees in two markets. Routinely, only 5-7% of
newly eligible crew each quarter in these markets accept coverage. Of
those who accept coverage, 75% elect single, not family coverage.
Single coverage in this PPO plan costs the employee $8.00 per week
which on average is nearly equal to the pay for 1 hour of labor.
It is safe to assume that a portion of the employees who reject
health coverage from Wendy's may already be insured through their
spouse or family. When a worker declines our coverage, we respect their
decision and especially their privacy and therefore do not require a
reason. Comprehensive information about plan details is available from
field management teams and the Human Resources Department. The company
also gives employees, at no cost to them, the services of a national
benefits administration vendor who has staff dedicated exclusively to
Wendy's. They provide professional support through a toll-free call
center. We want workers to make a well-informed decision in a
confidential and private environment and the call center provides that
option.
On the whole we provide health coverage for 20,000 lives which is
the total of our participating workers and their dependents.
The average wage of HSA eligible workers didn't change after the
introduction of the HSA program. It was implemented as a full
replacement meaning everyone eligible for the previous PPO plan was
eligible for the HSA plan. Eligibility for participation in our plan
isn't based upon income.
One of the most gratifying results from our CDHP strategy is the
positive changes our employees are making to improve their own health.
We surveyed HSA participants, from a statistically valid sample, on
topics including previous preventive care practices. Just 50% had
routine physicals in 2004 (the last year of the PPO). Following the
introduction of the CDHP and HSA, 75% of the same respondents received
a physical in 2005. A 25% increase is remarkable and an example of a
preventive benefit that is free for workers in our plan. One which we
believe will help them take steps to improve their own health.
Employees are not required to use network providers and may go to
any physician or facility they choose. In-network, they receive
coverage at 85-90%. Non-network coverage is 60-70%.
Health Savings Accounts and Consumer Driven Models can help more
people make the best health care decisions about short and long term
needs. We encourage Congress to consider these improvements to HSAs and
to also enact Association Health Plans:
Change or eliminate comparability rules so we can design
better plans for the chronically ill
Allow preventive medications to be carved out of HSA
deductibles so co-insurance can apply immediately
Permit moneys in FSAs to roll into established HSA
accounts instead of being forfeited at the end of the year
Allow Medicare eligible workers to opt for HSAs
Permit veterans and their families to participate in HSAs
Allow association health plans thereby facilitating
effective creation of multi employer welfare associations across state
borders
Pursue the aggregation and access to reports on both the
quality performance of health care providers and facilities and the
cost of service including medications and prescriptions
[Submissions for the record follow:]
Statement of Grover Norquist, Americans for Tax Reform
Chairman Thomas and Ranking Member Rangel, thank you for extending
the opportunity for me to submit a statement for the official committee
record.
Americans for Tax Reform is a grassroots advocacy organization that
supports lower taxes, less government, and more freedom.
The most exciting and innovative product in health care today is
undoubtedly the health savings account (HSA). In the just over three
years since Congress created HSAs, over 3 million accounts have been
opened, and another 3 million health insurance policies are HSA-
eligible, according to the Government Accountability Office. Human
resources firms like Hewitt Associates and most employer groups have
consistently said that HSAs are the direction that companies are moving
in. The overwhelming majority of individual market policies are HSA-
compatible products.
Testimony before this committee is likely to flesh out these and
other extremely-beneficial details of HSAs with great skill and
accuracy, so I won't be repeating them here. Instead, I wanted to share
a cautionary note from history, by looking at another successful tax-
advantaged savings product, the Individual Retirement Arrangement
(IRA). This product had a very popular early start, only to be crippled
by excessive legislative interference and complexity.
The IRA was created by Congress as part of ERISA in 1974, largely
as a way for workers to roll vested pension benefits into a personal
account if they terminated employment. A special provision was put in
place to allow workers not covered by a workplace retirement plan to
contribute the lesser of 15% of earned income or $1500.
In 1981, the Economic Recovery Tax Act was signed into law by
President Reagan. It increased the contribution limit to IRAs to the
lesser of 100% of earned income or $2000, allowed a spousal
contribution, and removed the requirement that a worker not have
pension coverage.
This led to an explosion of Americans contributing to IRAs. In
1980, a little more than 2 million households contributed to an IRA. By
1986 when this law was fully put in place and understood by the public,
this number shot up to over 16 million households--an eight-fold
increase in just six years.
IRAs of the post-ERTA period were simple, easy products. If you had
a job and made at least $2000, you could contribute to one. If you were
self-employed, you could contribute even more (15% of net income from
self-employment). Everyone got an immediate tax deduction which, given
the marginal rates at the time, could have amounted to a tax subsidy of
$0.50 on the dollar. If you touched the money before retirement (age 59
and =), you had to pay taxes on it plus a 10% tax penalty. If you left
a job, you could roll vested workplace retirement plan amounts into it.
At age 70 and =, you had to start taking the money out. If you died
with money in there, your spouse or heir would pay taxes on it.
Importantly, the IRAs were not limited by income. There were not
several kinds of them for several kinds of savings. Contribution limits
did not go up and down with age. They were not related to workplace
retirement plan coverage. As a result, banks and brokerage firms could
take these simple products and market them easily. The fact that they
could be contributed for a prior year at tax time was another benefit.
Then, the world changed for IRAs. In 1986, Congress passed the Tax
Reform Act, which severely curtailed IRAs. Americans not covered by a
workplace retirement plan were unaffected. However, pension-covered
Americans found themselves unable to make deductible IRA contributions
if their income exceeded modest amounts. This resulted in having to
keep a confusing record of ``basis'' in ``non-deductible IRA
contributions.''
In later years, policymakers took this once-simple product and made
it even more confusing. Spousal IRA contributions were allowed, but
contingent upon the income and pension coverage of each spouse.
Education IRAs (later renamed Coverdell ESAs) were created, with their
own set of contribution limits, withdrawal rules, and eligibility
requirements. Roth IRAs (no deduction, but no retirement or death tax)
were created in 1997, contingent on income. 529 College Savings Plans
joined the mix, too. SIMPLE IRAs were created as replacements for the
largely-failed SARSEP experiment of 1986. Medical Savings Accounts, the
precursors to HSAs, were created with confusing eligibility rules,
limits on the overall amount of the accounts, and other poison pills
that doomed this worthy effort to failure.
In recent years, catch-up contributions and changed limits on
income led the entire tax-advantaged savings world to throw up their
hands in confusion. Responses to these criticisms led to the Treasury
Department's 2003 three-fold savings account model, and the somewhat
more generous models of the President's Commission on Fundamental Tax
Reform--both of which have been stalled.
We fear that by putting these type of tax-increasing and confusing
provisions into HSAs, we'll be doing to HSAs in 2006 what we did to
IRAs in 1986. The chart below shows that IRA contributions shot up in
1982 when they were made universal and simple. After 1986, when income
thresholds limited deductibility, IRA contributions fell off the map
and never recovered. In fact, contributions to IRAs declined by 40%
from 1986 to 1987 even for families that were still eligible to
contribute. For Americans making less than $25,000, the reduction in
contributions was 30%.
These facts of history demonstrate that when most Americans and the
financial services industry see a complex tax-advantaged savings
vehicle, they turn the other way and run. 1986 killed the golden goose
of retirement savings that was the post-ERTA IRA. Imagine where our
precarious Baby Boomer retirement savings situation would be today if
the trend-line of IRA contributions had continued unabated until the
present day.
Does anyone doubt that HSAs, which are already a leap for many
people to take from traditional health insurance, would be endangered
if we raised taxes and/or imposed confusing new rules on them? Many,
many people would use this as their excuse not to make the leap from
traditional to consumer-driven health care--and all in the name of a
payroll tax credit and recapture scheme that is considered by some in
Congress and the Administration.
[GRAPHIC] [TIFF OMITTED] T0705A.057
Source: Internal Revenue Service Statistics of Income data
For a better approach to this, the committee should look at S.
3488, the ``Tax Free Healthcare Savings, Access, and Portability Act''
introduced by Senator Tom Coburn (R-OK).
If Congress is looking to expand HSAs in a way that will increase
health insurance enrollment, encourage patients to act as consumers,
and encourage Americans to save for their health care needs in
retirement, it should limit itself to the following initiatives:
1. Raise HSA contribution limits to at least the level of the out-
of-pocket maximum annually. Ideally, there should be no limit to HSA
contributions at all. It's good public policy to encourage people to
save money for their health care and retirement needs.
2. Allow HSAs to be made portable from job to job and funded by
employers.
3. Allow rollovers from health reimbursement arrangements (HRAs)
and flexible spending accounts (FSAs) to HSAs.
4. Allow HSA funds to be used to pay high-deductible health
insurance premiums.
5. Expand the definition of ``qualified medical expenses'' to
include such items as gym memberships, exercise equipment, nutritional
supplements, cosmetic surgery, non-prescription drugs, and other
clearly-medical purchases by Americans.
In conclusion, Congress needs to keep one overarching concern in
mind when altering HSA policy--keep it simple. Complexity is what
killed one of the most successful tax initiatives of the last century,
the Traditional IRA contribution. Don't let complexity kill the most
important tax initiative of this century, the health savings account.
Statement of Robert W. Lane, Deere & Company, on behalf of
Business Roundtable
Today, I am providing written testimony on behalf of my company,
Deere & Company and on behalf of Business Roundtable. Business
Roundtable is an association of 160 chief executive officers of leading
U.S. corporations with $4.5 trillion in annual revenues. This testimony
is presented on behalf of the Roundtable's Health and Retirement Task
Force.
Some 10 million people work for Roundtable member corporations--
with John Deere accounting for more than 47,000 employees. Counting
employees and their families, Roundtable companies provide health
coverage for about 25 million Americans. Business Roundtable's public
policy priorities are to ensure a vibrant economy and a competitive
workforce. These priorities go hand-in-hand with our goals of promoting
a healthier workforce, strengthening the health care marketplace, and
improving the value of our health care spending.
I would like to first congratulate Congress for creating health
savings accounts (HSAs)--a tool that has the potential to truly impact
the rising cost of health care in America. Health Savings Accounts
provide a way for our employees to gain considerably more value from
their own health care dollars.
However, I am here today to point out that we believe the use of
health savings accounts will not become as widespread as Congress
intended without some small, but important, enhancements. Health
Savings Accounts have the potential to dramatically impact how
employees spend their health care dollars. However, they need to
deliver the same value to the employees of large and small businesses
alike in order to have a positive impact on our health care system.
This testimony provides background information and suggestions on
four recommendations that would position health savings accounts to
become a powerful tool for individuals as they continue to seek the
most prudent way to spend their health care dollars.
Health Care Value
Soaring health care costs are harmful to our nation's economic
health and our ability to be globally competitive. At Deere, the annual
salaried family premium for our most popular 100% HMO plan is $12,300.
This represents a significant benefit cost as well as value to all of
our employees, and especially for lower paid employees. Deere has been
innovative in managing health care costs through the use of self-
insured plans, managed care networks, and disease management programs
in order to provide this level of benefits to our employees.
In a December 2005 Business Roundtable survey, CEOs cited health
care costs as corporate America's number one cost pressure (42%) for
the third year in a row. This topped energy costs (27%) and litigation
costs (9%). Likewise, families across the country are looking for ways
to deal with rising medical bills.
Improving health care value does not rest with any single
stakeholder. To the contrary, everyone involved in our health care
system--employers, insurers, doctors, consumers and the government--
must find and help institute reforms that improve the value of health
care expenditures. The key strategy for achieving this is to embrace
policies that will make the health care system more efficient while
keeping patients safe and healthy.
The success we had in the 1990s using managed care plan designs was
due to the efforts of insurers, doctors, and employers. Largely
overlooked in the managed care plan designs were the preferences and
decisions of patients. During the last two decades the managed care
plan designs insulated the patients from the cost of health care
services largely due to the very modest co-payments and nearly 100
percent coinsurance plans.
As a result, we have seen greater patient demand for more services,
prescriptions and higher levels of technology with little understanding
of cost, benefit or value of these services. Roundtable CEOs, for
example, believe we can improve the value of health care and improve
the system by empowering consumers with price and quality data; helping
our employees take more control of their and their families' health
care decisions; improving patient safety; and transforming the system
through the use of technology. Business Roundtable companies provide
health benefits because it is cost effective to deliver a portion of
the employee's compensation in this manner, creating an employee value
proposition that encourages health insurance enrollment and leads to a
healthier, productive workforce.
Of these objectives, I want to emphasize that one of the most
important steps toward transforming our health care system is
harnessing the power of our employees as consumers of the system. At
Deere, we have some very simple guiding principles:
1. To create affordable, sustainable health benefit plans that
encourage all employees to participate actively in their health and
health benefits;
2. To reform the health purchasing process by changing the health
care value equation at the point at which most health care consumption
decisions are made--the point of care by the patient;
3. To support a benefit design that encourages and rewards
employees for adopting healthy lifestyles and behaviors to have a
greater impact on the future of health care benefits; and
4. To provide insurance protection.
Consumer-Centric Health Plans
These plans--FSAs, HRAs and HSAs--have promoted greater engagement
and understanding by our employees in purchasing health care services.
The newest, Health Savings Accounts, is an example of health care
reform guided by principle and good public policy. HSA plans seem to
combine the best of managed care (networks, credentialed providers,
outcomes reporting) with the aligned interests of the indemnity plan
designs, while providing the much needed insurance protections.
Business Roundtable believes that HSA plans are a powerful tool to
improve the value and quality of care that Americans have come to
expect out of our health care system.
Philosophically, we need to agree on the role of the employee and
in terms of deciding on their health and health care. Why? Because HSAs
put health care consumers back in the driver's seat to select the
health care benefits that they want and need, and therefore, have the
potential to be transformational for the American health care system.
At Deere, we speak of a shared responsibility with employees to manage
their health and health benefits. The words ``potential to be
transformational'' because we cannot transform our health care system
without the active participation of Americans. As Americans, we are not
likely to support a system of the government or health insurance
companies deciding what is best for our own families. While the initial
take-up rate for these types of consumer directed products is somewhat
small, more needs to be done to make these plans more attractive to
large employers and their employees if we are going to have a
meaningful impact on provider reporting, outcomes and patient
engagement.
To that end, Business Roundtable seeks your support for the
following four changes to reduce the tension between rising health care
costs and our current competitive business environment.
If we fail to bring about an improvement in health care value, then
the impact may be felt in a variety of ways--from the limiting of
covered services, loss of employer provided health care that will have
the greatest impact on the lower paid employees, and even a loss of
American jobs, both in the manufacturing and service sectors.
As I stated earlier, health savings accounts are a powerful tool
and Business Roundtable seeks these changes to increase the use of
these accounts to the benefit of employees across the country.
First_Coordination with Existing Plans
A significant disincentive is the inability of our employees to use
widely available flexible spending accounts (FSAs) and health
reimbursement arrangements (HRAs) in conjunction with their health
savings accounts (HSAs). Employees often have concerns about how to pay
for their out-of-pocket health care expenses if insufficient amounts
are available under the HSA, especially early in the year when they are
responsible for the deductible. The FSA may solve the budgetable
concerns of our lower paid employees since they can have access to the
entire FSA amount--while budgeting the expense over the entire calendar
year. Without coordination of these accounts, employees may have to
scramble for the payment of a maintenance prescription or the delivery
of their child in January without the ability to pay under an HSA
alone.
In addition, employees have a familiarity with the rules and
requirements and use of a FSA and HRA. As we all seek to encourage
employees to become better consumers, consumers need flexibility to use
FSAs and HRAs in conjunction with the HSA. Some employees today have
FSA and HRA accounts--they have experience with them. Business
Roundtable strongly encourages the Ways and Means Committee to support
the changes that are included in H.R. 4511, the ``Flex HSAs Act'' and
H.R. 5262, ``the Tax Free Health Savings Act of 2006,'' both introduced
by Representative Cantor (R-VA). These bills would address the two most
important obstacles to widespread adoption by our employees of these
new plans: 1) the ability to budget the deductible expense over the
entire year; and 2) ability to save dollars beyond the deductible to
prepare for future unpredictable medical expenses.
Second_Contribution Limits
We support lifting the current contribution limits to an HSA so
that individuals and employers could budget up to their out-of-pocket
expense into their health savings account. This is a critically
important change if we expect Americans to be able to succeed at
managing unexpected health care expenses and not merely drain their
accounts with their expected health care costs from year to year. After
all, the policy is intended to encourage employee engagement and
planning.
Third_Contribution Amounts
Business Roundtable supports regulatory efforts to permit employers
to vary contributions to employees' HSAs when an employee is a low-wage
worker or has a chronic illness. The Department of Treasury is
reviewing comments on a proposed rule to permit such flexibility--we
believe this is a necessary change to ensure that these plans can
better address the special needs of these workers.
Fourth_FSA Rollover
Business Roundtable also supports legislative changes to permit a
limited carry forward of up to $500 in a flexible spending account
(FSA) or a rollover into a health savings account (HSA). Today, the
current FSA ``use-it-or-lose-it'' rule causes many individuals not to
participate in FSAs or to incur unnecessary care at year end to avoid
forfeiting their money. Allowing employees to carry forward these
amounts aligns with the principle of consumerism. We thank the House of
Representatives for consistently support a rollover provision like that
contained in the House-passed version of the Pension Protection Act of
2005 (H.R. 2830).
Other Health Care Priorities
Business Roundtable Health and Retirement Task Force strongly
supports other efforts to encourage workers to become better
consumers--including greater access to information on cost and quality
data, more efforts aimed at disease prevention and disease management,
and arming the health care system with 21st century information
technology.
Business Roundtable believes that the disclosure of information is
an important tool to help American consumers transform our health care
system. We want to give our workers access to information about the
cost and quality of health care services and the institutions,
providers, and suppliers who deliver that care. While private sector
disclosure of price and quality data is occurring, we believe that the
Centers for Medicare and Medicaid Services (CMS) should release 100% of
the Medicare claims database. This is essential to measuring cost
efficiency and compliance coupled with nationally-endorsed clinical
guidelines by providers and suppliers.
We also support legislation to create a health information
technology system with uniform interoperability standards. We must
improve and deploy the health care system's information technology
sooner rather than later. This is one change that can save
administrative costs and greatly improve the delivery of health care
services.
Conclusion
As a representative of Business Roundtable and John Deere, we
believe health savings accounts are valuable--they will increase
consumers' access to quality health care services. Expansion of
consumer-centric accounts is critically important in moving toward a
system where we combine the best features of managed care with the
positive aspects of individual control over health spending choices,
enabling our workers businesses and our nation to remain competitive.
Statement of Coalition to Promote Choice for Seniors
The Coalition to Promote Choice for Seniors (``Medigap Coalition'')
appreciates the opportunity to submit this statement for the
Committee's consideration during its hearing on HSAs. The Medigap
Coalition is comprised of national employers and insurers committed to
ensuring seniors' continued access to Medicare Supplement insurance
coverage (``Medigap''). To that end, the Medigap Coalition supports
policies--such as the designation of Medigap premiums as HSA qualified
medical expenses--that promote seniors' ability to choose Medigap
coverage for their health care needs.
Medigap's popularity among America's senior citizens is
irrefutable. At least 10 million seniors, or one-in-four Medicare
beneficiaries, currently rely on Medigap for protection against the
out-of-pocket costs Medicare does not cover. In addition to the ability
to budget their health care dollars, seniors enjoy the hassle-free,
paperless delivery of benefits that Medigap provides. It is no wonder
the Medigap Coalition found a 90% satisfaction rate among the Medigap
policyholders it surveyed in 2005.
Despite its clear value, current law discourages consumers from
using their HSA funds to purchase Medigap. As enacted, the Medicare
Modernization Act defines HSA qualified medical expenses to include the
cost of coverage provided under a qualified long-term care insurance
contract and any health insurance other than Medigap provided to
Medicare eligible beneficiaries. HSA withdrawals used to pay premiums
for Medicare Advantage plans or employer-sponsored plans are not
subject to taxation. Of all the health insurance options available,
only HSA withdrawals used to fund Medigap premiums are subject to
taxation.
The oft-stated goal of HSAs is to help individuals take more
responsibility for their health care--an especially critical objective
as Americans continue to enjoy longer lifespans (along with their
accompanying health ailments). As Medicare covers less than
approximately 50% of the medical costs seniors incur, Congress should
encourage consumers to make appropriate arrangements to finance the
difference. Congress should not discriminate between the types of
health insurance coverage that HSA withdrawals may fund. Retaining this
arbitrary exclusion punishes responsible consumers.
As the Committee considers future HSA adjustments, the Medigap
Coalition respectfully urges members to amend the definition of HSA
qualified medical expenses to include Medigap premiums. To do so would
be consistent with the Administration's efforts to offer seniors as
many choices for their health care as possible, could make HSAs more
attractive to all consumers before they reach their Medicare
eligibility (which also could reduce the number of underinsured
Americans), would encourage consumers to plan adequately for their
future health care needs, and, most importantly, would assure that
seniors can afford needed health care services. Removing the current
exclusion is a simple yet essential remedy that our seniors deserve and
a free market economy demands.
We stand ready to assist in this important endeavor.
Statement of Greg Scandlen, Consumers for Health Care Choices
Thank you for the opportunity to share the experiences some real
people have had in dealing with Health Savings Accounts (HSAs) and
other forms of Consumer-Driven Health Care.
Before doing that, let me take a moment to thank you personally,
Mr. Chairman, for the leadership you have shown in this area. You have
made a real difference in the lives of millions of Americans. You have
made it possible for them to acquire health insurance when they could
not before. You have given them the opportunity to be active
participants, rather than passive recipients, in the health care
system. You have allowed them to choose the health plan that works best
for themselves and their families.
I believe the enactment of HSAs has spawned a revolution in
American health care. One that will lead to better quality, lower
costs, improved efficiency, more accountability, and greater
convenience for all Americans. It will also restore the patient-
physician relationship that is the essential moment in any health care
encounter.
But those system-wide effects are all in the future. Only time and
experience will tell how profound the changes will be.
Meanwhile, HSAs have already helped millions of people. The effects
are often hidden from Washington-based policy experts and researchers
who rely on population-wide surveys and national data.
For instance, HSAs are an enormous help to people with surges of
income--commissioned salespeople, seasonal workers, farmers,
consultants, entrepreneurs, and the like. Washington rarely thinks
about these people, assuming instead that everyone is on a bi-weekly
payroll like federal employees are. But people who do not get a steady
paycheck are the risk-takers and innovators of our economy. They find
it very difficult to pay huge insurance premiums, month after month,
year in and year out.
HSAs enable them to minimize their monthly premium obligation and
fund their HSA when the money is available. Instead of paying $600 a
month, every month, they may be able to lower that to $300 or $400 a
month, and then fund their HSA when they receive their commission
checks--anytime from January of one year to April 15 of the following
year.
This kind of flexibility is essential to a dynamic economy. And it
was you and this Committee who made it possible, Mr. Chairman.
Here are some examples of people who have benefited from HSAs.
These and more are available at our web site at--http://
www.chcchoices.org/testimonials.php
Chris Krupinski of Fairfax, Virginia, is a self-employed graphic
designer. She owns CK Art and Design. She writes:
``I am a widow with three children and have had my own business for
about 10 years. Although I have kept insurance during that time, I
could only stay with a company for about a year and a half before the
policy would get too expensive and I would have to look again for
another company. Before finding out about HSAs, I was paying $900 a
month for a family plan that had a $2,000 deductible for every health
event. That meant when I had two knee surgeries in one year--I owed
$2,000 for each of them before my insurance kicked in.
``Then I heard about Health Savings Accounts. I now pay $350 per
month for my family, with a yearly deductible of $3,500. Each month, I
put aside another $350 into my HSA account. That HSA account is my
money, and yet, I am still paying less per month than I was under the
old policy.
``The beauty of the HSA is that if I have anything left over at the
end of the year, that money is mine. It gives me options, and it is
much better financially. Before, when I wrote those premium checks out
each month, that money was just gone.''
Lawrence Kneisley, MD, is a physician in Torrance, Califonia. He
writes:
``My son Andrew, then age 16, broke his arm (distal radius and
ulna) snowboarding in December, 2003. He was hospitalized for urgent
surgery at Torrance Memorial Hospital. He was admitted in the
afternoon, spent about 2 hours in the OR under the care of the
orthopedic surgeon who performed an open reduction under general
anesthesia using a C-Arm X-ray for alignment. He was hospitalized
overnight on the pediatric ward and discharged at noon the following
day. Total time in the hospital-about 20 hours. The hospital charge was
$18,834.03! This did not include the orthopedic surgeon's fee. Our HSA
(at the time an MSA from Medical Savings Insurance) determined that
Torrance Memorial Hospital Medical Center's reasonable and customary
charge to be $4961.64. This was based on the Medicare diagnostic
related group (DRG) according to the diagnosis and procedure codes
provided on the hospital bill.
``Medical Savings Insurance paid the hospital $2,019.36. I paid the
remainder, $2,942.28. I felt this was fair and reasonable. After some
investigation and discussion, the hospital accepted this amount as
payment in full.
``The lesson I learned was that if Medical Savings Insurance had
not investigated and challenged the claim amount that the hospital
wanted to charge, I would have been forced to pay most of the inflated
bill. I got educated to the fact that hospitals accept lower but still
profitable rates from big insurers such as Blue Cross and various HMO's
such as Health Care Partners and still make money. They then charge
smaller insurers, and patients with MSA's (now HSA's) huge markups,
some 350% in my son's case when compared to Medicare and the HMO
contracted rate. Certainly if the Medicare payment rate and HMO payment
rate are acceptable to a hospital then the self-paying patient deserves
the same deal.''
Ian Duncan, an actuary in Hartford, Connecticut writes:
``Susan and Clark Furlong own a small organic farm outside Phoenix.
They supply local markets with fresh produce and sell their products on
the Internet. They have three children: Tucker, 6, Will, 4, and Tess,
2. Susan has a background in diabetes and lactation education, and
works part time for Lotter Actuarial Partners. As a part-timer, she's
not eligible for benefits, so she and Clark shopped around for a high-
deductible policy, eventually buying one from Fortis. Their policy
covers 100 percent of medical costs after a $4,800 family deductible.
The quarterly premium is $753, before contributions to the optional
medical spending account. The Furlongs decided to forgo the optional
drug rider, self-insuring their drug benefits because they're not on
any maintenance medications.
``As parents of young children, the Furlongs have their share of
emergency room visits. Recently, Will fell while playing a recorder,
which scraped the back of his throat, resulting in a fair amount of
blood and discomfort. The Furlongs wanted to have Will examined by a
doctor. The first decision they faced was: hospital emergency room or
walk-in medical center? The walk-in medical center was closer and
likely to be cheaper, so that's where they went. Because the Furlongs
didn't have comprehensive first-dollar insurance, the medical center
wanted payment in advance before the doctor would see Will, so they
paid the $200 fee. But the doctor decided that he couldn't help, and
told the Furlongs they should go to the emergency room. Before they
left the walk-in center, Susan negotiated her advance payment back.
``Two things immediately differentiate the Furlongs' response under
the high deductible plan, compared with a typical insured's response:
first, a cost-benefit evaluation of the clinic vs. emergency room
setting, and second, getting their money back from the clinic.
``In the emergency room, the Furlongs faced a decision about having
an X-ray, which they decided to do after discussing cost and benefits
with the physician. Will was checked out and given a clean bill of
health, although he was uncomfortable and couldn't swallow. His
physician prescribed Augmentin (a name-brand antibiotic) and Lortab
elixir (a brandname painkiller). Susan checked both of these carefully,
particularly the antibiotic, which cost $94.99 per prescription. The
painkiller cost $27.39. In the end, she chose a generic antibiotic
(Amoxicillin) at $69.69 and a generic painkiller ($14.79). There wasn't
much the Furlongs could do about the emergency room costs, but every
other expense associated with the accident was checked carefully and
evaluated. They made each decision before incurring the expense. How
carefully would an indemnity plan member evaluate similar expenses?
Jeffrey Dunham runs a trust and investment company in San Diego,
California. He writes:
``We looked at (no . . . put through the ringer) the pros/cons of
HSA's for at least a year perhaps two for the 45-ish employees of our
trust and investment company. We looked at its effect on single folks,
on married folks, on those with families, on older employees, on
younger ones. . . . You get the picture. We heard every potential heart
ache we could think of. Yet, in the end . . . I did it because it
allowed (forced) the employees to have a vested interest in the health
care choices they made. It touched everything from what they ate . . .
to how much they exercised . . . to whether they needed to see the
doctor . . . or not . . . and whether they needed the 2nd, 3rd opinion
. . . or not. They got to have the care they wanted when they needed it
. . . and benefit from the savings they created by good decisions. It
was fair for them . . . fair for us. We all now had ``skin in the
game'' . . . for what these costs would look like in the years ahead.
``At first there were many nay-sayers. What if this . . . what if
that . . . yet, by the time enrollment came around the word began to
spread that the company was doing something good for them . . . giving
them more options--more choices. Far more than we thought signed up for
the HSA option. I expect more to follow each open enrollment period. In
short--it worked better than we had expected.
``It took some pushing to get it done. It was worth the effort.''
Evelyn Preston recently purchased a non-group HSA in Michigan. She
writes:
``I only have one prescription and knowing I will now pay for it
with my HSA dollars, I checked on the prices. Before, this was not much
of a concern to me as I would have paid my $15 copay for a prescription
regardless of where I bought it. It turns out that Walgreens, where I
had been having it filled, charges $18 more than Meijer. Of course, now
I've switched my prescription to Meijer.
''I was talking to my son, married with 2 children. They pay $5 co-
pay so it doesn't matter to them where they get their prescriptions
filled . . . again totally convenience. Now that the dollars are coming
out of my medical savings I will look at price.''
Kirby Nielsen is a broker in Worthington, Ohio. He writes:
``The critics of HRAs and HSAs have it about 180 degrees wrong in
their assessment of chronic health problems and High Deductible Health
Plans.
I have ``Paraneoplastic Syndrome'' that involves the failure of my
immune system. It is a rare disease that few physicians remember
hearing about in Med School. In short, my immune system makes
antibodies to fight cancer that (for me), has not yet appeared. In fact
my antibodies are actually bad guys that are destroying my peripheral
nervous system. My deterioration is progressing slowly due to my
willingness to push immune suppression therapy to the limit.
``My annual medical bills run over $30,000 per year for the two
years I have lived with this diagnosis (the amount approved by the
insurance company). This year I have a high deductible health plan and
it is so much better than my old traditional plan with a $250
Deductible 80/20 to $10,000 with a physician's co-pay and an Rx card.
``The first thing with a chronic condition is not so much the
advantage of choice (which would be an advantage to a healthy person)
as to whether or not to have tests and other medical services; it is
that all these expenses go directly to my deductible early in each plan
year. Another way to put it is I get to fulfill my $4,000 deductible
quicker.
``Secondly, when I reach my deductible, I have 100% coverage.
Believe me; having met my deductible and having 100% coverage does not
encourage more health care spending. A person who is chronically ill is
tired of tests and medical services and would rather not get more
health care. Our motive is only to find the underlying cause, treat
symptoms, and relieve pain. I met my deductible 6 weeks into the plan
year and now I have no more co-pays, no Rx card, and no hassles at all
other than the disease itself.
``With the HDHP, I pay the same out of pocket as I used to pay,
but I hope I have shown some of the reasons why a HDHP is really a good
deal for a person with a complicated and expensive chronic health
problem.
Ben Cutler is President and CEO of USHealth Group in Fort Worth,
Texas. He writes:
``USHEALTH Group is a small (under 200 employees) insurance company
headquartered in Fort Worth, Texas. In March of 2005, we received a
renewal notice from our group insurance carrier, UnitedHealthcare. The
plan was costing $5,600 per employee prior to any rate increase. As
expected, the renewal notice from United was hefty--a 19% increase
which translated to a new cost per employee of $6,600!
``Fortunately, we had requested a quote from United for an
alternative high deductible HSA qualified plan. Neither our broker or
United recommended that we do a complete conversion, feeling it was far
too radical a move. Against their advice, we decided to install an HSA
programs featuring $2,000 individual, and $4,000 family deductibles.
The premium savings were compelling; instead of a 19% increase, the
high deductible premium was 28% less than we had been paying. That
lowered our cost per employee from $6,660 to just under $4,000. These
savings, combined with a small increase in the employee cost sharing of
the premium allowed the company to contribute $1,750 for individual and
$3,500 for family into the HSA account and match additional employee
contributions up to the full deductible.
``We thought we were prepared for a sizable employee backlash, but
we underestimated the level of employee objection. People were not at
all happy with this change. Working with our broker and United, we
prepared a comprehensive education and communication campaign that
included several evening sessions where spouses were invited. Armed
with a more comprehensive understanding of how the plan would likely
impact them financially, employees grudgingly accepted the change.
``One big concern was the financial consequences of a sizable
medical expense before sufficient funds were accumulated in the
employees HSA. We agreed to provide an interest free loan up to the
full HSA contribution if that occurred, with repayment coming from
future employer contributions into the employees account. As it turned
out, several employees took advantage of that financial bridge.
``As an additional employee incentive, First HSA, our HSA plan
administrator, was able to provide 6.15% interest on employee account
balances. The behavioral change occurred almost instantaneously. Now
employees were spending their own money for healthcare services. Within
a few weeks, the stories of what happened when employees became
``shoppers'' and not just consumers of healthcare services began to
emerge:
Kim is a 42-year-old divorced mother of two. Her eldest
son was diagnosed with ADHD. Neither Kim nor her daughter had health
issues. Kim was quite concerned about how she was going to afford the
expensive medications for her son on her $27,000 a year salary. She
came to see USHEALTH Group's human resource officer Jan Fogg to find
out how the new HDHP was going to work for her. Jan and Kim researched
the costs of the required medications and applied them to a financial
outlay model demonstrating how the plan could be used in situations
like this. The answer to her particular problem was first and foremost
a timing issue. She was able to get her son's first prescriptions
filled on the previous plan and by the time she needed refills, she
would have enough to pay for them out of her HSA. It was also important
that she use the 90-day mail-in prescription method rather than monthly
trips to the pharmacy which saved her quite a bit of money overall.
Mary Jane is a 47-year-old employee who has bronchitis
and asthma. She was quite skeptical about having the necessary funds in
her HSA to pay for her monthly medications. When we implemented the new
HDHP, Mary Jane immediately went to her doctor and explained how the
plan worked and that she would not have enough money in the account to
pay full price for her medications. Her doctor was able to supply her
with enough samples that would last until her account had a sufficient
balance to start paying for regular prescriptions on her own. Mary
Jane's doctor further understands that not only medications, but office
visit costs must be paid in full by the HDHP patient. It is her
practice to not require any payment at the time of visit, but to allow
the billing process to run its course through the insurance company for
repricing and then issue a bill once the EOB has been created. The
entire process can last nearly two months, allowing the patient to have
delayed billing. For Mary Jane, the HSA plan works and she even has
accumulated enough at the end of the calendar year to have money in her
account for the next deductible year.
Jerald is a 56-year-old employee and one of a handful of
employees who has a chronic condition (diabetes) which requires several
doctor office and lab visits per year in addition to maintenance
medications. He has elected to pay for the costs from his personal
checking account, leaving his HSA intact. By doing a cost comparison on
the best method of purchasing his medications, he is able to manage his
purchases through either the mail-order method or a monthly purchase at
his local pharmacy. His HSA continues to grow and earn interest at
6.15%. At 56, Jerald is hoping his HSA account will accumulate a
sufficient sum to cover excess medical expenses when he retires.
Jack, a 36-year-old employee with a family, did some
research on his own during the weeks of education prior to the
implementation of the HDHP and HSA and found that his doctor understood
the issues Jack's family might have with the HSA and supported the idea
of ordering maintenance medications at twice the strength to allow for
pill-splitting and thus, a cost savings of almost 50% on his family's
medications. Jack was ahead of his time. Several months into the plan
year, the carrier issued a notice to covered employees that recommended
pill-splitting. Several employees have been diligent about ``comparison
shopping'' for healthcare services, such as x-rays or colonoscopy fees,
and have shared that information with other employees who have also
been able to realize a cost savings.
``The final piece of good news recently arrived in the form of
UnitedHealthcare's 2006 renewal notice. The Company's broker was all
smiles as he communicated that based on United's projection of a 67%
loss ratio under the new plan, United was offering a mid single digit
renewal increase!!! As USHEALTH Group's management had hoped, the new
HSA plan was a huge success for all concerned ! ! !''
Joint Statement of Gail Shearer and William Vaughan, Consumers Union
Mr. Chairman, Members of the Committee:
Consumers Union, the independent non-profit publisher of Consumer
Reports, opposes more public expenditure of limited tax dollars on
health savings accounts (HSAs).
We believe that HSAs are harmful from a societal point of view and
to those who most need help with health care expenses. While some
healthier and wealthier individuals may benefit from HSAs, when Federal
debt is increasing roughly $1,000,000,000 a day, this is not where
additional health care dollars should be spent.
The evidence is quickly mounting that HSAs are primarily attractive
to upper income people and people who tend to be healthier.
The tax shelter nature of HSAs is revealed by a GAO report \1\ that
some people actually pay for medical expenses out-of-pocket rather than
draw down their tax sheltered HSA accounts. This may or may not be good
savings and tax policy for upper income people, but it has little to do
with good health policy.
---------------------------------------------------------------------------
\1\ GAO, ``Consumer-Directed Health Plans,'' April, 2006. GAO-06-
514.
---------------------------------------------------------------------------
Polling by the Employee Benefit Research Institute and the
Commonwealth Fund\2\ show that people with HSAs are
\2\ EBRI Issue Brief No. 288, December, 2005.
less satisfied than those with traditional insurance
coverage,
often forgo needed care,
may actually spend more on health care and have higher
out-of-pocket costs, and
generally have a difficult time shopping for health care
(finding hospital and doctor quality and cost data).
In attachments #1 and #2, we discuss these issues in greater
detail.
To throw more money at this scheme when we are facing serious cuts
in successful programs like the State Children's Health Insurance
Program (S-CHIP) makes no sense. We urge this Committee to resist
further tax expenditures on HSAs and instead save the revenues for the
kind of health care programs that Americans really want. (We note that
in picking Medicare Prescription Drug Plans, a great deal has been made
of the fact that seniors have preferred the plans with the lower
deductibles. The Part D experience should be a lesson about how
consumers clearly favor low-deductible coverage; high deductible health
insurance policies are being imposed on consumers in many cases.)
So called ``Consumer-Driven Health Care'' is an Orwellian slogan
designed to hide the fact that costs are being shifted onto the backs
of consumers. And in the realm of health care, increased cost sharing
means that the lower income in our society will go without--and their
health and the health of their children will suffer. Instead of
shifting costs to consumers when they are sick or as they age, Congress
should help address the underlying causes of run-away health costs.
HSA advocates forget the core fact that governs the world of health
insurance: 50% of the healthiest people use 3% of the health care
dollar; 10% of the sickest people use 70% of the health care dollar. To
take money out of the health care insurance system (i.e., spend less on
high deductible catastrophic insurance policies) and give that cash to
the healthy half of the population to put into savings accounts means
that the money will not be there for the very sick who need intensive,
expensive care.
For all these reasons, we urge the Committee to stop diverting
money in an ill-advised experiement and return to the consideration of
meaningful health care reforms and true cost containment strategies
that the American public need and want.
Attachment 1, from Consumer Reports, May 2006
False promises: `Consumer driven' health plans
A promotional pamphlet for a health savings account (HSA) boasts,
``If you plan correctly, you may find that you spend far less for
health care than ever before.'' True, if you could plan to avoid
cancer, being hit by a car, or growing older. But you can't.
Three million Americans have signed up for high-deductible health
plans, which are often paired with tax-advantaged HSAs designed to give
them the funds they need to pay those deductibles. Proponents call this
``consumer driven health care.'' They claim that patients who have to
take on more of the costs themselves--annual deductibles range from
$1,050 to a total deductible and costs of $10,500--will avoid
unnecessary care and look for medical providers who deliver high-
quality care at the lowest price, thus driving down costs. The plans
are touted by some, including President Bush, as a solution for the
U.S. health-care crisis, with its 46 million uninsured.
The reality is that these schemes shift increased financial risk to
consumers and will surely weaken our already fragile health-insurance
system. HSAs provide little assurance of affordable, quality health
care to those with chronic illnesses, families with children, those of
moderate incomes, or older Americans with more health-care needs. HSAs
do nothing to address the factors that really drive up health costs:
care for those with chronic diseases; overuse of technology; hospital
care; prescription drugs; and end-of-life care.
Who benefits, who doesn't?
HSAs may benefit young, healthy workers without dependents, who
don't spend much on medical care. They're especially advantageous for
the wealthy of all ages, since the higher the tax bracket, the more
valuable the tax break. Contributions to HSAs are tax-deductible, the
account grows tax-free, and money pulled out for medical expenses is
not taxed. After age 65, money saved in the account can be used for any
purpose, without a tax penalty. But the income level of the vast
majority of uninsured Americans prevents them from reaping those tax
benefits.
A recent national survey by the Employee Benefit Research
Institute, a nonprofit organization, found those currently in HSA-type
plans were significantly more likely to spend a large share of their
income on out-of-pocket health-care expenses than those in
comprehensive plans. They were also more likely to skip or delay health
care because of costs. And though HSAs work on the premise that
consumers have access to reliable cost estimates and comparative
information about providers, that information all too often does not
exist. No surprise that the survey found those enrolled in HSAs far
less satisfied than those with traditional, comprehensive coverage.
So, who, besides the wealthy, benefits from HSAs? Employers do,
since they are shifting health-care costs to their employees and are
more able to predict health-care expenses. And financial institutions
offering HSAs are poised to reap billions in profits from the fees they
can charge in setting up those accounts.
A health-insurance system can function only if costs and risks are
spread among healthy and sick participants. But healthy employees who
don't expect to need much medical care are the ones most likely to
abandon traditional plans in favor of low-premium, high-deductible
ones. Those left in traditional plans will be sicker and more risky to
insure. That means a greater likelihood of steep premium increases,
pricing coverage out of the reach of more workers and adding to the
ranks of the uninsured.
``Consumer driven'' health plans, including HSAs, abandon the
premise that the community has a responsibility to care for all
members. The health-care system needs fixing, but HSAs are a sham
substitute for comprehensive reform.
For more on health savings accounts, go to www.consumersunion.org/
HSA.
Attachment #2,: Health Services Research 39:4, Part II (August
2004)
Commentary--Defined Contribution Health Plans: Attracting the Healthy
and Well-Off\3\
---------------------------------------------------------------------------
\3\ ``Consumer-Driven Health Care: Beyond Rhetoric with Research
and Experience,'' Health Services Research (vol 39, no. 4) August 2004,
Part II, pp. 1159-1166.
---------------------------------------------------------------------------
by Gail Shearer
Driven by a philosophy that favors unbridled faith in the free
marketplace, the year 2003 may well go down in health care history as
the year that the health care system officially abandoned the premise
that the community has a responsibility to care for each member,
replacing it with the philosophy that individuals should each look
after themselves. The most visible change that nudges the system toward
self-insurance is the provision in the Medicare bill that expands and
makes permanent ``health savings accounts'' (HSAs) (formerly known as
``medical savings accounts'' or MSAs). This provision allows most
Americans to set up tax-advantaged savings accounts (no tax is paid
when money is paid in or when paid out, an unprecedented new tax
loophole), when they also have a high-deductible health insurance
policy. These new accounts are likely to favor the healthy (who stand
to benefit financially from a new tax shelter since their accounts need
not be depleted on health care expenses) and the wealthy (the higher
tax brackets mean higher tax benefits). 1 In his State of the Union
address, President George W. Bush's proposal for a new tax deduction
for premiums for high-deductible policies introduced the possibility
that health savings accounts' penetration of the marketplace--and the
demise of the employer based health care system--will be accelerated. 2
The second development is the encroachment of so-called consumer driven
health care plans (CDHC) into the employer-based health insurance
marketplace. This new approach is dressed up with a consumer-friendly
name, but in reality, as noted in Christianson, Parente, and Feldman
(2004, this issue), this new approach is characterized by higher
deductibles for employees. A more apt label, and one that seems to have
been overtaken by CDHC, is ``defined contribution health care.'' As a
gentle reminder to health researchers and policymakers that a consumer-
friendly name should not be used to mask a marketplace change that may
be harmful to consumers, I will use the ``defined contribution health
plan'' (DCHP) label to refer to these new plans. ``Defined
contribution'' accurately connotes limited employer liability for
health care costs. ``Consumer-driven'' implies that the consumer exerts
considerable control--hardly an accurate portrayal of high-risk
consumers' likely experience with a high-deductible plan. The two
studies raise red flags about the potential for these new plans to
appeal disproportionately to the healthy and those with high income.
They contribute to the dangerous distraction of policymakers from the
goal of working toward a health care system that provides affordable,
quality health care to all by spreading costs broadly and fairly across
the community.
COMMENTS ON STUDY 1 (UNIVERSITY OF MINNESOTA)
Study 1 (Christianson, Parente, and Feldman 2004, this issue)
considers the experience at the University of Minnesota, when 16,000
employees were offered several health insurance choices, including
policies that combine relatively high-deductible health insurance
coverage, a personal care/health care savings account check, and a gap
between the amount contributed to the account and the deductible,
assuring that employees would face some out-of-pocket costs before
their health insurance policy provided coverage. This study does
nothing to make DCHP appear to be consumer-friendly and confirms
concerns about what a shift toward DCHP will mean for the health care
system. This section summarizes and considers some of the key findings.
DCHP Appeals Disproportionately to People with Relatively High Income
The average income for employees who enrolled in DCHP (and responded to
the survey) was 48 percent higher than the income for employees who did
not enroll in DCHP ($71,406 versus $48,148) (Christianson, Parente, and
Feldman 2004, Table 1, this issue). This wide disparity lends strong
support to the notion that higher-income individuals are more likely to
enroll in a high deductible health insurance plan in which they could
be at risk of large out-of-pocket costs before meeting a deductible.
DCHP Appeals Disproportionately to a Relatively Sophisticated
Population of Faculty Members and Does Not Appeal to Union
Members
Thirty-six percent of DCHP enrollees were faculty members; only 14
percent of non-DCHP enrollees were faculty members. Participants in the
civil service/bargaining unit were more likely to favor non-DCHPs: 50
percent of enrollees in non-DCHPs were civil service/bargaining unit
members, while only 23 percent of DCHP participants were. The DCHPs
appeal disproportionately to relatively sophisticated participants
(Table 1).
An Overwhelming Majority (96 percent) of Employees Favor Low-Deductible
Coverage to DCHP, Based on Their Choices in the Marketplace
The low participation rate in DCHPs indicates that there is no
groundswell of consumer demand favoring a health care system centered
on high-deductible health insurance: 4.3 percent of the eligible
population participated in the DCHP program. (This assumes that
families do not have more than one employee eligible for this coverage.
A total of 695 employees--349 individuals and 346 families--enrolled,
out of a total population of 16,000 employees.)
The Study Design Is Inadequate to Allow Conclusions about Risk
Segmentation by
DCHPs
The study uses a self-reported measure of chronic illness to study
the potential for risk fragmentation, and finds no significant
difference among DCHP and non-DCHP enrollees. This measure is
insufficient to draw a conclusion on risk fragmentation. A more in-
depth measure of health care costs, possibly a time series, for all
covered individuals in each family is needed. The measure used does not
take into account whether employees might anticipate certain health
care costs in the future (e.g., a planned pregnancy, elective surgery),
which would discourage enrollment in a DCHP for fear of high out-of-
pocket costs. Some health conditions might have regular costs
associated with them, but respondents might not consider them to be a
chronic illness (e.g., back pain) but more of a chronic condition. This
is an area where further expansion of the underlying health status of
respondents is critical.
The Satisfaction Level with DCHPs Is Not Impressive
While respondents in DCHPs were somewhat less satisfied than
respondents in other plans (7.46 versus 7.55, on a scale of 0 to 10, 10
is best), the difference can be considered trivial even if technically
statistically significant. Internet Support Tools, a Key Selling Point
of DCHPs, Were Used Only Moderately. While 30 percent of respondents in
DCHPs used provider directories, only 8 percent used disease management
information, and only 12 percent used pharmacy-pricing tools. These
numbers do not support the premise that DCHPs mobilize employees to
comparison shop and access Internet resources to manage their care and
control costs. Overall, the first study paints a picture of highly
educated and high income faculty members gaming the health care system
by selecting into the high-deductible plan if they believe that they
will come out ahead financially. The limited measure of health status
precludes drawing conclusions about the segmentation of the health risk
pool, but overall there is nothing in this study to dispel the concern
about risk fragmentation. Perhaps the strongest conclusion from this
study is that DCHPs appeal disproportionately to highly educated, high-
income members of an employee group. They appeal to a tiny portion of
employees. The small fraction of employees who enroll do not make full
use of the tools that they offer, and are not particularly satisfied
with the plans' performance.
COMMENTS ON STUDY 2: HUMANA EMPLOYEES
Study 2 (Fowles et al. 2004, this issue) reports the results of a
survey of 4,680 employees of Humana Inc., 7 percent of whom selected a
new ``consumer defined health plan option'' (referred to as DCHC
below). This is the epitome of a ``defined contribution health plan'':
the employer would pay a fixed amount, 79 percent of the reference
plan, for each employee. This study provides troubling confirmation of
the potential of DCHPs to fragment the health risk pool to the
detriment of the less healthy.
Those Selecting DCHP Are More Likely to Be Healthy
The study found that enrollees in DCHP were ``significantly
healthier on every dimension measured.'' This study used a more
comprehensive measure of health status, including measures such as
reported health status, likelihood of a covered member receiving
regular medical treatment, likelihood of having a personal physician,
and existence of a chronic health problem. Those who selected the DCHP
were less likely to have a chronic health problem (54 percent) and more
likely to have had no recent doctor visits (3.07). Enrollees in DCHPs
were more likely to be in excellent health (31 percent versus 18
percent) (Table 1). The study found that employees reporting that a
family member had a chronic health problem were half as likely as
others to select the DCHP.
Enrollment in the New Plans Was Modest
Like the University of Minnesota employees, the Humana employees
did not flock to the high-deductible coverage (despite the annual
premium savings of $400 per year for an individual and $1,200 per year
for a family): only 7 percent enrolled in the new plan. Individuals
were more likely to enroll in a DCHP than families.
Sociodemographic Findings
Those enrolling in DCHPs were more likely to be college-educated,
white, male, and in positions exempt (from a union) than those who
enrolled in other plans. The finding that blacks are about half as
likely to enroll in DCHPs is troubling, and suggests that just as
policymakers are waking up to the magnitude of disparities in our
health care system, yet another policy that separates blacks (and
presumably other minorities) from whites is created. Income is not
listed as an independent variable, ruling out the ability to estimate
the relative importance of race and income.
This study clearly demonstrates that widespread expansion of DCHPs
within the employer marketplace will fragment the risk pools in the
employer based health insurance marketplace, one by one. Employer-based
health insurance coverage has been held up as the one place in which
risk pools tended to be unified, with costs spread among employees
(albeit paid directly in large part by employers). DCHP's have the
potential to unravel this important risk-spreading role. This study
clearly demonstrates that risk segmentation, to the advantage of the
healthy and the disadvantage of the less healthy, will be a reality
should the role of DCHPs expand in the health insurance marketplace.
IMPLICATIONS OF THE STUDIES FOR PUBLIC POLICY
Members of the public and policymakers should view these two
studies as the proverbial canary in a coal mine. They raise red flags
about the potential that DCHPs (like their cousins Medical Savings
Accounts) appeal disproportionately to the wealthy and healthy. The
first study shows that the income level of employees selecting DCHPs is
48 percent higher than those not selecting them. The second study finds
that those selecting DCHPs are healthier ``on every dimension'' than
those not selecting them. The concern that this new model of health
care will appeal more to the sophisticated who can ``game the system''
and shift costs to the sick becomes greater after reviewing these
studies. They should set off alarm bells about the potential long-term
threat to our health care system.
The scope and design of these studies did not allow consideration
of some of the most important issues that will affect the long-term
impact of this new type of plan. Some important areas for future
research include: To what extent will DCHPs merely shift cost to sicker
employees, instead of truly lowering health care spending?
Over time, will sophisticated employees ``game the system,'' opting
out of DCHPs when they anticipate high health care expenses related,
for example, to pregnancy or elective surgery? To what extent will
employer's health care premium dollars be diverted from paying for
health care expenses to paying to build health reimbursement accounts?
To what extent do these new health plans create new financial barriers
to health care for low-wage workers? Do consumers have the necessary
information about quality of providers on which to make informed
decisions?
What are true consumer/employee preferences regarding deductible
levels? To what extent will the gap between the health reimbursement
account and the deductible pose a financial barrier to getting needed
health care? Will anticipated cost savings occur, or will they fail to
materialize since so much health spending is concentrated among those
with catastrophic expenditures?
Will the new high deductibles and sense of spending one's own money
deter preventive care and early treatment for illness, ultimately
leading to worse health outcomes and higher costs? The findings from
these two studies are troubling for another reason: because of the
nature of adverse selection, over time, DCHPs may drive lower-
deductible health insurance options out of the marketplace (Zabinski et
al. 1999). Bolstered in the health care market with the enactment of
the health savings account provision in the Medicare bill, in a few
short years, it is very possible that unpopular high-deductible health
insurance coverage will be the only choice that many employees may face
for their coverage in the employer-based market. Those with high health
care expenses will face higher out-of-pocket costs than they would in
the absence of DCHPs. It is troubling that this type of change in the
health care marketplace will take place in the absence of a public
debate. Advocates of medical savings acccounts, for example, maintain
that there should be a choice of plans. The reality is that over time,
as adverse selection pushes the next ``relatively healthy'' group
toward high-deductible plans, an insurance marketplace death spiral
will result and ultimately will remove the very choice (a low-
deductible plan) that employees want.
Both studies contribute to the body of knowledge about DCHPs, ``as
a first, limited attempt to shed light on the important issues''
(Christianson, Parente, and Feldman 2004, this issue). In considering
the health policy expertise and money devoted to these studies, it is
important for health researchers and policymakers to ask fundamental
questions about priorities for future health research. The buzz about
DCHPs in health policy circles creates a sense that valuable dollars
are being spent in an effort to rearrange the deck chairs on the
Titanic. More resources should be devoted to charting the course to
guarantee all U.S. consumers have guaranteed, quality, affordable
health care. We should be moving full-steam toward this vision, not
spending countless hours and resources analyzing new models that
promise to split the healthy from the sick, shift costs to the sick,
favor the highly educated and high-incomed, and grow the inequities on
our system. The two studies confirm that DCHPs are a dangerous
distraction from this mission; they undermine the important value of a
communitywide approach to looking after one's neighbor in a health care
system that would spread costs broadly in an effort to achieve
affordable, quality health care for all.
NOTES
1. In addition to benefiting from a higher tax bracket (and higher
tax benefit from HSAs), the wealthy are more likely than the non-
wealthy to be able to risk the out-of-pocket costs of a high-deductible
policy.
2. Because healthy individuals may be able to get a lower premium
for a catastrophic policy in the individual market, the new tax
deduction available to individuals, when combined with the possibility
that employers will increasingly ``cash-out'' health benefits when the
healthy opt-out of coverage, could lead to rapid erosion of the
employer-based health insurance market.
REFERENCES
Christianson, J. B., S. T. Parente, and R. Feldman. 2004.
``Consumer Experiences in a Consumer-Driven Health Plan.'' Health
Services Research 39(4, part 2): 1123--40.
Fowles, J. B., E. A. Kind, B. L. Braun, and J. Bertko. 2004.
``Early Experience with Employee Choice of Consumer-Directed Health
Plans and Satisfaction with
Enrollment.'' Health Services Research 39(4, part 2): 1141--58.
Zabinski, D., T. M. Selden, J. F. Moeller, and J. S. Banthin. 1999.
``Medical Savings
Accounts: Microsimulation Results from a Model with Adverse
Selection.''
Journal of Health Economics 18: 195--218.
Statement of Council of Insurance Agents and Brokers
On behalf of the Council of Insurance Agents and Brokers (The
Council), thank you Chairman Thomas, Ranking Member Rangel, and members
of the Committee for this opportunity to submit comments regarding
Health Savings Accounts (HSAs).
The Council has a unique role in the health insurance marketplace.
Operating both nationally and internationally, Council members conduct
business in more than 3,000 locations, employ more than 120,000 people,
and annually place more than 80 percent--well over $200 billion--of all
U.S. insurance products and services protecting business, industry,
government and the public at-large, in addition to administering
billions of dollars in employee benefits. Since 1913, The Council has
worked in the best interests of its members, securing innovative
solutions and creating new market opportunities at home and abroad.
Towards this end, The Council is a strong supporter of HSAs as an
option in the health insurance marketplace and actively works to
encourage its utilization in a variety of means. These efforts include
The Council's membership in the steering committee for the HSA Working
Group, a coalition that supports legislative and regulatory
improvements to increase accessibility and the long-term viability of
health insurance products, like HSAs.
To date, HSAs already have demonstrated success in the marketplace.
According to a recent survey by America's Health Insurance Plans
(AHIP), over 3 million people were covered by an HSA-qualified high-
deductible health plan as of January of this year--more than triple the
HSA/High Deductible Health Plan enrollment of approximately one million
that was reported by AHIP a year ago.\1\ Further, 31 percent of HSA-
qualified policies sold in the individual market were purchased by
individuals who were previously uninsured, and in the small group
market, 33 percent of businesses who have HSA-qualified high-deductible
policies previously did not offer coverage to their workers.\2\ The
study also found that HSA policies were purchased by all age groups.\3\
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\1\ America's Health Insurance Plans, Center for Policy and
Research, ``January 2006 Census Shows 3.2 Million People Covered by HSA
Plans,'' March 3, 2006, at http://www.ahipresearch.org/pdfs/
HSAHDHPReportJanuary2006.pdf
\2\ Id.
\3\ Id.
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While this arc of success is promising, certain adjustments to the
current HSA rules could help encourage more employers to offer this new
health plan design and encourage more employees to select HSAs. For
these reasons, The Council proposes the following additional
improvements to the current rules for HSAs.
The Council's Proposed Modifications to Current HSA Rules
1. Align the HSA contribution limit and the health plan deductible for
employees who enroll mid-year.
If an employee joins the high deductible health plan (HDHP) and HSA
mid-year, current rules require the HSA contribution limit to be pro-
rated, even though the employer may not prorate the deductible of the
HDHP. This limitation creates a disincentive for new employees to elect
the HSA when they start employment mid-year. This issue could be
resolved by either: (a) allowing the full HSA contribution limit to be
made consistent with the annual deductible of the HDHP; or (b) allowing
employers to pro-rate the HDHP deductible to conform with the current
requirements to pro-rate contributions.
2. Permit prescription drug coverage to be offered without a high
deductible.
The current law for HSAs requires that prescription drug expenses
be subject to the high deductible before coverage begins. Many
employers, however, do not apply prescription drugs expenses toward
their health plan deductibles, but instead require cost-sharing by an
employee on each prescription they fill. Exempting prescription drugs
from the high deductible is likely to encourage more employers to offer
HSAs and more employees to enroll.
3. Permit individual family members to satisfy the individual
deductible for HSAs ($1,050) rather than the family deductible
(@$,100).
Most employer-sponsored health plans begin providing coverage as
soon as a family member meets the individual deductible for the plan
rather than the full family deductible. Current HSA guidance only
allows this practice if the individual deductible is at least the
minimum deductible for family coverage ($2,100). Allowing coverage to
begin after a family member satisfies the individual deductible amount
would help encourage more employees to elect HSAs for themselves and
their families.
4. Allow an employer with an HSA to offer Flexible Spending
Arrangements (FSAs) and/or Health Reimbursement Arrangements
(HRAs) that could pay for benefits below the high deductible.
Many employers would like to combine HSAs with other similar health
plan options, such as flexible spending arrangements (FSAs) and health
reimbursement arrangements (HRAs). Current rules significantly restrict
the ability of employers and employees to efficiently use these other
arrangements alongside HSAs. By permitting the use of FSAs and HRAs for
health expenses below the deductible, many employees are likely to find
HSAs more attractive for meeting both their current and future health
care needs.
5. Permit early retirees to pay for health insurance coverage out of
their HSA funds.
The HSA law permits retirees age 65 or older to pay their employer
retiree health plan premiums out of funds from their HSAs. Allowing
funds from HSAs to be used by retirees, regardless of their age, for
retiree health plan purposes would be a sensible change that also could
make HSAs more attractive to many individuals.
6. Encourage employees to save for retiree health expenses. HSAs were
designed to be both a spending and a savings vehicle.
Current contribution limits, which may not exceed the health plan
deductible, are unlikely to create the level of asset accumulation
during an employee's working career that will be needed for heath
expenses in retirement. Allowing an individual or employer to make
contributions above the amount of the health plan deductible would help
many individuals save for their future health care needs in retirement.
7. Permit an employee to contribute to an HSA even if his spouse has an
FSA.
Currently an individual may not contribute to an HSA if his spouse
has an FSA, even if the individual never seeks to be reimbursed for any
medical expenses from the spouse's FSA. This situation could be easily
corrected by allowing the individual in the HSA to certify that he will
not receive reimbursement for any health expenses from his spouse's
FSA.
8. Permit employees over age 65 to continue contributing to an HSA.
Active employees over age 65 are permitted to contribute to an HSA
so long as the individual is not enrolled in Medicare. Individuals,
however, are automatically enrolled in Medicare Part A (which covers
hospital expenses) upon reaching age 65 even though their plan through
their employer will typically continue to cover their medical expenses
until they retire. Older workers who participate in HSAs should be
allowed to continue to contribute to their accounts until they retire
despite the fact that they were automatically enrolled in Medicare Part
A at age 65.
Thank you for considering this submission. If you have any
questions about this submission or the matters addressed herein, please
contact our counsel, Scott Sinder (202-342-8425), at The Scott Group,
or Alysa N. Zeltzer (202-342-8603), at Kelley Drye Collier Shannon or
contact The Council directly, Alycia Kiley (202-783-4400).
Statement of Dawn J. Lipthrott, Ethical Health Partnerships,
Winter Park, Florida
Health Savings Accounts are being proposed as an answer to help
reduce the number of uninsured, reduce healthcare costs, and give
patients more cost information and choice that will lead to lower
spending. I have an HSA and have found that they fall far short of the
claims used to promote them, especially in the area of affordability.
In this statement, I will address, both from personal experience as
a self-emplyed person with individual insurance through an HSA, and
from published sources, the proposed benefits of Health Savings
Accounts and health cost factors.
1. They will give many people the ability to obtain and afford
insurance coverage.
a. Premium costs of Health Savings Accounts increase at the same rate,
and sometimes more quickly, than standard plans. So the insured
ends up paying high premiums with a high deductible.
Personal experience:
As a self-employed professional, here is what happened to my
insurance premiums, both with a traditional HMO (blue), my first HSA
(red) that quickly become just as unaffordable, and my current HSA
(yellow) obtained this year.
[GRAPHIC] [TIFF OMITTED] T0705A.058
I obtained a small group policy from Aetna, which I qualified for
as an individual business owner. I have no employees. From 2001 to
2003, my Aetna small group insurance premium more than doubled from
$240 to $520 although I never used it except for a routine mammogram
and no history of illness. My insurance agent told me that health
insurance companies simply don't want to insure individuals and price
them out. I decided to switch to an HSA since it was my only viable
option.
HSA #1:
In September of 2003, after giving all my medical information, I
was quoted a price of $276 per month by Fortis insurance and in answer
to my questions, was told that premiums in my county of residence
increase an average of 10-12% per year. By the time I got my policy,
they had raised the initial premium to $355 because I am above current
weight standards, although they knew that when they gave me the quote.
The monthly premiums for individual coverage with an HSA increased as
follows:
$355 initial premium. October 2003
$413 1st year renewal date. October 2004
$493 6 months after the first increase. May 2005
$587 announced at the end of the second year, effective on the new
renewal date of March 31st, 2006.
The insurance company said it was due to regional increases. My
premiums did not go up 10-12% annually as stated, but rather 20% and
37%.
HSA #2:
In February, 2006 the second insurance company quoted a premium
rate of $264 after obtaining height weight and health status and so I
enrolled. When I received the policy, the premium was actually $355
because I am still overweight, which they knew at the time of the
original quote. They also report that average annual increases will
increase approximately 8-10% per year in my area. Time will tell how
quickly these premiums increase.
Cost of Premiums vs. Health Cost Spending Increase:
Health Affairs reports that national growth in healthcare spending
was projected to slow nationally from a high of 9.1% in 2002 to an 7.4%
in 2005 and future increase is predicted to be fairly stable for the
next decade. (Source: Health Spending Projections Through 2015, Health
Affairs W 62, February 2005) However, my premiums increased more than
20% per year, sometimes more than 35%.
HSA's do not provide affordable coverage.
2. Proponents repeatedly claim that HSAs will reduce rising health care
costs.
What the studies show:
The leading professional journal on health policy, Health Affairs,
published an article in December 2005, ``The Rise in Health Care
Spending and What to Do About It,'' by Kenneth E. Thorpe, PhD, Chair of
Emory University's Department of Health Policy and Management. His
report added to the growing literature about the real drivers of health
costs. And those factors reveal that Health Savings Accounts will be no
more than a bandaid that will have little impact.
Thorpe's article sums up the two main areas that contribute to 2/3
of the rise in spending:
a) the rise in treated disease prevalence, much of which is
preventable (63% of rise in real per capita spending)
b) changes in thresholds for treatment (lower standards for
cholesterol levels, blood pressure, etc.)
c) innovations in treatment, some of which are positive, and some
of which are not cost-effective for the level of benefit they provide.
He states that ``health behaviors like overconsumption of food,
lack of exercise, smoking and stress accounts for approximately 40-50%
of morbidity and mortality.'' ``80% of health care spending is traced
to patients with largely predictable health care needs and expenses,
the chronically ill.''
Obesity--an increasingly significant factor in rising health costs:
Thorpe is one of many investigators who are documenting the effects
of the rising incidence of obesity on healthcare spending.
The rapidly rising prevalence of obesity puts people at greater
risk for numerous serious illnesses such as certain forms of cancer
(including breast, colorectal, and kidney among others), diabetes, high
blood pressure, arthritis, cardiovascular disease and more. The
combined prevalence of both overweight and obesity averages 53.6%
across all categories and is largest for those enrolled in Medicare
(56.1%). Obesity-attributable expenditures totalled $75,051,000,000
from 1998-2000. (Sources: Estimated Adult Obesity-attributable
Percentages and Expenditures by State (BRFSS 1998 to 2000). http://
www.naaso.org/statistics/obesity_exp_state.asp. Also: National Medical
Spending Attributable to Overweight and Obesit y. Finkelstein, EA et
al, Health Affairs. May 14, 2003.)
Patient non-compliance with treatment for chronic conditions such as
diabetes, high blood pressure and others:
In 1992, the cost of medication noncompliance alone was $100
billion ($45 billion in direct medical costs). $31.3 billion was spent
on nursing home admission due to noncompliance, $15 billion was spent
on hospital admissions due to noncompliance, and $1000 was spent per
year per non-compliant patients versus $250 dollars spent per compliant
patient. No doubt these costs have gone up considerably in 10 years
since little has been done to address them. (Source: Compliance in
Elderly Patients, University of Arkansas College of Pharmacy http://
www.uams.edu/compliance/; Also, Schering Report IX: The Forgetful
Patient: The High Cost of Improper Patient Compliance. Also Standberg,
LR, Drugs as a Reason for Nursing Home Admissions, American Healthcare
Association Journal 10, 20, 1984))
5 Conditions contribute to 31% of healthcare spending:
Of the top five diseases or conditions that make up one third of
health costs, hypertension and other cardiovascular disease can be
reduced by more focus on prevention and lifestyle change. It would make
sense to focus energy and resources into reducing health costs instead
of simply cost shifting.
Defensive medicine and inconsistency in awards
A 2003 Department of Health and Human Services report states that
finding ways to fix unreasonable jury awards could save $70-$126
billion in health care costs per year. This does not have to mean caps,
although that is one way. (Source: U.S. Department of Health and Human
Services, Addressing the New Health Care Crisis, March 3, 2004)
It can mean setting a schedule of recommended awards for avoidable
injuries as is done in several other countries. Just 2 months ago, in
Seminole County, Florida where I live, a jury awarded a woman $28
million because she has to catheterize herself twice a day after having
surgery for an incontinence problem. She has no ongoing medical
expenses, continues to work, and has normal life expectancy. That $28
million is not only inappropriate, it costs every one of us who obtain
healthcare.
It would make sense to explore meaningful alternatives to the
current tort system for handling complaints and patient injury to
reduce cost, improve patient safety, and avoid unnecessary tests and
procedures.
``Our health costs are rising sharply. In the past 5 years, private
health insurance premiums have risen 73%.'' President Bush
President Bush is absolutely on target. The statement about health
cost drivers that I presented in #2 is part of what contributes to the
rise in premiums. In addition to preventing and treating the health
conditions mentioned, insurance companies themselves contribute
significantly to the rising costs of insurance that make it more and
more unaffordable for patients.
a. Insurance Profits Consistently Increase in Double-Digit Percentages:
The nation's HMOs reported a $6.98 billion profit for the first six
months of 2005, representing a $1.2 billion, or 21.2 percent, increase
over the $5.76 billion earned during the same period in 2004, according
to Weiss Ratings, Inc., the nation's leading independent provider of
ratings and analyses of financial services companies, mutual funds, and
stocks. (Source: Weiss Ratings, HMOs Earn $7 Billion in First Half of
2005, http://www.weissratings.com/News/Ins_HMO/20060130hmo.htm)
Here are the other headlines from Weiss Ratings about the
profitablity of HMOs. (Weiss was named by the Government Accounting
Office Report GAO/GGD-94-204BR as the most accurate rater of insurance
companies,)
1/30/2006--HMOs Earn $7 Billion in First Half of 2005
10/24/2005--HMO Profits Jump 21% in First Quarter 2005
8/8/2005--Nation's HMO Profits Increase 10.7% in 2004
5/24/2005--Profitability Continues to Surge for the Nation's HMOs
2/7/2005--50% of HMOs Financially Strong as Profitability Continues
12/8/2004--HMO Profits Increase 33% in First Quarter 2004
8/30/2004--HMOs Earn $10.2 Billion in 2003, Nearly Doubling Profits
5/3/2004--HMO Profits Skyrocket to $6.7 Billion in First Nine
Months of 2003
Source: http://www.weissratings.com/News/Ins_HMO/
b. Insurance Executives Earnings:
While patients and employers struggle with rapidly rising insurance
premiums and physicians receive cuts in reimbursement, health plan
administrators are rewarded with excessive amounts of compensation.
Earning profits is the American way, but not in a manner that places
undue burden on patients and their physicians while requiring
government to scramble for solutions to the rising costs.
------------------------------------------------------------------------
Cashed out Unexercised
Total stock stock
Compensation option options
2005 Earnings including exercises remaining
stock option from from
grants previous previous
grants years
------------------------------------------------------------------------
UNITEDHEALTH $36,988,014 $114,552,8 $1,142,202,7
William W. McGuire, CEO 32 69
------------------------------------------------------------------------
AETNA $6,108,475 $18,208,28 $164,722,382
Ronald A. Williams, Chariman 1
------------------------------------------------------------------------
WELLPOINT $11,725,513 $ $22,61,000
Larry C. Glasscock, CEO
------------------------------------------------------------------------
HUMANA $3,849,338 $ $24,133,460
Michael B. McCallister, CEO
------------------------------------------------------------------------
Source: SEC Filings
c. Merger bonuses and golden parachutes for insurance executives:
In November, 2005, UnitedHealth acquired PacifiCare for $9.2
billion in cash, stock and assumed debt. The agreement also would
include $230 million in accelerated stock options and payments to
PacifiCare executives and an additional $85 million in signing bonuses
to executives who remain employed with the company after the
acquisition (Kaiser Daily Health Policy Report, 10/18 and 11/05). The
California Public Employees' Retirement System, which holds shares of
PacifiCare and opposes the proposed payments to executives, voted
against the acquisition. PacifiCare would not allow shareholders to
vote separately on the proposed payments to executives.
In addition to large bonuses for facilitating, and sometimes from
preventing, mergers, health plan executives who retire often do so with
``golden parachutes''. An article by Robert Kazel in AMNews in August,
2004 states the following example, among others: In 1996 Aetna bought
out US Healthcare. US Healthcare Chair, Leonard Abramson, was paid $2
million per year plus benefits as an advisor, $1 million dollars per
year for a noncompete agreement, $10 million as a merger bonus, and an
IOU for $10 million when he left the company completely. He also
received a $25 million airplane as a gift and $ 2 million per year to
operate it.
d. Administrative Costs Per Insured Person:
A report on Trends and Indicators in the Changing Health Care
Marketplace.by the Kaiser Foundation shows a graph in Section 6 that
administrative costs per insured person rose from $216 in 1998 to $421
in 2003, an increase of 95%.
Within the past 2 years, courts have found many of the largest
health insurance companies responsible for unethical payment practices
to physicians, and have ordered them to pay multimillion dollar
penalties and payments, as well as change their practices. Insurance
companies should also be held accountable for managing administrative
costs, scrutinized for excessive premium increases, and held
accountable for excessive pay that is passed on to the public burden.
This is another important area of reducing health care spending.
4. Physician or hospital fee transparency does not influence decision-
making or affect health costs, except for the uninsured or for
patients going out-of-network.
``Patients need to know in advance what their options are, the
quality and expertise of the doctors and hospitals and how much their
procedure will cost.'' President Bush
Physician fee transparency does not help patients make informed
decisions, nor does it do anything to control costs because insurers
pay flat fees based on the current Medicare rate, no matter what the
physician's stated fee is. The agreement with the insurance company is
that the physician cannot bill for more than what is allowed by the
insurance. That is the agreed upon rate that the physician will accept.
What he or she charges does not factor into the payment by insurer or
patient.
Moreover, even if it did make a difference, I doubt patients would
choose their surgeon or cardiologist because he or she is the cheapest
in town.
5. People are increasingly choosing to purchase HSA plans because they
see the benefits.
Personal experience:
Although I care deeply about healthcare and am very committed to
getting information to make good decisions, I did not get an HSA for
that purpose. I bought in HSA because I could no longer afford anything
else. I bought a second HSA after only 14 months because I could no
longer afford the increased premiums of the first one. When people like
me are forced to frequently switch plans because of unaffordable
premiums, larger gaps in coverage are created. A non-cancerous lesion,
that only minimally increase the chance of breast cancer, leads to
complete exclusion of any breast-related disease for a lifetime. I can
only imagine the out of pocket expense I will have if that were to ever
come to pass.
Many people have `bought' HSA plans because more and more employers
are shifting the cost to the employee because they can no longer afford
to provide health insurance. Perhaps the premiums do not rise as
quickly when obtained through an employer, but as in other plans,
individual purchasers are priced out of the market. When you can't
afford anything else, and you don't qualify for Medicaid or Medicare,
it's the only option to being uninsured. It is not really about choice,
informed or otherwise.
Saving for future medical costs:
The Ways & Means Committee statement announcing this hearing states
that almost half of the HSA plan purchasers have annual incomes of less
than $50,000. To think that families with that level of income will, or
can, put money into savings for healthcare, is not realistic. During
the first two years I had my first HSA, I could not put any into the
account because of what I had to pay out-of-pocket when I actually had
to obtain care.
Conclusion and Recommendations:
Kenneth Thorpe, writing in the journal, Health Affairs, reports
that based on the studies of health costs, even if every adult had an
HSA or similar plan, HSAs would most likely have only a limited impact
on the level and growth of health care spending.
I therefore recommend the following as starting points for more
impactful areas of reform:
Focus on prevention of obesity and lifestyle related
disease that contributes to over one third of healthcare spending.
These could include school and employer based programs, insurance
sponsored educational and incentive programs for plan members, use of
motivational programs for patients, and other initiatives.
Improve chronic disease management and patient compliance
with ongoing treatment.
Create initiatives through professional associations to
improve patient safety, including medication safety.
Focus on meaningful insurance reform to reduce
administrative and other non-care costs that would include:
a) Creating more stringent review and oversight of premium
increases at the state level, particularly in the individual market.
Create Public Service Boards or the equivalent that would also
participate in review of premium increase proposals.
b) Reducing administrative costs for insurance. Simplifying codes
and procedures would also reduce administrative time and costs for
physicians and facilities.
c) Create methods of accountability for excessive rewards and
executive compensation, all of which is passed on to consumers.
d) Explore alternatives to the tort system for resolution and
compensation of avoidable patient injury. Health courts, no-fault
approaches, apology laws, mediation with early offer, offer
alternatives used by others.
e) Create standardized guidelines and award schedules for non-
medical expense compensation for juries and judges to create
consistency and fairness in any awards ordered.
With increased utilization by a growing aging population and by
others, health costs will be difficult to control. It is a complex
system with numerous factors that impact cost. However, it seems
essential to me, that we address one or two areas that have the
potential for the biggest impact.
Food Marketing Institute
June 28, 2006
The Honorable William M. Thomas
Chairman
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20510
Dear Chairman Thomas:
On behalf of the Food Marketing Institute (FMI) \1\ and its 1,500
member companies, I would like to thank you for holding this very
important hearing on the role of health savings accounts (HSAs) in
transforming health care in the United States.
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\1\ The Food Marketing Institute (FMI) conducts programs in
research, education, industry relations and public affairs on behalf of
its 1,500 member companies--food retailers and wholesalers--in the
United States and around the world. FMI's U.S. members operate
approximately 26,000 retail food stores with a combined annual sales
volume of $340 billion--three-quarters of retail food store sales in
the United States. FMI's retail membership is composed of large multi-
store chains, regional firms, and independent supermarkets.
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When President Bush signed the ``Medicare Prescription Drug,
Improvement and Modernization Act of 2003,'' it was clear that the
traditional model of employer-provided insurance through an HMO or PPO
was pricing people out of the market and dramatically impacting both a
company's bottom line and its employees' quality of care. The creation
of health savings accounts in this legislation offered businesses--
particularly small businesses--a flexible and affordable new way to
provide employees with health insurance.
Since their introduction, HSAs have become an important option that
companies--including a number in the supermarket and grocery store
industry--have employed to try and control costs without sacrificing
quality of care. And with insurance premiums continuing to rise,\2\
they are likely to be utilized even more often in the future.
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\2\ The Kaiser Family Foundation estimates that in 2005, the annual
insurance premium for a family of four was $10,880, with the employer
paying $8, 167 of this and the worker paying the remaining $2, 713.
This is an increase of 9.2 percent from 2004. Information available at
http://www.kff.org/insurance/7315/summary/ehbs05-summary-b.cfm.
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While HSAs can help consumers to take control of their health care
decisions by bringing to bear market forces, the regulations governing
their use have not kept pace with the changing nature of the health
care market.
Recommendations for HSA Reform
As part of his 2007 Budget Proposal, President Bush offered a
number of reforms that would loosen current restrictions on HSAs and
expand their use. Among the recommendations are:
Increasing the limit on contributions to HSAs--President
Bush would increase the contribution to a high-deductible health plan's
\3\ out-of-pocket maximum;
\3\ Under current law, in order to open an HSA, an individual must
also purchase a high-deductible health plan to accompany it. These
``catastrophic plans,'' as their name implies, have a high deductible
that must be met before coverage begins. HSAs can be used to cover this
deductible, but current law limits HSA contributions to either the HDHP
deductible or $2,700 for self-coverage ($5,450 for a family), whichever
is less.
Allowing HSAs to be portable--among other things this
would allow consistent coverage while freeing plans from an arduous web
of state regulations;
Allowing participants to retroactively pay for qualified
expenses incurred during a calendar year, provided that an HSA is
established by the tax filing deadline--under current law, funds can
only pay for expenses incurred after the health savings account is set-
up.
These proposed reforms are a positive step towards making health
savings accounts more attractive to consumers and more practical for
businesses to offer. FMI encourages the Committee to enact legislation
to put them in place. A number of these reforms are already included in
H.R. 5262, legislation proposed by Rep. Eric Cantor, which we feel
would be an excellent vehicle for HSA reform.
There are two additional changes that the supermarket industry
believes are of such importance that we would like to draw your
attention specifically to them:
1. HDHPs should be permitted to cover the cost of prescription
drugs without requiring consumers to first meet the cost of the plan's
deductible. The cost of prescription drugs accounts for a
disproportionate share of many consumers' health dollar, and the fear
that they will have to meet this cost out-of-pocket is one of the
biggest impediments to our industry's expanding use of HSAs. While we
acknowledge that adding prescription drug coverage may increase costs
in the short-term, it is our belief that it will lead to cost savings
and improved care in the long-run, if for no other reason than that it
will encourage consumers to take the maintenance medications that can
help prevent long-term complications and conditions. It is absolutely
essential that this reform is implemented if we are to encourage aging
and unionized workers to take advantage of consumer-driven, market-
based health care.
2. Employers should be permitted to contribute more to the HSAs of
workers with chronic conditions than to the accounts of healthy
employees, even over and above the current maximums. Consumers with
chronic conditions or at risk for them express a tremendous amount of
anxiety when faced with a shift to HSAs. Many of them worry that they
will be faced with a significant increase in out-of-pocket expenses.
Allowing their employers to contribute additional amounts to their
health savings account helps to ease these concerns and encourages
consumers with chronic conditions to seek the help they need. The long-
term costs of obesity, high blood pressure, diabetes, and a number of
other chronic conditions can largely be mitigated by quality preventive
care and ongoing maintenance programs. Allowing employers to contribute
more to HSAs to cover the costs of these treatments, therefore, is not
only sound public policy but offers the promise of long-term savings.
These two reforms--prescription drug coverage and additional HSA
funding for chronic care--are absolutely essential if health savings
accounts are going to gain widespread acceptance and use in our
industry.
Beyond HSAs--Providing for Maximum Flexibility
Health savings accounts are clearly an important reform and a
significant opportunity to empower consumers. But they are not a
panacea. FMI strongly encourages the Committee to promote market-based
solutions to health care reform that provide the maximum amount of
flexibility to both employers and consumers. This includes not only HSA
reform but also promoting and expanding the use of health reimbursement
accounts (HRAs) and flexible spending arrangements (FSAs).
Both HRAs and FSAs currently face regulatory restrictions that
sharply limit their use, not the least of which are recordkeeping and
paperwork requirements that force families to save shoeboxes of
receipts and fill-out an endless series of forms. The IRS should pursue
web-based technology solutions that can streamline the process and ease
paperwork requirements.
FSAs are also limited by their ``use it or lose it'' structure.
Human resource managers within our industry repeatedly cite this as the
biggest impediment to greater employment of FSAs. Employees are simply
too concerned with the risk of losing unused contributions at year's
end to enroll in these important programs, costing them savings from
using pre-tax dollars to cover medical expenses. FMI strongly supports
the $500 FSA rollover included in ``the Pension Protection Act'' (H.R.
2830) and encourages Committee conferees to fight to keep this
provision in a final conference report. We would also encourage the
expansion of the $500 limit. Expanding the limit would increase savings
to American families and encourage greater use of these health care
vehicles.
Looking at the supermarket and grocery store industry, it is clear
that one size does not fit all in terms of health care. A number of
companies have shifted their employees into HSAs and have seen
resulting cost savings. Many will continue to offer health plans
through an HMO or PPO, if for no other reason than that union contracts
lock them into this for the foreseeable future.
But changes to our current health care system need to be made that
harness the forces of the free market and provide businesses and
employees with as many options as possible. As indicated in this
letter, there are a number of legislative vehicles and proposals that
advance these reforms. We encourage the Committee to consider these
bills and other proposals that have been put forward and to pass a bill
that promotes genuine change.
Thank you for your consideration of FMI's comments. If you have any
additional questions or concerns, please do not hesitate to contact me.
Sincerely,
John J. Motley III
Senior Vice President
Statement of Ronald Bachman, Healthcare Visions, Inc., Duluth, Georgia
Laws and regulations matter. Insurers, employers, and other health
service vendors can only operate businesses within the allowed
parameters set in Washington, D.C. Millions, if not billions, of
dollars are poised to create products and services to address the
health care cost, quality, and access problems we face as a nation.
Real change requires real change. Tinkering and tweaking the
current system will not do. Transformation to a new approach is the
only solution. Healthcare consumerism is the developing basis of a 21st
Century Intelligent Health System. We are in the 3rd to 4th year of a
dramatic transformation that began June 26, 2002 when Health
Reimbursement Accounts (HRAs) were created by new Treasury guidelines.
Health Savings Accounts (HSAs), part of the 2003 Medicare Modernization
Act, are the fastest growing new health product designs. They offer
affordable coverage by engaging employees in their own health and
healthcare purchasing. Both HRAs and HSAs are a part of a broader
movement to Healthcare Consumerism.
It is difficult to see the forest for the trees. Who knew when the
Renaissance was starting or when Communism began to fail? It is only in
retrospect that we can see major transformations. I believe the future
of Healthcare Consumerism has four developing generations. Current HSA
laws support the foundational 1st generation that impacts mainly
discretionary expenses of office visits, emergency room use,
prescription drugs and some diagnostic tests. While these costs are
generated by 80% of the covered members, they represent only 20% of the
costs of healthcare. If we stop at this point the transformation will
stall. We must develop a system that works for and address the sickest
population with chronic and persistent conditions--the 20% of the
population that generate 80% of the cost.
True healthcare consumerism is about empowering the individual and
creating ownership through an emphasis on personal responsibility. To
allow the creative entrepreneurial market to develop the products and
services behind an effective consumerism transformation, the market
needs and has been crying out for the next generation of HSAs.
Many saw the initial 2003 HSA legislation as a vehicle to move away
from employer-based healthcare and support a transformation to
individually owned portable health insurance. That was, and is, a
laudable goal. Most sales of HSAs have been to individuals and small
groups. Many also now see the real value of HSAs as creating ownership
that empowers employees to control their demand for services. Ownership
can occur in both individually-based and employer-based policies. If a
viable individual market of insurance was developed, employers could
more easily move to a defined contribution funding of healthcare.
Employers have been asking for changes to expand the take-up rate
of HSAs.
1. Increase HSAs to the out-of-pocket maximum of the associated
High Deductible Health Plan.
2. Allow rewards and incentives for ``comparable employees'' for
wellness and disease management program participants.
3. Allow HSA on a voluntary basis to be used only for healthcare
expenses while employed.
4. Allow HSAs to be used to purchase health insurance, so that HSA
accumulations can be used by early retirees and others to purchase
insurance coverage.
Insurance should consist of three parts--budgeting, risk sharing,
and savings. For the first time in history, healthcare has a savings
element. With proper HSA flexibility, plans can use both the carrot and
the stick to change behaviors. At the end of the day, behavior change
is what consumerism is supporting. Without behavior change that
benefits the health of the individual, the use of high deductible plan
designs will only create more cost shifting.
Finally, if healthcare consumerism is truly transformational it
must address our country's most difficult health problems. It must work
for the sickest among us, there must be a consumer-centric Medicaid, a
Consumer-centric Medicare, and a form of healthcare consumerism that
addresses the uninsureds.
Two current bills in the House of Representatives are critical to
the development of the next generation of HSAs and healthcare
consumerism. The Cantor Bill (HR 5262) and the Shadegg Bill are the
next steps needed for creating the 21st Century Intelligent Health
System. These bills will support healthcare ownership and the expansion
of HSAs to a wider population.
Every system is perfectly designed for the outcomes achieved. If
you want a market-based solution to healthcare, and not a national
universal insurance system, it is imperative that Congress continue
what it started with the initial HSA legislation. It would be a shame
to get this close to real change and be too timid to take the next
step. For those who may want to wait for more evidence of success of
HSAs, someone once said, ``It is never too early to do the right
thing.''
In conclusion, Congress can not control the budget deficits without
addressing healthcare. HSAs have proven themselves to lower trends and
the cost of healthcare. By lower just the increases in healthcare by 2
percent, the federal government would increase revenue and lower health
related expenditures by 10's of billions of dollars each year. The time
for action is now. This is why we elect members of Congress--to make
REAL CHANGE.
Ronald E. Bachman FSA, MAAA is a Senior Fellow at the Center for
Health Transformation, an organization founded by former U.S. House
Speaker Newt Gingrich. Nothing written here is to be construed as
necessarily reflecting the views of the Center for Health
Transformation or as an attempt to aid or hinder the passage of any
bill before the U.S. Congress.
International Health, Racquet & Sportsclub Association
Boston, Massachusetts 02210
July 10, 2006
The Honorable Bill Thomas, Chairman
House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Chairman Thomas:
The International Health, Racquet & Sportsclub Association (IHRSA)
would like to thank you for the opportunity to submit this written
testimony as part of the Committee's hearing on Health Savings Accounts
(HSAs). IHRSA is the leading trade association representing the private
health and fitness industry, with over 7,000 members in 74 countries.
Our members are committed to policy initiatives aimed at promoting
exercise, preventing disease and improving the health of all Americans,
hence our interest in HSAs.
HSAs are becoming an increasingly important part of the American
healthcare landscape and consumers who have access to these accounts
can currently pay for prescription drugs, doctors' visits and other
medical treatments with pre-tax dollars. This tax benefit helps ease
the financial burden when Americans pay for medical treatment once they
are sick. However, current law offers no tax benefit to help
individuals and families take steps to prevent illness in the first
place.
IHRSA strongly believes that the current HSA system should be
expanded to provide for more disease prevention by allowing expenses
for exercise programs and related equipment to be payable out of HSA
monies. Fortunately, legislation (H.R. 5479) is currently under
consideration in the House which would do just that.
Introduced by Ways and Means Committee member Jerry Weller (R-IL),
the so-called Personal Health Investment Today (PHIT) initiative will
allow fitness center dues, payments for some exercise equipment and
other fees associated with programs of physical activity to be paid out
of HSAs and other pre-tax medical savings vehicles.
If enacted, PHIT would give parents the opportunity to pay for
their children's soccer league fees out of their HSAs. They could join
a fitness center and pay for the membership fees with pretax dollars or
they could purchase a home gym to help them fight the onset of obesity,
a primary risk factor for developing any one of several chronic
diseases which are currently fueling the frightening increase in our
national healthcare expenditure.
Depending upon a consumer's individual income tax bracket, the PHIT
initiative could help Americans save 25-30 percent on their exercise
costs. Health experts agree that regular physical activity
substantially reduces the risk and symptoms of numerous diseases and
medical conditions and is associated with fewer hospitalizations,
physicians' visits, and medications, resulting in lower healthcare
costs. The PHIT tax incentive represents an important step to induce
more people to get the levels of exercise they need to improve their
level of fitness and help lower healthcare costs for all Americans.
The Department of Health and Human Services predicts that spending
on healthcare will consume 20 percent of the nation's gross domestic
product by 2015 if current trends hold true. At this rate of growth,
America is on track to spend roughly $4 trillion on healthcare within
the next ten years. This level of spending for medical treatment is
unsustainable and can only be curbed through efforts to prevent disease
before treatment is necessary.
During the hearing on June 26, some concern was expressed that many
of the existing HSA arrangements offer little in the way of disease
prevention due to varying levels of coverage offered by the high
deductible health insurance plans tied to the accounts. By enacting
PHIT, the Congress has the opportunity to address this issue
independent of the insurance plans associated with the respective
HSAs--a win-win for all concerned.
Given the healthcare crisis we are facing in this country today,
IHRSA and its members strongly believe that creative solutions are
necessary to improve the nation's fitness levels. As the Ways and Means
Committee considers future adjustments to the HSA system, we urge you
to support legislation like the PHIT initiative, which would make
expenses for exercise payable with pretax dollars.
IHRSA and its members stand ready to help advance these kinds of
initiatives aimed at improving the health of all Americans. Please let
us know how we can work together to achieve this critical objective.
Sincerely,
Helen Durkin
Director of Public Policy
Statement of National Association of Chain Drug Stores,
Alexandria, Virginia
Chairman Thomas and Members of the House Ways and Means Committee:
The National Association of Chain Drug Stores and its members
support legislation which incorporates elements of the Bush
Administration's Comprehensive Agenda for Affordable and Accessible
Health Care designed to expand the use of health savings accounts
(HSAs). We agree with President Bush that HSAs help to make health care
coverage more affordable, while providing greater choices and
flexibility for workers and their employers. We believe it is crucial
to the health of this country's workers that the expansion of HSA use
be strongly encouraged by the government.
However, we urge that any HSA legislation enacted include a
provision requiring that all prescription and non-prescription drugs be
covered under the safe harbor for qualifying HSA-linked high-deductible
health insurance policies. Currently, the IRS allows a safe harbor for
prescription drugs covered during the policy deductible only if those
drugs are used to prevent illness. This permits--for example--coverage
of statins such as Lipitor, prescribed to treat high cholesterol and
prevent heart disease. However, medications prescribed for an existing
illness, injury, or condition that could be aggravated by non-treatment
and neglect are not covered under the safe harbor. This is a short-
sighted policy that should be corrected. Policies should be permitted
to cover all drugs--prescribed and over-the-counter--during the
deductible, without disqualification.
Otherwise, we particularly endorse the elements of President Bush's
proposal that would expand the advantageous tax treatment of employer
and employee contributions to HSAs, to cover all of an employee's out-
of-pocket expenses, up to the maximum out-of-pocket spending limit
specified under the HSA-linked high deductible health policy.\1\ We
also support provisions that would: (1) allow individual taxpayers a
tax deduction for high deductible health plan premiums, a tax credit
for employment taxes related to the payment of premiums, and a
refundable tax credit for coverage costs under a high deductible
policy: (2) permit payment of high deductible health plan premiums from
HSAs; and (3) permit employers to make greater contributions to HSAs
for employees with greater medical expenses.
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\1\ Under current law, the favorable tax treatment for annual
contributions is limited to the lesser of the amount of the policy
deductible or $2,700 for an individual or $5,450 for a family. This
proposed change would increase the limit on favorable treatment of
contributions to $5,250 for individual coverage and $10,500 for family
coverage.
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Thank you for your time and your consideration of our concerns.
Statement of John C. Goodman, National Center for Policy Analysis
Making HSAs Better
Mr. Chairman and members of the Committee, even though Health
Savings Accounts (HSAs) are having an enormously beneficial effect on
the design of health insurance in this country by allowing more than
one million people to manage some of their own health care dollars and
partly self-insure through these account, they can be made even better.
On behalf of the National Center for Policy Analysis, a leader in
promoting private alternatives to government regulation and control, I
offer several proposals to improve HSAs.
Making Incentives Better. Not all medical services are the same.
Patients can exercise discretion for many of their health care needs,
and it is appropriate for them to do so. Take arthritic pain relief.
The annual cost of brand-name drugs is typically $800 more than over-
the-counter substitutes and they are riskier. (Vioxx and Betra, for
example, have been removed from the market.) Is the extra cost and risk
worth the marginal improvement in pain relief offered by a prescription
drug? Since drugs affect people differently, none of us can determine
for another individual whether the tradeoff between cost and pain
relief is worthwhile. So it is appropriate and desirable for people to
make these decisions themselves, and reap the benefits and bear the
costs of their decisions.
By contrast, a semiconscious patient on a gurney is not in a
position to make choices about alternative treatments. Even if he
could, discretion in this setting is typically inappropriate. Or
consider the case of a diagnosed schizophrenic. He may choose to stop
taking his prescribed medication, but it's in our self-interest to make
sure he is not encouraged to do so.
Unfortunately, the HSA law treats all these cases the same. It
requires a high, across-the-board deductible and requires the patient
to bear the costs of purchases below the deductible amount. A better
approach would allow insurers to design their plans so that different
deductibles (and copayments) apply to different medical services. Where
patient discretion is possible and appropriate, the deductible should
be high. Where patient discretion is more difficult, and in any event
inappropriate, the deductible should be low or nonexistent.
Creating Opportunities for the Chronically Ill. The chronically ill
are responsible for an enormous amount of health care spending. In
fact, almost half of all health care dollars are spent on patients with
five chronic conditions (diabetes, heart disease, hypertension, asthma
and mood disorders). This is where HSAs have the greatest potential to
reduce costs and improve the quality of care.
Healthy people tend to interact with the health care system
episodically. Once in awhile they go to the emergency room or take a
prescription drug. On these occasions, they gain knowledge that
improves their skills as medical consumers. But it may be several years
before they use that knowledge again, by which time it may be obsolete.
The chronically ill are different. Their treatments are usually
repetitive, requiring the same procedures, visits and/or medicines,
week after week, year after year. Consequently, cost-saving discoveries
by these patients are not one-time events. Rather, they pay off
indefinitely. Suppose a diabetic patient learns how to cut the costs of
her drugs in half, by comparing prices, shopping online, bulk buying,
pill splitting or switching to a generic brand. Such a discovery could
be financially very rewarding to a patient who must pay these costs out
of pocket.
Numerous studies have found the chronically ill can reduce costs
and improve quality by managing their own care. But health care
management is difficult and time consuming. So patients should reap
both health rewards and financial rewards from making better decisions.
Insurers should be able to create versatile HSA accounts for patients
with differing chronic conditions. They should be able to adjust the
accounts' funding to fit specific circumstances. A typical Type II
diabetic, for example, might receive one level of HSA deposit from his
employer; a typical asthmatic patient another.
The problem is: The HSA law requires employers to deposit the same
amount to each employee's HSA account, irrespective of medical
condition. This is a strange requirement because employers who give
employees choices of health plans are risk-rating their premium
payments whether they are aware of it or not. If the sickest employees
all choose Plan B and the healthiest choose Plan A, then the employer
will invariably pay more premiums per employee to Plan B. Although
employers risk-rate their premium payments, they are not allowed to
risk-rate HSA deposits.
Letting Markets Work. The current HSA law's primary problem is that
decisions the market should make have been made by the tax-writing
committees of the U.S. Congress instead.
What is the appropriate deductible for which service? How much
should be deposited in the HSAs of different employees? How can we use
these accounts to meet the needs of the chronically ill? In finding
answers, markets are smarter than any one of us because they benefit
from the best thinking of everyone. Further, as medical science and
technology advance, the best answer today may not be the best answer
tomorrow.
Case Study: South Africa. HSAs (called Medical Savings Accounts)
emerged in the 1990s in Nelson Mandela's South Africa and have now
captured more than half the market for private health insurance there.
Since the South African government never passed a law dictating an HSA
design, their plans developed in a relatively free market. The South
African ``free market HSAs'' are different, and in some ways more
attractive, than what we have in this country. For example, one of the
most popular plans there offers first-dollar insurance coverage for
most hospital procedures--on the theory that hospitalized patients have
little opportunity to make choices, and discretion is not appropriate
in that setting in any event. A high deductible applies to
``discretionary'' expenses, however, including most services delivered
in doctors' offices.
South Africa's more flexible approach also allows more sensible
drug coverage. While a high deductible applies to most drugs, a typical
plan pays from the first dollar for drugs that treat diabetes, asthma
and other chronic conditions. The reason is obvious: It would be
counter-productive to encourage patients to skimp on drugs that prevent
more expensive-to-treat conditions from developing.
Conclusion
Ideal reform in this country would allow unlimited contributions to
HSAs and permit such accounts to wrap around third-party insurance--
paying for any expense the insurance plan does not pay. Barring that,
we should at least allow flexible deductibles and risk-rated deposits
to HSAs.