[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]

                     HEALTH SAVINGS ACCOUNTS (HSAs)




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                              MAY 14, 2008


                           Serial No. 110-84


         Printed for the use of the Committee on Ways and Means

50-037                    WASHINGTON : 2009
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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director


                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
RON KIND, Wisconsin

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 
in electronic form. The printed hearing record remains the official 
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unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                           C O N T E N T S



Advisory of May 7, 2008, announcing the hearing..................     2


John E. Dicken, Director, Health Care, U.S. Government 
  Accountability Office (GAO)....................................     9
Michael E. Chernew, Ph.D., Professor of Health Care Policy, 
  Harvard Medical School, Boston, Massachusetts..................    26
Linda J. Blumberg, Ph.D., Principal Research Associate, The Urban 
  Institute......................................................    32
Judy Waxman, Vice President and Director of Health and 
  Reproductive Rights, National Women's Law Center...............    39
Wayne Sensor, CEO, Alegent Health, Omaha, Nebraska...............    47

                       SUBMISSIONS FOR THE RECORD

America's Health Insurance Plans (AHIP), statement...............    81
American Benefits Council, statement.............................    87
Consumers for Health Care Choices at the Heartland Institute, 
  statement......................................................    93
Consumers Union, statement.......................................    94
Energy Manufacturing Company, Inc., statement....................    96
Henderson Brothers, Inc., statement..............................    97
Melodee S. Webb, statement.......................................    97
National Business Group on Health, statement.....................    99
Ross Schriftman, statement.......................................   103
Terri Buck, statement............................................   105
The Council for Affordable Health Insurance (CAHI), statement....   106

                     HEALTH SAVINGS ACCOUNTS (HSAs)




                        WEDNESDAY, MAY 14, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:30 a.m., in 
Room 1100, Longworth House Office Building, Hon. Fortney Pete 
Stark (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]



                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
May 07, 2008

                       Stark Announces Hearing on

                     Health Savings Accounts (HSAs)

                    and Consumer Driven Health Care:

                    Cost Containment or Cost Shift?

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
Health Savings Accounts (HSAs) and so-called Consumer Driven Health 
Care (CDHC) or high-deductible health plans (HDHPs). The hearing will 
take place at 10:30 a.m. on Wednesday, May 14, 2008, in Room 1100, 
Longworth House Office Building.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 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.


    The Medicare Modernization Act of 2003 (MMA) (P.L. 108-173) created 
new tax-preferred Health Savings Accounts (HSAs) to encourage adoption 
of high-deductible health plans (HDHPs). These accounts allow 
individuals and/or their employers to make tax-preferred contributions 
toward qualified medical expenses, provided they have HDHPs with 
deductibles of at least $1,100 for individuals and $2,200 for families 
for 2008. HSA holders can contribute more to the savings account (up to 
a specified limit) than would be required to fulfill their annual 
deductible, and any unused portions of the account accrue tax-free and 
can be withdrawn tax-free so long as the funds are used only for 
qualified medical expenses. However, unlike employer-provided Flexible 
Spending Accounts (FSAs), individuals are not required to prove or 
otherwise substantiate that their HSA withdrawals are being used for 
health care purposes.
    As employers attempt to limit their health costs, some are turning 
to HDHPs--often called ``consumer driven'' health care plans--which 
have high-deductibles, often in exchange for lower premiums. While 
HDHPs have grown in recent years, only a fraction of those with these 
plans have active HSAs. These plans shift the cost of health care away 
from insurers and employers and toward individuals. These plans are 
predicated on the assumption that consumers will make more rational 
health care choices if they have a significant financial stake in the 
cost of their care. Proponents of these plans argue that they will help 
control overall health spending. But these plans may discourage 
consumers from seeking treatment and obtaining preventive care, and 
total health spending could even increase if people defer or delay 
needed preventive care or initial treatment. These plans result in 
significant out-of-pocket costs for those with serious medical 
conditions. A June 2007 Kaiser Family Foundation study found that 
pregnant women could face high out-of-pocket costs under these plans, 
particularly when complications arise. Furthermore, an April 2008 GAO 
study found that the average HSA enrollees had incomes nearly three 
times the average income of other tax filers and that HSA contributions 
were almost twice that of withdrawals. Simply stated, these policies 
are designed to help those who can afford to put money away to do so, 
but only serve to put health care further out of reach for those with 
high medical costs and/or modest incomes.
    In announcing the hearing, Chairman Stark said, ``HSAs and high 
deductible plans are a flawed policy approach to making health care 
more affordable. They make things worse, not better. Instead of using 
the Tax Code to encourage people to purchase coverage that may be 
woefully inadequate, we should focus on providing comprehensive health 
care coverage to those most in need in the most cost-efficient way 


    The hearing will focus on HSAs and high deductible health plans.


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    Chairman STARK. Good morning, and we will begin our hearing 
on health savings accounts and high-deductible health plans.
    In the context of health reform, some people have suggested 
that consumer-driven plans, which is a soft, fuzzy term for 
cost-shifting to patients, offer an effective or even an 
efficient option to expand coverage to the uninsured and to 
beef up existing coverage. I think that nothing could be 
further from the truth.
    While these plans currently affect a small percentage of 
those with insurance, the ideology behind it seems to be what 
motivates some of our friends and the implications of 
widespread adoption of these plans I think is cause for alarm 
for all of us. MMA encouraged the adoption of high-deductible 
plans by creating health savings accounts, HSAs, that permit 
unprecedented tax-free savings for health care if one enrolls 
in a qualified plan.
    The GAO will confirm for us that these HSAs are 
disproportionately used by high-income people and GAO's 
previous research suggested these plans attract healthier 
people than average. The selection of healthy, wealthy people, 
if these plans were widely adopted, could lead to a devastating 
cost increase for all who decided to remain in conventional 
insurance. It seems to me it's a waste of resources to forego 
revenue to advance that goal. We need to focus on measures that 
will help decrease cost and increase access, not the reverse.
    The term ``consumer-driven'' or high-deductible plans are 
yet another instance in which the conservative rhetoric doesn't 
match the reality. These plans simply shift costs and 
responsibilities to consumers. Control may sound good 
generically, but health care is one area where no one is ever 
clearly in control. Some argue that consumers will make better 
decisions if they have more skin in the game, but health care 
is not a rational economic market. It's not and never will be 
like buying an automobile.
    People often make health care decisions when they're sick, 
in pain, confused, and at their most vulnerable time. 
Consumer's Union, which publishes consumers reports has 
submitted written testimony to that effect. High deductible 
plans, especially in the non-group market, often exclude basic 
    In my friend Mr. Camp's district we could not find an HSA-
qualified plan that covered maternity care out of over 30 plans 
that we reviewed. In my own district, only four plans would 
cover maternity benefits, and even if you paid for them out of 
your pocket, it wouldn't use that as working toward your 
    While HSA eligible, high-deductible plans may exclude 
preventive benefits from the deductible, most don't. And while 
some employers may contribute to the accounts, most don't. Even 
Mr. Sensor's organization, the witness invited to champion this 
model, only contributes 100 bucks to the health savings 
account. That's information separately provided to the 
Committee and not in today's testimony. And that's probably why 
few of their employees have taken up that option.
    Most of his employees in the HRA-affiliated plan, where 
they essentially got full coverage and no copayment at all, 
given the employer contribution, there appears to be no risk or 
potential loss for the employee and no risk for the employer 
since they retain the unspent funds in the account. And, as I 
say, I have no objection to employers self-insuring for the 
copayment or at-risk portions if they decided to provide first-
dollar payment to their employees, which I think is a good 
    The good things Alegent does in terms of disease management 
can and should be done in conventional plans as well, but 
simply shifting cost to patients isn't going to result in 
overall savings. It certainly doesn't encourage people to get 
needed preventive care and it will discourage lower and middle 
income people from seeking care when they need it. It seems 
penny-wise and pound-foolish.
    If these plans were widely adopted, they might increase 
costs to our health care system, not to mention increase the 
uninsured while eroding the level of coverage among those 
fortunate enough to have insurance today. We must not be 
distracted from our goal, and that is to ensure guaranteed 
quality, affordable health care for everyone.
    I want to note that we may hear a lot of talk today about 
how important it is to have better information, and I agree. 
But that's a red herring used to advance any policy, including 
this policy, which we're going to discuss today which we feel 
is destructive.
    We get good information and put it in the right hands at 
the right time, but that's a separate topic for another day.
    Chairman STARK. Mr. Camp, would you like to comment?
    Mr. CAMP. Well, thank you, Mr. Chairman.
    Now, for the rest of the story. You know, the 
Subcommittee's timing is impeccable since we have a new report 
that highlighted that now, 6.1 million Americans are covered by 
high deductible health plans and in accompanying HSA. The 
greatest growth in HSA enrollment is now in the small group 
market where HSA enrollment is increased 72 percent over 2007.
    This growth is especially important because these are the 
same sorts of employers who are dropping their health insurance 
coverage because of rapidly increasing costs. For many small 
businesses, the affordability of HSAs has enabled them to offer 
health insurance coverage to their employees for the first 
time. The lower costs associated with HSAs have also enabled 
many small businesses to use those savings to invest in their 
employee's HSA accounts.
    Martha Gallenger, who owns Corporate Building Services in 
Olathe, Kansas, wrote, and I quote: ``We started an HSA plan in 
August of 2004. It has lowered our annual cost of insurance by 
42 percent, even with my putting $600 per year in each 
employee's health savings account.''
    Mr. Wayne Sensor, who is the CEO of Alegent Health System 
in Omaha, Nebraska will testify of their costs of decrease by 
15 percent, since they began offering consumer-driven health 
plans to their employees. These savings have also allowed 
Alegent to deposit extra money into all participating 
employees' HSAs.
    Frankly, I was surprised to see how the GAO report is being 
cited to make sweeping conclusions about HSA being a tax 
shelter for those with high incomes. The report relies on data 
from 2005, when there was a mere 1 million people enrolled in 
HSAs. Today, there are more than 6 million people in HSA 
qualifying plans. So, again, before this Subcommittee, we have 
the GAO using incomplete data to draw an erroneous, sweeping 
    And, frankly, I want some answers as to why this is 
continually happening and again I am going to send a letter to 
the acting controller and try to get some answers. There is 
also a flood methodology in this report as we have seen in the 
past. They are only analyzing HSA accounts that had money 
either added or withdrawn, leaving aside all the HSA accounts 
that had no activities.
    They have also compared HSA account filers with all other 
taxpayers. Those who are insured and uninsured, skewing the 
result on income as well, and so by including the uninsured 
they get a distorted income amount. So, again, I think they 
have the wool pulled over the eyes of this Committee. I am 
ready for a frank and open discussion on this issue, but to 
skew these reports, to pull the wool over the eyes of this 
Committee is improper.
    So, beyond the fact that enrollment has grown six-fold from 
the date the GAO looked at, GAO's findings are directly 
contradicted by information from actual HSA plans, which found 
that 45 percent of HSA accountholders made less than 45,000 a 
year. Unlike the 2005 data used by GAO, we have also heard from 
many employers, whose current experiences demonstrate how HSAs 
directly benefit more low and middle income workers. And it 
shouldn't be a surprise, given they have lower premiums.
    Mr. Sensor's experience with HSAs also highlights the need 
for health care consumers to have more information about the 
price and quality of health care services. As a result of their 
experience with HSAs, Alegent now posts their quality data and 
the costs of most services on their website. With a few clicks, 
you can now find out exactly how much an episode of care any of 
their nine hospitals will cost you and review their quality 
data, enabling consumers to make informed decisions about their 
health care.
    Now, I don't believe HSAs are the only solution and that 
they alone will cure all of our current health care problems, 
but it is indisputable that because of HSAs, millions of 
Americans have been able to purchase affordable health 
insurance coverage for themselves and their families.
    Rather than trying to undermine a successful product, we 
should focus on how we can use HSAs to increase insurance 
coverage and reduce health care costs. I also hope that we can 
work together to provide greater price transparency and better 
quality data to empower all health care consumers in their 
quest to receive affordable and effective care.
    And to that end I ask unanimous consent to submit a letter 
from the HSA working group, about 35 associations and other 
groups to this Committee, as well as a survey from the Center 
for Policy and Research on Health Insurance Plans. It actually 
has, I think, a better methodology than the official reports 
we've been getting from the GAO.
    Thank you.
    [The letter follows:]
    [GRAPHIC] [TIFF OMITTED] 50037A.001

    [GRAPHIC] [TIFF OMITTED] 50037A.002
    Chairman STARK. Oh, absolutely, without objection.
    I would concur the gentleman's remarks that often our data 
lags behind the changes and I for instance would be curious. A 
very small percentage of HSA policyholders actually had savings 
accounts and I would be curious to know whether that changed. 
In other words, the growth in policies sold, I think, your data 
is probably, I'd have no clue.
    The question in my mind would be are we just encouraging 
high deductible plans; and are the people actually putting any 
money in it, which we don't know. And I think today we can 
discuss whether that's useful or not, and we've got a panel 
here. And I would ask all of our witnesses that I will 
introduce in just a moment if they could address at least 
estimates or comment on where they think we are since 2005.
    Was that data 2005?
    Mr. CAMP. Yes.
    Chairman STARK. And where we think in the last 3 years 
times have changed or the approaches have varied, or whether it 
is fair to extrapolate or not.
    We are going to hear from John Dicken, the Director of 
Health Care with the GAO; from Dr. Michael Chernew, the 
Professor of Health Care Policy at the Harvard Medical School; 
from Dr. Linda Blumberg, who is the Principal Research 
Associate at the Urban Institute; from Ms. Judy Waxman, who is 
Vice President and Director of Health and Reproductive Rights 
at the National Women's Law Center; Mr. Wayne Sensor who is CEO 
of Alegent Health in Omaha, Nebraska. And I ask each of the 
witnesses to summarize their testimony or expand on it in 
approximately 5 minutes.
    We will have a lot of time during inquiry to dig into your 
testimony in more detail; and, I would say to the Members who 
are going to have, I understand, a few procedural votes this 
morning, I would hope not to recess the Committee for any 
longer than is necessary. And I would say to the Members if we 
get one Member from each side of the aisle back after a vote, 
just commence the hearings, and so we can move right along and 
not inconvenience the witnesses or the Members.
    Mr. Dicken, would you like to proceed?


    Mr. DICKEN. Thank you.
    Mr. Chairman, Ranking Member Camp, and Members of the 
Subcommittee, I am pleased to be here today as the Subcommittee 
discusses issues related to health savings accounts and HSA 
eligible high deductible health plans.
    HSAs were introduced in 2004 and HSA-eligible health plans 
are now a small but growing share of the private health 
insurance market with more than 6 million Americans covered. 
These health plans have three components: first is a 
deductible, significantly higher than typical with more 
traditional plans; second is the actual HSA, a tax-advantaged 
account for paying medical expenses and accumulating savings; 
and, third, is often a decision-support tool to provide 
enrollees with standardized information on the cost and quality 
of health care providers and services.
    My remarks today highlight several key points from my 
written statement, which is based primarily on GAO's April 2008 
report entitled, ``Health Savings Accounts: Participation 
Increased and Was More Common Among Individuals with Higher 
Incomes.'' As health insurance premiums have continued to rise, 
more people have purchased HSA-eligible plans, paying lower 
premiums in exchange for the higher deductible. A series of 
health insurance carrier surveys reported that the number of 
lives covered by these plans increased sharply from about 
138,000 in September 2004 to an estimated 6.1 million in 
January 2008.
    Participation in HSAs has also grown. Our analysis of IRS 
data showed that the number of tax filers aged 19 to 64 
reporting HSA activity nearly tripled from about 120,000 in 
2004 to about 355,000 in 2005. Industry estimates indicate 
continued growth in HSA participation through 2007. While the 
enrollment growth has been striking, survey estimates indicate 
that more than 40 percent of eligible health plan enrollees did 
not open an HSA. Further, more than 20 percent of these 
enrollees did not plan to open an HSA citing their inability to 
afford it or belief that they did not need one.
    Turning to those with an HSA, tax filers who reported HSA 
activity generally had higher incomes than other tax filers. 
The average, adjusted, gross income for those reporting HSA 
activity in 2005 was about $139,000 compared with about $57,000 
for other tax filers. Such income differences between HSA and 
other filers existed across all age groups and within different 
tax filing statuses, such as single or joint ex-filers. The 
situation was similar for Federal employees enrolled in the 
Federal Employees Health Benefits Program. In 2005, 43 percent 
of active employees enrolled in an HSA-eligible plan earned a 
Federal income of $75,000 or more compared with 23 percent of 
all enrollees.
    Let me turn to how participants funded and used their HSAs. 
Among all tax filers reporting HSA activity in 2005, average 
contributions were about $2,100, about double the average 
withdrawals of about $1,000. Among filers reporting HSA 
contributions, about 41 percent did not withdraw any funds that 
year, while about 22 percent withdrew as much or more than they 
contributed in 2005. This is consistent with statements from 
industry experts that characterize HSA accountholders as either 
savers or spenders.
    Of the HSA funds withdrawn in 2005, about 93 percent of 
reported withdrawals were claimed for qualified medical 
expenses. The remaining 7 percent of withdrawals were reported 
for non-qualified expenses, which are subject to tax and, if 
withdrawn before age 65, an additional tax penalty. However, we 
reported in 2006 that enrollees were sometimes unsure what 
medical expenses qualified for payment using their HSAs.
    Finally, as HSAs attract more participants and average 
account balances grow, the availability of tools to guide 
consumers in making informed health care decisions will be even 
more important. Few HSA-eligible plan enrollees who 
participated in focus groups we conducted in 2006, researched 
the cost of services, other than prescription drugs, before 
obtaining care.
    Further, industry experts and employers told us that the 
tools provided by insurance carriers often did not provide 
sufficient information to allow enrollees to fully assess the 
cost and quality tradeoffs of their purchasing decisions. 
Overcoming these barriers will likely require time, education 
and improved tools to provide enrollees with better information 
about the cost and quality of their health care.
    Mr. Chairman, this concludes my statement.
    I will be happy to answer any questions that you or Members 
of the Subcommittee may have.
    Thank you.
    [The prepared statement of John Dicken follows:]
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    [GRAPHIC] [TIFF OMITTED] 50037A.016
    Chairman STARK. Thank you.
    Dr. Chernew, would you like to enlighten us?


    Mr. CHERNEW. Thank you, Chairman Stark and Ranking Member 
Camp and Members of the Health Subcommittee for inviting me 
here today to speak to you about this important topic.
    I believe that we all share the goal of trying to reform 
the health care system in ways that will improve the quality of 
care and control the costs. Today, I am going to speak with you 
about how cost-sharing can help us meet those objectives. I 
should preface my remarks by saying that as an economist I 
believe in markets.
    I believe consumers in general are best situated to assess 
their desires and act accordingly in the market. But, as a 
growing body of research demonstrates, markets do not always 
work well. And I think health care is an area where we were 
concerned about markets failing.
    There are several reasons why I think health care markets 
are particularly problematic. First, the consequences of a poor 
decision in health care are worse than the consequences of poor 
decisions in many other markets, including, for example, death. 
So it matters if people don't make the right choices.
    Second, in health care markets information is particularly 
complex. It is very difficult to ask consumers to make 
judgments about medical things. It is particularly difficult, 
because many times those decisions are being made in situations 
in which the individual is stressed. They might be very 
    In some cases, they are cognitively impaired. It is hard to 
expect people in those situations to respond appropriately to 
price signals. Moreover, in many cases, the decisions need to 
be made quickly, making it difficult to shop or make the 
decision that we might think is appropriate in retrospect.
    Finally, there are a series of institutional details about 
health care markets, including the role of physicians, and 
including the restrictions placed on patients sometimes by 
insurers that may mute their response to price signals. I'd 
like to talk for a moment about the evidence examining cost-
sharing in health care markets.
    The first thing, and I say this is soothing to me as an 
economist, if you charge people more, they consume less. That's 
true of almost all markets. What is more disturbing in health 
care is I think there is a large and growing body of research 
that suggests that when you charge people more for their health 
care, they cut back on appropriate treatment to the same extent 
as they cut back on inappropriate treatment.
    There is evidence on that point dating back decades from a 
randomized trial, perhaps the strongest design suggesting that 
that is true. There is a growing body of evidence now, looking 
at how people managed their chronic disease, particularly 
pharmaceuticals, that suggests that when you charge people more 
for their services they consume them less often.
    Some particular results: In one study, 21 percent of 
patients when charged a modest co-pay dropped their use of 
cholesterol medications, compared to 11 percent in a control 
group. One study suggested a doubling of co-pays, reduced use 
of hypertensive medications by 10 percent amongst individuals 
with hypertension; and there's a long list of studies of this 
    Moreover, we are very interested in quality. A lot of 
resources have been devoted to measuring quality. Some studies 
that we have done, as well as others suggest that when patients 
are charged they perform worse on the indicators of quality 
that we have developed--things like mammograms.
    And finally, and perhaps not surprisingly, in the study we 
have recently published we have found that low income 
individuals are more sensitive to price than higher income 
individuals. In our study, people with diabetes were three 
times more sensitive to price when taking their blood pressure 
medications if they lived in a low income area compared to 
other individuals.
    The solution, incidentally, I don't believe, is to abandon 
caution cost sharing completely. What I think is true is that 
we need to simply have smarter cost sharing. My colleagues and 
I have been advocating an idea called ``value-based insurance 
design,'' which advocates keeping co-pays low on high value 
    There is a number of employers, (Pitney Bowes, the 
University of Michigan), insurers (Aetna and their Active 
Health Management subsidiary), employee benefit consulting 
firms, (Hewitt and Associates), that have been at the vanguard 
of designing these more sophisticated cost-sharing plans. In 
order to make these things work, I need to emphasize we need 
more and better clinical research such as embodied by 
comparative effectiveness research. We need more and better 
health services research to understand the ways individuals 
responsd to information and price signals. We need to know more 
so we can be more sophisticated in designing programs that will 
help us meet our objectives.
    So in summary let me say just because there are areas where 
cost-sharing works, and I believe there are, that doesn't imply 
that it works for everybody more broadly. Similarly, just 
because there is an area where cost-sharing does not work 
doesn't imply that cost-sharing can never work. In the future I 
think we need to be more sophisticated and strive to avoid 
financial barriers to high quality care and successful 
treatment for patients with chronic disease.
    So thank you very much for your time and I welcome your 
    [The prepared statement of Michael Chernew follows:]
 Prepared Statement of Michael E. Chernew, Ph.D., Professor of Health 
       Care Policy, Harvard Medical School, Boston, Massachusetts
    Thank you, Chairman Stark, Ranking Member Camp, and Members of the 
Subcommittee for inviting me to testify on the impact of cost sharing 
on outcomes in health care markets. Rising health care costs represent 
perhaps the most important long-run challenge facing the American 
health care system and even the economy overall. At the same time, we 
worry that too often the quality of care delivered by the health care 
system is below the level we would desire. I believe many of you share 
my goal of finding ways to reform the health care system to control 
costs and improve quality.
    Today I am going to talk about the role that patient cost sharing 
at the point of service may play in achieving those goals. Requiring 
patients to pay more when they receive care is among the solutions 
purchasers have adopted to address the fiscal pressure represented by 
rising costs. Relatively new health insurance packages, such as high 
deductible plans that may be accompanied by Health Savings Accounts, 
exemplify this trend. Yet the movement towards greater cost sharing by 
patients at the point of services extends much more broadly. Patient 
copayment rates and deductibles have been rising even in more 
conventional plans.
    I will make two basic points. First, patient cost sharing is 
neither good nor bad. Its merits depend on the context. In some cases 
cost sharing can promote efficiency and quality. In other cases it can 
lead to inefficiency and poor health outcomes. Second, a greater 
investment in clinical and behavioral research is needed to help us 
design systems that can use cost sharing and other tools to achieve our 
health care goals.
    I would like to preface my remarks by noting that, as an economist, 
I believe that market mechanisms are, in general, the best way to 
achieve efficient allocations of resources. In most settings consumers 
should determine what goods and services they desire and act 
accordingly in the market place. Over the course of our history 
reliance on free markets and consumer sovereignty has served us very 
well. However, my general appreciation of markets does not imply a 
belief that they always work well. There is a growing body of evidence 
in economics documenting deviations between consumer behavior and 
standard economic theory. For example, contrary to standard economic 
models, evidence suggests that consumers are much more likely to 
participate in retirement savings programs if they are automatically 
enrolled, with the option of opting out, than if they must actively 
choose to participate.\1\ Similarly, in contrast with standard economic 
models, evidence suggests that when consumers are given a wide choice 
of products (e.g. different varieties of jelly) they are less likely to 
purchase any product than when they are given only a few choices.\2\ 
These paradoxes do not negate the merits of markets, but they do enrich 
our understanding of individual behavior and can suggest that policy 
interventions may improve welfare.
    Having studied health care markets for about two decades I believe 
that, despite my general faith in markets, health care markets are an 
instance in which we should be cautious about blindly relying on market 
principles. There are a number of reasons health care markets are 
unique. Perhaps most importantly, the outcomes associated with poor 
consumer decisionmaking can be more serious, including death, than in 
other markets. Furthermore, institutional details of decisionmaking, 
including the complexity of information, increase the potential for 
undesired outcomes. It seems unreasonable to expect a patient to choose 
between bare metal and drug eluding stents when the medical evidence is 
conflicting. Even the choice of hospital or physician may be difficult 
because of the many attributes of different providers and because of 
complex provider-plan relationships. For example, physician privileges 
may be limited to certain hospitals, plan provider networks often limit 
access to certain doctors and hospitals, and physician practices may be 
closed to new patients. These institutional details will limit the 
ability of consumers to respond to price signals. These decisions are 
even more difficult when patients are cognitively impaired, very 
emotional or stressed, or when they need to make decisions quickly. One 
would not expect, for example, a patient suffering chest pain will be 
able to weigh tradeoffs between institutions prior to seeking care. The 
role of physicians complicates the ability of patients to weigh 
options. Certainly patients have a say in their care, but in many 
situations they are heavily influenced by physicians and it may be 
unlikely (perhaps appropriately in some cases) that they would respond 
to market signals if those signals conflicted with their physicians 
advice. Finally, consumers desire protection against the financial risk 
of illness. In situations in which cost sharing does not alter patient 
behavior, greater cost sharing does nothing to change overall spending 
and has no beneficial incentive effects. It simply represents a tax on 
sick patients. In these instances, greater cost sharing has no 
beneficial incentive effects and just represents a tax on patients. For 
these reasons, policymakers and private purchasers must consider the 
potential for unintended outcomes when promoting interventions such as 
greater consumer cost sharing.
Cost sharing reduces utilization and expenditures
    As with any good, the demand for health care services is responsive 
to price. When patients are charged more for care, they will consume 
fewer health care services. Estimates from a randomized trial suggest 
that when patients were required to pay 95% of their care (up to an 
out-of-pocket maximum that was based on their income) they reduced 
spending by over 30%.\3\ The responsiveness may be even higher as cost 
sharing requirements grow as a share of income. To proponents of high 
cost sharing, this response is desirable. They could rightly note that 
considerable evidence suggests that greater use of health care services 
is not consistently related to better outcomes and that it is likely we 
could reduce utilization and spending without adversely affecting the 
health of Americans. In this view of the world, consumers, when faced 
with the correct incentives, would drive the system to efficiency as we 
believe they do in most other markets.
When facing higher cost sharing in health care consumers forgo 
        important services
    As much as it pains me to admit it, important aspects of standard 
economic models appear to be often violated in health care markets. 
Specifically, economists often assume that if prices charged to 
consumers rise, individuals will forgo less valuable services and 
continue to consume services of high value. Extensive evidence suggests 
that in health care markets this assumption may be incorrect in many 
instances. For example, the RAND health insurance experiment, which 
documented patient response to cost sharing, found that patients 
reduced utilization of services deemed clinically appropriate by the 
same amount as they reduced the use of services deemed clinically 
    Similarly, more recent research has documented that relatively 
modest increases in cost sharing reduces utilization of important 
medications for managing chronic disease.\5-11\ For example, Goldman 
and colleagues report that a doubling of copayments reduced use of 
anti-diabetes medications by patients with diabetes by 23% and reduced 
use of anti-hypertension medications by patients with hypertension by 
10%.\7\ Huskamp and colleagues report that when an employer increased 
cost sharing requirements by about $10 to $20 per prescription 
(depending on the exact medication), that 21% of patients stopped 
taking their medication for high cholesterol (compared to 11% in a 
control group).\8\ Reducing copayment rates seems to have the opposite 
effect. Research that my colleagues and I published in January found 
that reduction in copayments of about $10 per prescription increased 
patient adherence to treatment regimes for chronic disease.\12\ Recent 
reviews of the literature confirm these conclusions.\6,13\
    Interestingly, while a lot of attention has been devoted to 
measuring the quality of care in this country, we seldom appreciate the 
impact that greater cost sharing may have on quality of care measures. 
For example, the Healthcare Effectiveness Data and Information Set 
(HEDIS) is a list of quality indicators maintained by the National 
Committee of Quality Assurance (NCQA). Forthcoming work that my 
colleagues and I have done, examining a subset of those measures, 
suggests that higher cost sharing will reduce quality.\14\ Other 
research that Trivedi and colleagues published supports that 
finding.\15\ If we care about quality, and I truly hope we do, we must 
be concerned about the impact of cost sharing.
    Not surprisingly, cost sharing may affect disparities in health 
care related to income. We have recently published a study suggesting 
that the impact of higher cost sharing is greater among lower income 
individuals.\16\ Specifically, we found that individuals living in low 
income areas were much more sensitive to price than individuals in high 
income areas. For example, patients with diabetes in low income areas 
were over three times more sensitive to costs when using blood pressure 
medication, a very important component of diabetes care, than patients 
in high income areas. This is consistent with results from the Rand 
Health Insurance experiment that found the adverse health effects 
related to cost sharing were limited to patients with specific chronic 
diseases (hypertension and vision) and greater among low income 
    It is important to assess how these results relate to health 
outcomes. In theory we should expect to see adverse consequences of 
reduced use of high value services. Evidence on this point is still 
developing, and conflicting evidence can be found, but I believe the 
best evidence suggests adverse consequences of higher cost sharing. Hsu 
et al. report that higher cost sharing for prescription drugs had worse 
physiological outcomes (e.g. blood pressure), more visits to the 
emergency room, and even greater mortality.\18\ The savings associated 
with reduced drug spending were almost completely offset by the higher 
non-drug spending. Chandra et al. report offsets of lesser magnitudes, 
but the basic message, that high cost sharing can lead to worse 
compliance with important health care services and, in turn, result in 
worse health outcomes, is supported.\19\
    Proponents of cost sharing might argue that this evidence 
underscores the importance of patient education. Certainly patient 
education is important (though I might add not costless). While I 
believe education interventions can improve compliance with important 
services, I am skeptical that it can substantially reduce the price 
sensitivity of patients to higher cost sharing. Our study of copay 
reductions that I referred to earlier, which demonstrated how patients 
responded to lower copayment rates, was conducted in a setting that 
already had a sophisticated care management intervention in which 
patients and physicians were contacted about their care and the results 
suggested the responsiveness to cost sharing was similar to that in 
other studies.\12\
    It is important to recognize that the fact that consumers market 
poor decisions in health care markets does not mean that there are not 
settings where markets in health care work well, particularly in 
situations that are relatively straightforward and consumers have time 
to decide. Moreover, some consumers are undoubtedly more capable of 
successfully navigating markets than others. Certainly when the stakes 
are high, some consumers can do a better job of making decisions than 
others. Identification of patients or situations in which markets work 
well does not imply that market mechanisms should be used without 
modification in health care any more than identification of patients or 
situations in which markets cannot work implies markets should never be 
Towards smarter cost sharing
    The fundamental question is how we can design our system to 
recognize the failures of markets and heterogeneity of patients and 
treatments. Purchasers and policymakers must strive to design benefit 
packages that recognize the variation in value that health care 
services offer and attempt to avoid creating financial barriers for 
access to high value services. The paradigm of Value Based Insurance 
Design (VBID) reflects this approach, arguing that copays should be 
kept low for high value services.\20\
    Several employers, insurers and benefit consulting firms have begun 
to adopt VBID style benefit packages. For example, Pitney Bowes reduced 
cost sharing requirements for important chronic disease medications and 
reported very favorable results. The University of Michigan designed a 
benefit package for employees and dependents with diabetes that focused 
on minimizing financial barriers to access for important services. 
Insurers such as Aetna have developed a range of initiatives related to 
VBID, with ActiveHealth Management (a subsidiary of Aetna) using its 
sophisticated care manage information system as a platform to support 
VBID. Hewitt Associates, a large employee benefit consulting firm has 
begun consulting with clients for such programs. These are only a few 
examples, but they demonstrate the feasibility of such a clinically 
sensitive approach to cost sharing.
    VBID programs are just in their infancy and are no panacea for all 
of the challenges facing the health care system. Yet to the extent that 
consumerism, and more specifically cost sharing, is a part of the 
solution, VBID can help mitigate adverse effects. Moreover, VBID 
programs can support quality improvement initiatives by removing 
barriers to the services being promoted.
    The potential of sophisticated cost sharing programs such as VBID 
depends on our ability to support the health services research upon 
which these programs rely. Not only do we need the type of research 
that is encompassed by comparative effectiveness research, but we also 
need greater investment in the social science research that helps us 
understand patient behavior. Funding of such work will enable us to 
provide answers to the central questions concerning how we can design a 
better health care system capable of controlling costs, maintaining (or 
even improving) the quality of care, and providing patients with the 
autonomy to make decisions central to their well-being.
    Greater patient responsibility for the costs of their care will 
undoubtedly be an important part of the healthcare system in the 
future. However, details of the health care market suggest that cost 
sharing may have both beneficial and detrimental effects. Proponents of 
cost sharing focus on situations in which there is over-consumption of 
care or consumers can be expected (but fail in practice) to shop for 
the provider offering the best price/quality combination. In these 
cases, cost sharing can encourage efficient consumption of care. 
However, in other cases, when care is appropriate or when consumers 
cannot respond to market signals, cost sharing can lead to worse 
outcomes. Evidence suggests that in many situations cost sharing will 
reduce the likelihood that patients will consume appropriate services. 
This could lead to hospitalization, emergency room visits, and even 
death. Even if the cost sharing does not alter patient behavior, the 
associated cost shifting reduces well-being. Specifically, consumers' 
desire to mitigate some of the financial risk associated with illness 
suggests that it is difficult to rely on the price mechanism to 
allocate resources in the same manner as in other markets. If we charge 
patients the full cost when they need health care services, we would be 
transferring a substantial risk to patients that is generally not 
considered by economists to be optimal. More sophisticated cost sharing 
programs, supported by rigorous clinical and health services research 
are needed to balance our need to control spending with our desire to 
get the most from our health care system.
    Thank you very much for the opportunity to speak with you today and 
I welcome your questions.
     1. Choi JJ, Laibson D, Madrian B, and Metrick A, Optimal Defaults 
and Active Decisions. 2005. NBER Working Paper #11074.
     2. Iyengar SS and Lepper MR, When Choice Is Demotivating: Can One 
Desire Too Much of a Good Thing? Journal of Personality and Social 
Psychology, 2000. 79(6): p. 995-1006.
     3. Manning WG, Newhouse JP, Duan N, Keeler EB, and Liebowitz A, 
Health Insurance and the Demand for Medical Care: Evidence from a 
Randomized Experiment. The American Economic Review, 1987. 77(3): p. 
     4. Siu AL, Sonnenberg FA, Manning WG, Goldberg GA, Bloomfield ES, 
Newhouse JP, et al., Inappropriate use of hospitals in a randomized 
trial of health insurance plans. New England Journal of Medicine, 1986. 
315(20): p. 1259-66.
     5. Gibson TB, McLaughlin CG, and Smith DG, A Copayment Increase 
for Prescription Drugs: the Long-term and Short-term Effects on Use and 
Expenditures. Inquiry, 2005. 42(3): p. 293-310.
     6. Gibson TB, Ozminkowski RJ, and Goetzel RZ, The Effects of 
Prescription Drug Cost Sharing: A Review of the Evidence. American 
Journal of Managed Care, 2005. 11(11): p. 730-740.
     7. Goldman DP, Joyce GF, Escarce JJ, Pace JE, Soloman MD, and 
Laouri M, Pharmacy Benefits and the Use of Drugs by the Chronically 
Ill. The Journal of the American Medical Association, 2004. 291(19): p. 
     8. Huskamp HP, Deverka PA, Epstein AM, Esptein RS, McGuigan KA, 
and Frank RG, The Effect of Incentive-Based Formularies on 
Prescription-Drug Utilization and Spending. New England Journal of 
Medicine, 2003. 349(23): p. 2224-232.
     9. Landsman PB, Yu W, Liu X, Teutsch SM, and Berger ML, Impact of 
3-tier Pharmacy Benefit Design and Increased Consumer Cost-Sharing on 
Drug Utilization. The American Journal of Managed Care, 2005. 11(10): 
p. 621-8.
    10. Soumerai SB, McLaughlin TJ, Ross-Degnan D, Casteris CS, and 
Bollini P, Effects of a limit on Medicaid drug-reimbursement benefits 
on the use of psychotropic agents and acute mental health services by 
patients with schizophrenia. New England Journal of Medicine, 1994. 
331(10): p. 650-5.
    11. Tamblyn R, Laprise R, Hanley JA, Abrahamowicz M, Scott S, Mayo 
N, et al., Adverse events associated with prescription drug cost-
sharing among poor and elderly persons. The Journal of the American 
Medical Association, 2001. 285(4): p. 421-9.
    12. Chernew ME, Shah MR, Wegh A, Rosenberg SN, Juster IA, Rosen AB, 
et al., Impact of Decreasing Copayments on Medication Adherence Within 
a Disease Management Environment. Health Affairs, 2008. 27(1): p. 103-
    13. Goldman DP, Joyce GF, and Zheng Y, Prescription Drug Cost 
Sharing. Associations with Medical Utilization and Spending and Health. 
The Journal of the American Medical Association, 2007. 298(1): p. 61-
    14. Chernew ME and Gibson TB, Cost Sharing and HEDIS Performance. 
Medical Care Research and Review, Fourthcoming 2008.
    15. Trivedi AN, Rakowski W, and Ayanian JZ, Effect of cost-sharing 
on screening mammography in Medicare Health Plans. New England Journal 
of Medicine, 2008. 358(4): p. 375-383.
    16. Chernew ME, Gibson TB, Yu-Isenberg K, Sokol MC, Rosen AB, and 
Fendrick AM, Effects of Increased Patient Cost Sharing on Socioeconomic 
Disparities in Health Care. Journal of General Internal Medicine, 2008.
    17. Newhouse JP, Free for All. Lessons from the RAND Health 
Insurance Experiment. 1996, Cambridge, MA.: Harvard University Press.
    18. Hsu J, Price M, Huang J, Brand R, Fung V, Hui R, et al., 
Unintended consequences of caps on Medicare drug benefits. New England 
Journal of Medicine, 2006. 354(22): p. 2349-59.
    19. Chandra A, Gruber J, and McKnight R, Patient Cost-Sharing, 
Hospitalization Offsets, and the Design of Optimal Health Insurance for 
the Elderly. 2007. NBER Working Paper No. W12972.
    20. Chernew ME, Rosen AB, and Fendrick AM, Value-Based Insurance 
Design. Health Affairs, 2007. 26(2): p. w195-w203.


    Chairman STARK. Thank you.
    Dr. Blumberg, would you like to proceed please?


    Ms. BLUMBERG. Mr. Chairman, Mr. Camp and distinguished 
Members of the Subcommittee, thank you for inviting me to share 
my views on health savings accounts and their implications for 
cost-containment and the distribution of health care financing 
    The views I express are mine alone and should not be 
attributed to the Urban Institute, its trustees or its funders. 
In brief, my main points are the following.
    The related issues of a large and growing number of 
uninsured Americans and the escalating cost of medical care 
create problems of limited access to necessary medical care for 
millions of Americans; financial hardship for many households, 
and severe budgetary pressures on the public health care safety 
net as well as on Federal and State government. However, HSAs 
are not the solutions to these pressing national concerns.
    HSAs provide additional subsidies to the people most likely 
to purchase health insurance--even in the absence of no subsidy 
at all--those with high incomes. As income and marginal tax 
rates increase, the value of the tax exemption increases as 
well, and the interest, dividends and capital gains earned on 
HSA balances grows in addition. Because most of the uninsured 
have low incomes and get little to no value from tax 
exemptions, the subsidies are very poorly targeted for 
expanding coverage.
    Because of the highly skewed nature of health care 
spending, the highest spending 10 percent of the population 
accounts for 70 percent of total health expenditures, cost 
containment strategies that do not deal substantially with the 
high users of health care services will not have a significant 
effect on overall spending.
    The cost saving potential of HSAs is on the spending before 
the deductible is reached, and most of health care spending 
occurs by high users of services after the deductibles are met. 
This significantly limits the ability of HSAs to lower 
systemwide health care spending. But, to the extent that the 
high deductible plans raise costs for high cost users, their 
use of medical services may fall, but there are no provisions 
to help these patients choose the services most important to 
their health. So reductions in care could lead to expensive, 
catastrophic health consequences in the long run. Because high 
deductible plans with or without HSAs place greater financial 
burdens on frequent users of medical care than do comprehensive 
policies, they tend to attract healthier enrollees. This 
selection can raise costs for the less healthy. Unless the 
costs of the high users of care are spread more broadly by 
manipulating premiums across plan types or through regulation 
or subsidization, this dynamic will make coverage less 
affordable for those with the greatest medical needs.
    Despite lower premiums compared with comprehensive plans, 
high deductible HSA plans have so far failed to attract many 
low-income, uninsured individuals and families. In addition to 
the fact that they get little tax benefit, they often do not 
have assets to cover the high deductibles. The one size fits 
all high deductible policy under the HSA legislation is flawed, 
since for example the $2200 deductible could be financially 
ruinous for a low income family, while the same deductible 
could have virtually no cost containment impact for a high 
income family.
    Roughly half of those with HSA-compatible, high deductible 
policies do not open HSAs despite the tax advantages. Two-
thirds of employers offering single coverage through high-
deductible/HSA combinations report making no contribution to 
the HSAs of their workers. As a consequence, low income or high 
health care-need workers with no choice of coverage, but a high 
deductible/HSA plan are likely to be exposed to much larger 
out-of-pocket financial burdens than they would be under a 
comprehensive policy.
    At present, the legal use of HSAs is far more tax-favored 
than is any other health or retirement account. Contributions, 
earnings, and withdrawals for HSAs can be tax free, if spending 
is health-related. However, there is no mechanism in place 
other than being subjected to a general tax audit to verify 
that spending out of HSA balances is actually being done for 
medical purposes.
    Conversely, Medical Flexible Spending Accounts do have 
verification mechanisms in place that add very little to the 
costs of the plans. Having verification requirements would 
prevent the legal use of HSAs as a general tool of tax evasion.
    Effective expansions of health insurance coverage will 
require subsidies targeted to those with modest incomes, and 
possibly those with high medical care needs as well, a 
guaranteed source for obtaining adequate, affordable coverage, 
and ideally a requirement or guarantee that all individuals 
have insurance coverage. Effective cost containment will 
require research and investment in a number of promising 
strategies including evaluation of cost-effectiveness of new 
and existing technologies combined with strategies to target 
resources to cost-effective care, increasing the cost of 
preventive care, the use of preventive care; identifying and 
increasing the use of cost-effective preventive care and high 
cost case management strategies.
    Payment reform and development of purchasing strategies 
that promote the consistent delivery of care in efficient and 
appropriate settings; and administrative cost saving 
strategies, including development of effective information 
technology infrastructure. HSAs and high deductible are not the 
easy answer to what ails the U.S. health care system. 
Unfortunately, there is no easy answer, but there are promising 
strategies that are worth devoting our attention and resources 
    Thank you very much and I welcome your questions.
    [The prepared statement of Linda Blumberg follows:]
  Prepared Statement of Linda J. Blumberg, Ph.D., Principal Research 
                     Associate, The Urban Institute
    Mr. Chairman, Mr. Camp, and distinguished Members of the 
Subcommittee: Thank you for inviting me to share my views on Health 
Savings Accounts (HSAs) and their implications for cost containment and 
the distribution of health care financing burdens. The views I express 
are mine alone and should not be attributed to the Urban Institute, its 
trustees, or its funders.
    In brief, my main points are the following:

      The related issues of a large and growing number of 
uninsured Americans and the escalating cost of medical care create 
problems of limited access to necessary medical care for millions of 
Americans, financial hardship for many households, and severe budgetary 
pressures on the public health care safety net as well as on Federal 
and State government. However, HSAs are not the solutions to these 
pressing national concerns.
      HSAs provide additional subsidies to the people most 
likely to purchase health insurance even in the absence of no subsidy 
at all--those with high incomes. As income and marginal tax rates 
increase, the value of the tax exemption associated with contributions 
to HSAs and the interest, dividends, and capital gains earned on HSA 
balances grows as well. Because most of the uninsured have low incomes 
and get little or no value from tax exemptions, the subsidies are very 
poorly targeted for expanding coverage.
      Because of the highly skewed nature of health care 
spending--the highest-spending 10 percent of the population accounts 
for 70 percent of total health expenditures--cost containment 
strategies that do not deal substantially with the high users of health 
care services will not have a significant effect on overall spending. 
The cost saving potential of HSAs is on spending before the deductible 
is reached, and most of health care spending occurs by high users of 
services, after the deductibles are reached. This significantly limits 
the ability of HSAs to lower systemwide health care spending.
      To the extent that high-deductible plans raise costs for 
higher-cost users, their use of medical services may fall. But there 
are no provisions to help these patients choose the services most 
important to their health, so reductions in care could lead to 
expensive, catastrophic health consequences in the long run. Moreover, 
patients' ability to compare health care providers on the basis of cost 
and quality is extremely limited. As a consequence, high-deductible 
plans and HSAs have a limited ability to make patients better value 
      Because high-deductible plans with or without HSAs place 
greater financial burdens on frequent users of medical care than do 
comprehensive policies (policies with lower out-of-pocket maximums and 
possibly broader sets of covered benefits), they tend to attract 
healthier enrollees. This selection can raise costs for the less 
healthy. The higher-cost insured population remaining in comprehensive 
coverage will tend to see their premiums rise as the healthy peel off 
into high-deductible/HSA plans. Unless the costs of these high users of 
care are spread more broadly by manipulating premiums across plan types 
or through regulation or subsidization, this dynamic will make coverage 
less affordable for those with the greatest medical needs.
      Despite lower premiums compared with comprehensive plans, 
high-deductible/HSA plans have so far failed to attract many low-income 
uninsured individuals and families. In addition to the fact that they 
get little tax benefit, they often do not have assets to cover the high 
deductibles--and have decided that they are better off remaining 
uninsured. The ``one size fits all'' high-deductible policy under the 
HSA legislation is flawed since, for example, a $2,200 deductible could 
be financially ruinous for a low-income family, while the same 
deductible could have virtually no cost-containment impact for a high-
income family.
      Roughly half of those with HSA-compatible, high-
deductible policies do not open HSAs (GAO 2008), despite the tax 
advantages of doing so. Two-thirds of employers offering single 
coverage through high-deductible/HSA combinations report making no 
contribution to the HSAs of their workers (Kaiser Family Foundation/
Health Research and Education Trust 2007). As a consequence, low-income 
or high health-care-need workers with no choice of coverage but a high-
deductible/HSA plan are likely to be exposed to much larger out-of-
pocket financial burdens than they would be under a comprehensive 
policy, since employers are not, by and large, offsetting these higher 
deductibles with cash contributions to HSAs. Presented with the option 
of making varying contributions to HSAs as a function of worker income 
or health status, employers are highly unlikely to do so.
      At present, the legal use of HSAs is far more tax favored 
than is any other health or retirement account. Contributions, 
earnings, and withdrawals for HSAs can be tax free, if spending is 
health related. However, there is no mechanism in place, other than 
being subjected to a general tax audit, to verify that spending out of 
HSA balances is actually being done for medical purposes. Medical 
Flexible Spending Accounts (FSAs), a much more widely used tax-
advantaged account for paying out-of-pocket medical costs, do have 
verification mechanisms in place that add very little to the costs of 
the plans. H.R. 5917 would prevent the illegal use of HSAs as a general 
tool of tax evasion.
    Between 2000 and 2006, employer-based health insurance premiums 
grew by 86 percent, compared with 20 percent for worker earnings and 18 
percent for overall inflation (Kaiser Family Foundation and Health 
Research and Educational Trust 2006). By 2006, the number of uninsured 
had increased to 18 percent of the total non-elderly population in the 
United States, and a third of the non-elderly population with incomes 
below 200 percent of the Federal poverty level were uninsured (Holahan 
and Cook 2007). Health Savings Accounts have been one approach some 
policymakers have embraced to addressing these dual and growing 
    While high-deductible plans have been available in the nongroup 
market for many years, the 2003 Medicare Prescription Drug, 
Improvement, and Modernization Act (MMA) included provisions to provide 
a generous tax incentive for certain individuals to seek out high-
deductible health insurance policies with particular characteristics. 
In 2008, the minimum annual deductibles for these policies are $1,100 
for single and $2,200 for family policies. Annual out-of-pocket 
maximums for these plans are capped at $5,600 for single policies and 
$11,200 for family policies, with the limits applying only to the types 
of services included in the coverage of the plan.
    Individuals (and families) buying these policies either through 
their employers or independently in the private nongroup insurance 
market can make tax-deductible contributions into an HSA. Funds 
deposited into the accounts are deducted from income for tax purposes, 
and any earnings on the funds accrue tax free, and are not taxed as 
long as they are used to cover medical costs. Contributions can be made 
by employers, individuals, or both. In 2006, Congress removed the 
requirement that annual deposits into HSAs be capped at the level of 
the plan's deductible, and instead provided a fixed statutory limit for 
annual contributions. In 2008, these limits are $2,900 for single 
policies and $5,800 for family policies.
    HSAs were intended to encourage more cost-conscious spending by 
placing more of the health care financing burden on the users of 
services, as opposed to having them incorporated in the shared 
financing inherent in insurance coverage.
What Makes HSAs Attractive?
    As a consequence of the structure of the tax subsidy and the shift 
of health care spending to out-of-pocket costs, these accounts are most 
attractive to high-income people and those with low expected health 
care expenses. The tax subsidy provided for HSA participants is 
greatest for those in the highest marginal tax bracket and is of little 
or no value to those who do not owe income tax. Clemans-Cope 
(forthcoming) demonstrated that 70 percent of the non-elderly uninsured 
have family incomes below 200 percent of the Federal poverty level, and 
that only 16 percent of uninsured adults fall into the 20 percent or 
greater marginal tax bracket. A $5,800 HSA contribution, the maximum 
permitted under the law, would generate a tax reduction of $2,030 to a 
household in the top income tax bracket. The value of the tax benefit 
would be less than half as much for a moderate-income family. And it 
would be worth much less if the family could not afford to contribute 
very much into the account. For those whose incomes are so low that 
they have no income tax liability, the subsidy is worth nothing. 
However, HSA contributions made by an employer, as opposed to by an 
individual, will decrease even a low-income worker's payroll tax 
liability, resulting in a modest tax savings.
    Higher-income individuals are also better able to cover the costs 
of a high deductible, should significant medical expenses be incurred. 
Jacobs and Claxton (2008) showed that uninsured households have 
substantially lower assets than do the insured. As a consequence, high-
deductible policies are unlikely to provide the uninsured with 
sufficient financial access to medical care in the event of illness or 
    Additionally, those who do not expect to have much in the way of 
health expenses will be attracted to HSAs by the ability to accrue 
funds tax free that they can use for a broad array of health-related 
expenses that are not reimbursable by insurance (e.g., non-prescription 
medications, eyeglasses, cosmetic surgery). Those without substantial 
health care needs may also be attracted to HSAs because they can be 
effectively used as an additional IRA, with no penalty applied if the 
funds are spent for non-health-related purposes after age 65. Young, 
healthy individuals may even choose to use employer contributions to 
their HSAs for current non-health-related expenses, after paying a 10 
percent penalty and income taxes on the funds--a perk unavailable to 
those enrolled in traditional comprehensive insurance plans.
    These expectations have been borne out in the enrollment experience 
of HSAs (United States General Accountability Office [US GAO] 2008). 
The GAO analysis found that the average adjusted gross income of HSA 
participants was about $139,000 in 2005, compared with $57,000 for all 
other tax filers. They also found that average contributions to HSAs 
were more than double the average withdrawals, suggesting that either 
HSA participants were not high users of medical services or they used 
these accounts purely as investment vehicles--or both.
    The incentive structure and the findings strongly indicate that 
HSAs and their associated tax subsidies are health care spending 
vehicles that are poorly targeted to the population most in need--the 
low-income and those with above average medical needs.
The Cost Containment Implications of the Health Care Spending 
    The distribution of health care spending is highly skewed, meaning 
a small percentage of the population accounts for a large share of 
total health care spending. The top 10 percent of health care spenders 
spend 70 percent of health care dollars, while the bottom 50 percent of 
spenders account for only 3 percent of those dollars (Berk and Monheit 
2001). As a consequence, significantly decreasing health care spending 
will require substantially lowering the spending associated with high 
users of medical services, ideally, while not decreasing quality of 
care. However, the high-deductible/HSA plan approach is not well 
designed for lowering the spending of the high-cost population in a 
manner that does not negatively affect their health.
    Cost savings can be manifest through two mechanisms: a decline in 
the amount of services per episode of care due to an increase in 
marginal price, or through a decline in the number of episodes of care 
due to an increase in the average price. For those who are generally 
healthy and would not have annual spending that exceeded the high 
deductibles associated with HSA compatible plans, the increased 
marginal price of out-of-pocket medical care could have some impact on 
their use (Newhouse 1993, 2004). Incentives to curtail unnecessary 
services are strongest for these individuals. However, our analysis of 
the Medical Expenditure Panel Survey--Household Component showed that 
only 3 percent of total health care spending is attributable to those 
who spend below the minimum required deductibles. Consequently, there 
is little room for systemwide cost savings among this population since 
their spending accounts for so little of the overall expenditures.
    For those who are unhealthy and who, with comprehensive insurance 
coverage, would spend above these higher deductibles, a number of 
scenarios are possible. Those who do not face significantly higher out-
of-pocket maximums relative to their previous plan would not have any 
additional cost containment incentives. Those who face significantly 
higher out-of-pocket maximums under the new high-deductible/HSA plans 
would face a higher average price of medical care, and could reduce 
their spending as a consequence. However, research has demonstrated 
that the reductions in their spending would occur as a consequence of 
their reducing the number of episodes of their care, as opposed to 
reducing the cost of an episode once initiated (Newhouse 1993, 2004). 
In other words, they would decide not to initiate a contact with a 
medical professional for financial reasons, with potentially serious 
consequences for their health and for the long-term costs of their 
care. Two studies (Fronstin and Collins 2005; Davis et al. 2005) have 
found that HSA participants were more likely to report missed or 
delayed health services and not filling prescriptions due to cost. 
These problems were greater for those with lower incomes or worse 
    Paradoxically, high-cost individuals are not likely to curtail 
unnecessary services before reaching the high deductible, as might be 
desired. That is because the lion's share (80 percent) of health care 
spending for high-cost users of care is attributable to their spending 
that is incurred once those higher deductible levels are surpassed 
(Clemans-Cope forthcoming).
    Since most of the current system's spending results from high-cost 
users spending above the HSA-compatible deductible levels, the cost-
saving incentives can only affect a small segment of total health care 
dollars. That is unless the increased cost sharing is so much higher as 
to strongly dissuade the unhealthy from seeking much of the services 
that they would use under other circumstances. The health consequences 
of the latter could be extraordinarily grave, and the long-term cost 
consequences of allowing conditions to worsen substantially before care 
is sought may offset the cost saving from decreasing their early care.
    While a number of studies have found that modest one-time savings 
of between 4 to 15 percent might be anticipated from conversion to 
high-deductible/HSA plans, they do not imply that such a change would 
have a significant impact on the rate of growth of medical spending. 
This is because medical spending growth is driven largely by the 
increased use of, and intensity of, technologies and services for 
people with high health care needs (Newhouse 2004). So while increased 
cost sharing can be used to lower the frequency of health care provider 
visits, it does not lower the costs per episode once an episode of care 
    Other, more promising avenues exist for achieving significant cost 
savings in our health care system. These include, among others,

      coordinated approaches to evaluation of cost-
effectiveness and efficacy of new and existing technologies/procedures/
medications combined with new regulatory and pricing strategies to 
target resources to the most cost-effective options;
      increasing the use of preventive care and chronic-care or 
high-cost case management strategies;
      payment reform and development of purchasing strategies 
that promote the consistent delivery of care in the most efficient and 
appropriate setting;
      administrative cost-saving strategies, including 
development of effective information technology infrastructure.

    While many of these avenues require significant upfront investment 
in infrastructure, research, analysis, or experimentation, they are 
substantially more likely to yield systemwide savings without 
compromising access to and quality of care for the high-need 
Implications of HSAs for the High Medical Need Population
    The most significant premium savings accruing to high-deductible/
HSA plan enrollees likely occurs by altering the mix of individuals who 
purchase coverage of different types. By providing incentives for 
healthy individuals and groups to purchase HSA-compatible plans, 
insurance risk pools can be further segmented by health status. The 
average medical costs of those purchasing the HSA plans will be 
substantially lower if the high-risk population is left in more 
traditional comprehensive plans. As the average cost of those in the 
comprehensive plans increases, so does the premium associated with the 
coverage. In the extreme risk segmentation circumstance, premiums for 
comprehensive coverage may increase so much that maintaining that type 
of coverage is no longer financially viable.
    Such a circumstance can be avoided in the employment context if 
both high-deductible and comprehensive options are offered and 
employers set premiums for each plan independent of the health care 
risk of those enrolling in each. In other words, premiums for the high-
deductible/HSA plan could be set such that they are lower than the 
comprehensive plan, but only due to the difference in actuarial value 
across the plans, not due to the differential health care risk of those 
enrolling in each plan. In essence, each plan's premium would be set as 
if all employees were enrolled in each plan. Then, a portion of premium 
collections for the high-deductible/HSA plan could be transferred to 
the comprehensive plan to subsidize premiums for that higher-cost 
group. In the nongroup market context, however, the transfer of 
financial support from the healthy to the less healthy will only occur 
through regulation or through direct government subsidization.
    Without some type of intervention, by government or employers to 
spread health care risk more broadly, the practical effect of high-
deductible/HSA plans is that the most vulnerable populations (the sick 
and low-income) are left bearing a greater burden of their health 
expenses. The extent to which this is a preferred societal outcome 
should be explicitly debated, as it is the primary impact of a move 
toward high-deductible/HSA plans.
The Ability of Patients to Be Good Value Shoppers
    Theoretically, placing a greater share of the health care financing 
burden on the individual users of health care should create incentives 
for greater price/quality comparisons and more cost effective medical 
decisions. However, the ability of the patients to engage in such 
comparison shopping is extremely limited in the current private 
insurance context. As Ginsburg (2007) describes, effective comparison 
of services on price occur only in the context of non-emergency care, 
services that are not complex, bundled prices for services, consistent 
quality across providers, and only after an appropriate diagnosis has 
been made. Situations that meet such criteria eliminate a great deal of 
the medical care within the system. In addition, confidentiality 
agreements between providers and insurers prevent the providers from 
being able to give patients actual prices, as opposed to ranges that 
are generally not useful for comparison purposes. Traditionally, 
patients have relied upon their insurers to guide their provider 
decisions by choosing an efficient provider network on their behalf.
Enforcement of HSA Legal Requirements
    As noted earlier, spending by those under 65 years of age out of 
HSA accounts is tax advantaged only if that spending is for medical 
purposes. If HSA funds are used for nonmedical purposes, a non-elderly 
individual would be required to pay taxes on the withdrawal in addition 
to a 10 percent penalty. However, currently, there is no administrative 
mechanism in place to verify that spending from HSAs is in fact being 
used for medical purposes. Unless an individual HSA participant is 
subjected to an IRS audit, there are no checks on the type of spending 
being done. Given that any individual's likelihood of an audit is very 
low, this lack of verification creates an easy mechanism for evading 
taxes. This problem is amplified by the increase in allowable annual 
contributions to HSAs and the fact that such contributions can now 
exceed the associated insurance plan's annual deductible.
    Flexible spending accounts (FSAs) are employment-related accounts 
that allow users to deposit pretax dollars into accounts that can then 
be drawn down during the year to pay for medical expenses. The 
permissible medical expenses are defined broadly, including out-of-
pocket costs for care that is or is not part of the accountholder's 
insurance policy, just like HSAs. There are a number of differences 
between FSAs and HSAs (e.g., unused FSA balances are forfeited at the 
end of the year, they do not earn income, and they do not require 
health insurance plan participation), but the only relevant difference 
for this discussion is that withdrawals from FSAs are verified by the 
account administrators to be medical-related expenses that comply with 
the FSA law. This is precisely the type of verification that should be 
required of HSA withdrawals, and would be under H.R. 5917.
    The insurance industry complains that imposing such verification on 
HSAs would eliminate their cost saving potential by imposing new and 
onerous administrative costs. However, the administrative costs of 
FSAs, which would be directly comparable with that of HSAs for this 
purpose, are actually very low. In fact, overall FSA administrative 
costs, which include payment of claims (a function which HSAs already 
perform and is included in their current administrative costs) as well 
as verification of the appropriateness of claims, are about $5.25 per 
member per month ($63 per member per year).\1\ However, much of the 
administrative tasks associated with FSAs are not applicable to HSAs, 
and the cost of adding adjudication of claims to the HSAs would be 
about $2 per member per month according to the third party 
administrator of such plans that we contacted. If an additional cost of 
$24 per member would substantially reduce or eliminate the cost savings 
associated with HSAs, as some contend, then that is clear evidence that 
there is currently little to no cost savings associated with 
participating in those plans today.
    \1\ From personal communication with third party administrators 
providing administrative services for FSAs and consumer-directed health 
    Such an increment to administrative costs associated with these 
plans is clearly a very small price to pay to ensure that the law is 
being complied with and individuals are not using HSAs merely as a 
personal tax dodge.
    HSAs are a highly tax-advantaged savings vehicle that is most 
attractive to people with high incomes and those with low expected use 
of health care services. As such, they are unlikely to significantly 
decrease the number of uninsured, who often have low incomes and 
neither benefit significantly from the tax advantages nor have the 
assets necessary to cover the large deductibles associated with the 
plans. Their ability to reduce systemwide spending is also very 
limited. The plans have the potential to increase segmentation of 
health care risk in private insurance markets, unless employers set 
premiums to offset the healthier selection into the plans or government 
subsidizes the higher costs associated with the remaining comprehensive 
coverage market.
    To date, HSAs have been less popular than their advocates 
envisioned, making up only about 2 percent of the health insurance 
market (US GAO 2008). Thus, their negative ramifications on populations 
with high medical needs have probably been limited. However, efforts to 
expand enrollment in these plans through further tax incentives, for 
example, could place growing financial burdens on those least able to 
absorb them, leading to increasing effective barriers to medical care 
for the low income and the sick and potentially increasing the net 
number of uninsured.
    Berk, Marc and Alan Monheit. 2001. ``The Concentration of Health 
Expenditures Revisited,'' Health Affairs, 20:204-213.
    Clemans-Cope, Lisa. Forthcoming. ``Short- and Long-term Effects of 
Health Savings Accounts.'' Working paper prepared for The Urban 
Institute--Brookings Institution Tax Policy Center.
    Davis, K., Doty, M.M. and Ho, A. 2005. ``How High Is Too High? 
Implications of High-Deductible Health Plans.'' The Commonwealth Fund, 
    Fronstin, Paul and S.R. Collins. 2005. ``Early Experience with 
High-Deductible and Consumer-Driven Health Plans: Findings from the 
EBRI/Commonwealth Fund Consumerism in Health Care Survey,'' Employee 
Benefit Research Institute and the Commonwealth Fund, December.
    Ginsburg, Paul B. 2007. ``Shopping For Price In Medical Care.'' 
Health Affairs, March/April; 26(2): w208-w216.
    Holahan, John and Allison Cook. 2007. ``Health Insurance Coverage 
in America: 2006 Data Update.'' Henry J. Kaiser Family Foundation. 
http://www.kff.org/uninsured/upload/2006_DATA%20_UPDATE.pdf, accessed 
May 12, 2008.
    Jacobs, Paul D. and Gary Claxton. 2008. ``Comparing the Assets of 
Uninsured Households to Cost Sharing Under High-Deductible Health 
Plans.'' Health Affairs. Web exclusive, April 15, 2008, pp. w214-w221.
    Henry J. Kaiser Family Foundation/Health Research and Educational 
Trust (Kaiser/HRET) Survey of Employer-Sponsored Health Benefits, 2006. 
See http://www.kff.org/insurance/ehbs-archives.cfm.
    Henry J. Kaiser Family Foundation/Health Research and Educational 
Trust (Kaiser/HRET) Survey of Employer-Sponsored Health Benefits, 2007. 
See http://www.kff.org/insurance/ehbs-archives.cfm.
    Newhouse, J.P., 2004. ``Consumer-Directed Health Plans and the RAND 
Health Insurance Experiment.'' Health Affairs. Volume 23(6): 107-113.
    Newhouse, J.P. and the Insurance Experiment Group. 1993. Free for 
All? Lessons from the Rand Health Insurance Experiment. Cambridge, MA: 
Harvard University Press.
    United States Government Accountability Office (US GAO). 2008. 
Health Savings Accounts: Participation Increased and Was More Common 
Among Individuals with Higher Incomes. April 1. GAO-08-474R.


    Chairman STARK. Thank you very much.
    Ms. Waxman, would you like to proceed?


    Ms. WAXMAN. Yes, good morning, Mr. Stark, Mr. Camp, and 
other Members of the Committee. Thank you for having me testify 
this morning.
    The National Women's Law Center supports health reforms 
that will provide high quality, comprehensive and affordable 
health care for all. We are afraid, however, that health 
savings accounts and consumer-driven health care will do little 
to expand meaningful health insurance.
    I want to start my testimony this morning by advising you 
to pay attention to what women have to tell you in this health 
reform discussion, and that is because women are the health 
care deciders in this country. Women make approximately 80 
percent of the health care decisions for their families and six 
in ten women report that they assume the primary responsibility 
for picking the health plan for their families. So ignore us at 
your peril.
    Other interesting things that you need to know about 
women's health care needs that affect this deliberation is that 
women do require more health care throughout their lives than 
men do, including regular visits to their reproductive health 
care providers. They have more trouble affording care because 
in general, they have lower incomes than men. Today, women with 
and without insurance have an ``affordability gap.'' They have 
more medical debt already.
    Now, let's look specifically at consumer-driven health care 
plans. I have seven reasons why I think that they will not 
expand meaningful health care coverage to women and their 
families: one, cost sharing under these plans is not really 
affordable for the women that do have lower incomes which is a 
large number of women.
    Premiums, even though they are obviously lower for the high 
deductible health plans, account for just a fraction of the 
cost of the insurance. The deductibles and the other out-of-
pocket costs can counteract those lower premiums. A survey of 
non-group policies that we saw recently said that the average 
deductibles for HSA-eligible health plans are really 
considerably higher than the Federal minimums that are 
    Number two: Lower income women cannot fund their HSAs and 
employers may not do it either. Lower income women who by the 
way are disproportionately represented among the uninsured 
women are simply not likely to have the cash resources to 
adequately fund the account. And we've heard this already. This 
morning, employer surveys estimate that only about a half of 
firms that offer these plans do actually contribute anything to 
the HSA.
    Number three, low income women will not benefit from the 
tax advantages of HSA. They don't have high enough tax 
liabilities to benefit from this kind of tax treatment.
    Number four, consumer-driven health care plan premiums are 
often higher for women, particularly in the individual health 
care market. Forty States and the District of Columbia do allow 
insurers to charge premiums that take gender into account.
    We looked at the individual market in both your district, 
Mr. Stark, and yours, Mr. Camp, and we found that in the 
California district nearly half the plans charged significantly 
more for women, simply because they were women. And, in the 
Michigan district, all did.
    You may say, well that's because women are going to have 
maternity care coverage; and, yet, as you already mentioned, 
Mr. Stark, no. That's not really it. Only four of the plans we 
looked at even offered maternity coverage in the California 
group and none in the Michigan group offered maternity 
    Number five: Women are more likely than men to have chronic 
health care needs and therefore are at greater risk under a 
consumer-driven health care plan.
    Number six: Consumer-driven health care, interestingly, 
sometimes provides incentives for women to use less cost-
effective care and preventive care. We have already heard that 
some preventive care is excluded from the deductible, but 
excluding preventative services is only an option for the 
health plans.
    The IRS defines what is preventive care for this purpose 
and it's really quite limited in its definition. So, for 
example, prescription drugs are almost all subject to the 
deductible even if they do operate in a preventive way: For 
instance, cholesterol reducing drugs do not count as 
preventative treatment.
    A vast majority of American women use a form of 
contraception that can only be accessed with a prescription; 
and, so, during the high deductible period, almost all women in 
this country would actually be subject to paying the entire 
cost of contraceptives out-of-pocket. That obviously creates a 
barrier for lower income women.
    Number seven, and we have touched on this, women who need 
pregnancy-related care will face significant challenges under 
this kind of plan. Most, if not all, of the individual market 
plans that are consumer-driven health care plans do not even 
cover maternity care at all. But, even if a plan does cover 
maternity care, it is almost always excluded from the 
    Now, a pregnancy takes 9 months, which means you're most 
likely crossing over 2 years and having to deal with 2 years of 
deductibles, compounding the issue. The costs are significant 
and may even force some women to forego prenatal care.
    In conclusion, health savings accounts and consumer-driven 
health care are the wrong answer to the nation's health care 
    Thank you. I welcome your questions.
    [The prepared statement of Judy Waxman follows:]
   Prepared Statement of Judy Waxman, Vice President and Director of 
      Health and Reproductive Rights, National Women's Law Center
    The Center supports health reforms that provide high quality, 
comprehensive and affordable health coverage for all. Health Savings 
Accounts (HSAs) and Consumer Driven Health Care, however, do little to 
expand meaningful health insurance. They are the wrong answer to the 
country's health care crisis, and they will not benefit women.
Health Reform Matters for Women
    When designing health reforms, women's concerns should be taken 
seriously for a number of reasons:

      Women make approximately 80 percent of health care 
decisions for their families;
      Six in ten women report that they assume primary 
responsibility for decisions about health insurance plans for their 
      Women are more likely than men to require health care 
throughout their lives, including regular visits to reproductive health 
care providers;
      Women are more likely to have chronic conditions that 
necessitate continuous health care treatment;
      Women use more prescription drugs on average, and certain 
mental health problems affect twice as many women as men;
      Women have more trouble affording health care since they 
are generally poorer than men; and
      Women--regardless of whether they are insured or 
uninsured--are already more likely than men to report problems with 
accessing health care due to cost.

Consumer-Driven Health Care Won't Expand Meaningful Health Coverage to 
        Women and Their Families
      Cost-sharing under consumer-driven health care is not 
affordable for lower-income women and their families.
      Lower-income women cannot fund their HSAs, and employers 
may not do it either.
      Lower-income women will not benefit from the tax 
advantages of HSAs.
      Consumer-driven health plan premiums are often higher for 
women in the individual health insurance market.
      Women, who are more likely than men to have greater-than-
average health care needs, are at greater financial risk under a 
consumer-driven health plan.
      Consumer-driven health care provides an incentive for 
women to use less cost-effective and preventive care, especially if 
that care is not exempt from the deductible.
      Women who need pregnancy-related care will face 
significant challenges under a consumer-driven health care model.
Consumer-Driven Health Care Is the Wrong Solution for America's Health 
        Care Crisis
      Consumer-driven health care is unlikely to reduce the 
number of uninsured Americans.
      Consumer-driven health care will do little to contain 
rising health care costs.

    Chairman Stark, Ranking Member Camp, and Members of the 
Subcommittee on Health, thank you for the opportunity to testify today 
on behalf of the National Women's Law Center. For over 35 years the 
Center has worked to both advance and protect laws and public policies 
that benefit women and their families. As part of these efforts, the 
Center supports health reforms that provide high quality, comprehensive 
and affordable health coverage for all. Health Savings Accounts (HSAs) 
and Consumer Driven Health Care, however, do little to expand 
meaningful health insurance. They are the wrong answer to the country's 
health care crisis, and they will not benefit women.
Health Reform Matters for Women
    When designing health reforms, women's concerns should be taken 
seriously for a number of reasons. First, women have a major stake in 
decisions about health care for their entire families and they often 
play a significant role in the care that their children, spouses, or 
parents receive. According to the Department of Labor, women make 
approximately 80 percent of health care decisions for their 
families.\1\ Also, six in ten women report that they assume primary 
responsibility for decisions about health insurance plans for their 
families.\2\ An even greater proportion, nearly 80 percent, chooses 
their child's doctor.\3\ More women than men care for a family member--
most often a parent--who is chronically ill, disabled, or elderly and 
in this role they typically provide assistance with medical finances 
such as bills or insurance paperwork and with making decisions about 
medical care.\4\
    \1\ Department of Labor, General Facts on Women and Job Based 
Health (2008), available at http://www.dol.gov/ebsa/newsroom/
fshlth5.html (last visited May 12, 2008).
    \2\ Alina Salganicoff et al., Women's Health in the United States: 
Health Coverage and Access to Care (2002), The Henry J Kaiser Family 
Foundation, available at http://www.kff.org/womenshealth/20020507a-
index.cfm (last visited May 12, 2008).
    \3\ Alina Salganicoff et al., Women and Health Care: A National 
Profile (2005), The Henry J Kaiser Family Foundation, available at 
(last visited May 12, 2008). [Hereafter ``A National Profile (2005)''].
    \4\ Ibid.
    Women's characteristics and distinct health care needs--which are 
different from men's--should be taken into account when developing 
strategies to change the health care system. Women are more likely than 
men to require health care throughout their lives, including regular 
visits to reproductive health care providers. They are more likely to 
have chronic conditions that necessitate continuous health care 
treatment.\5\ They also use more prescription drugs on average, and 
certain mental health problems affect twice as many women as men.\6,7\
    \5\ A National Profile (2005), supra note 3.
    \6\ Elizabeth Patchias and Judy Waxman, Women and Health Coverage: 
The Affordability Gap (2007), National Women's Law Center. An issue 
brief prepared for the Commonwealth Fund, available at http://
(last visited May 12, 2008). [Hereafter ``The Affordability Gap 
    \7\ National Women's Law Center and Oregon Health and Science 
University, Making the Grade on Women's Health: A National and State-
by-State Report Card (2004).
    Women have more trouble affording health care since they are poorer 
than men, in general. Roughly 57 percent of the adults living in 
poverty (i.e. with incomes below 100 percent of the Federal poverty 
level) are women.\8\ In 2004, the median earnings of female workers 
(aged 15 and older) were $22,224, compared to $32,486 for men. Among 
full-time workers, women earn only 76.5 cents for every dollar men 
    \8\ National Women's Law Center calculations based on U.S. Census 
Bureau, ``Table POV01: Age and Sex of All People, Family Members and 
Unrelated Individuals Iterated by Income-to-Poverty Ratio and Race: 
2005, Below 100% of Poverty--All Races.'' Current Population Survey 
Annual Demographic Survey March Supplement, (2006), available at: 
http://pubdb3.census.gov/macro/032006/pov/new01_100_01.htm (last 
visited May 12, 2008).
    \9\ National Women's Law Center calculations based on U.S. Census 
Bureau Current Population Survey 2004 Poverty Tables, available at 
http://pubdb3.census.gov/macro/032005/pov/toc.htm (last visited May 12, 
    Greater health care needs, combined with a disadvantaged economic 
status, make it particularly difficult for many women to afford health 
services. Women--regardless of whether they are insured or uninsured--
are already more likely than men to report problems with accessing 
health care due to cost.\10\ They spend a greater share of their income 
on out-of-pocket medical costs than men, and are more likely to avoid 
needed health care because of cost. In 2005, for example, nearly a 
third of non-elderly women reported that they did not fill a 
prescription because of cost, compared to just 18 percent of men.\11\ 
Finally, uninsured and insured women alike are significantly more 
likely than their male counterparts to have medical bill and debt 
problems.\12\ It is clear that many women, both the uninsured and the 
insured, are already struggling to afford the health care that they 
need. Health coverage plans that shift more of the costs of medical 
care to women and their families will only make this situation worse.
    \10\ The Affordability Gap (2007), supra note 7.
    \11\ Ibid.
    \12\ Ibid.
Consumer-Driven Health Care Won't Expand Meaningful Health Coverage to 
        Women and Their Families
    Cost-sharing under consumer-driven health care is not affordable 
for lower-income women and their families. Women have lower incomes 
than men and they typically need and use more health services. If 
health coverage is to be meaningful for women, it must be affordable. 
Consumer-driven health plans, however, require levels of cost-sharing 
that are prohibitively high for many women and their families. It is 
true that premiums for the HSA-eligible high-deductible health plans 
(HDHPs) are typically lower than premiums for traditional coverage, 
leading HSA supporters to claim that consumer-driven health plans will 
be more affordable for the low-income uninsured.\13,14\ But, premiums 
account for just a fraction of the cost of insurance, and higher 
deductibles and other forms of out-of-pocket spending invariably 
counteract lower HDHP premiums. To open an HSA in 2008, individuals 
must be enrolled in a HDHP with an annual deductible of at least $1,100 
for an individual or $2,200 for a family.\15\ Policies sold in the 
insurance market tend to have even higher deductibles than the 
regulations specify. A survey of nongroup policies found that the 
average deductibles for HSA- and medical savings account (MSA)-
qualified plans in 2006-07 were $2,905 for individual and $5,329 for 
family coverage.\16\ Moreover, out-of-pocket spending does not stop at 
the deductible even after a high deductible is met, health insurance 
policies typically require additional cost-sharing in the form of co-
payments and coinsurance.
    \13\ U.S. White House, State of the Union: Affordable and 
Accessible Health Care (2006), available at http://www.whitehouse.gov/
news/releases/2006/01/20060131-7.html (last visited May 6, 2008).
    \14\ U.S. Department of Treasury, Health Savings Accounts (2008), 
available at http://www.ustreas.gov/offices/public-affairs/hsa/pdf/HSA-
Tri-fold-english-07.pdf (last visited May 6, 2008).
    \15\ Ibid.
    \16\ America's Health Insurance Plans, Individual Health Insurance 
2006-2007: A Comprehensive Survey of Premiums, Availability, and 
Benefits (2007), available at http://www.ahip 
research.org/pdfs/Individual_Market_Survey_December_2007.pdf (last 
visited May 12, 2008).
    Because women's greater health care needs and rates of use, 
combined with lower income, lead them to have higher out-of-pocket 
costs as a share of their income, more women than men are already 
``underinsured'' (16 percent versus 9 percent).\17\ The underinsured 
are those who are enrolled in an insurance plan that provides 
inadequate financial protection against catastrophic healthcare 
expenses. In 2003, about 12 percent of Americans were underinsured, and 
were almost as likely as the uninsured to go without needed medical 
care and incur medical debt.\18\ Consumer-driven health care, by 
exposing the insured to even greater out-of-pocket medical costs, has 
the potential to contribute to the growing problem of underinsurance 
among Americans, particularly low-income women and their families.
    \17\ The Affordability Gap, 2007, supra note 7.
    \18\ Cathy Schoen, Michelle M Doty, Sara R Collins, and Alyssa L 
Holmgren, Insured But Not Protected: How Many Adults Are Underinsured?, 
Health Affairs Web Exclusive (2005). W5-289-W5-302. Underinsured adults 
include continuously insured individuals who satisfied one of three 
conditions: annual out-of-pocket medical expenses amounting to 10 
percent or more of income among low-income adults, out-of-pocket 
medical expenses amount to 5 percent or more of income or health plan 
deductibles equal or exceeding 5 percent of income.
    Lower-income women cannot fund their HSAs, and employers may not do 
it either. In theory, out-of-pocket medical costs can be paid from a 
woman's tax-advantaged HSA, but lower-income women (who are 
disproportionately represented among uninsured women) are not likely to 
have the cash resources to adequately fund the account. In fact, many 
women enrolled in a consumer-driven health plan have to forgo opening 
an HSA altogether. In the years 2005 through 2007, close to half of all 
HSA-eligible plan enrollees did not even open an HSA.\19\ In other 
words, these individuals and families had the high deductible, but not 
the tax-advantaged account that is supposed to help make that high 
deductible affordable. While employer HSA contributions could help 
spread the burden of out-of-pocket medical costs, employer surveys 
estimate that roughly half of small and large firms offering HSA-
eligible health plans for families do not contribute anything to their 
employees' HSAs.\20\
    \19\ U.S. Government Accountability Office, Health Savings 
Accounts: Participation Increased and Was More Common among Individuals 
with Higher Incomes (2008). GAO-08-474R.
    \20\ Ibid.
    Lower-income women will not benefit from the tax advantages of 
HSAs. Most lower-income women and families do not face high enough tax 
liability to benefit in any significant way from the HSA tax 
arrangement. HSA tax breaks selectively reward richer Americans, and a 
very poor family with no taxable income would not benefit from a tax 
deduction at all. Deposits to an HSA account reduce a participant's 
taxable income by the amount of the contribution--since tax rates 
increase as income increases, the deduction is a better deal for the 
more affluent. Reports on the income level of HSA accountholders 
support this notion non-elderly tax filers who reported HSA activity in 
2005 had an average adjusted gross income of about $139,000, compared 
to about $57,000 for other filers.\21\ Furthermore, though HSAs were 
designed to be used as a tax-saving method to accumulate funds for 
health care expenses in retirement, some evidence suggests that these 
accounts are more often being used as tax shelters by higher-income 
    \21\ Ibid.
    \22\ Edwin Park and Robert Greenstein, GAO Study Confirms Health 
Savings Accounts Primarily Benefit High-Income Individuals (2006). 
Center on Budget and Policy Priorities, available at http://
www.cbpp.org/9-20-06health.htm (last visited May 12, 2008).
    Consumer-driven health plan premiums are often higher for women in 
the individual health insurance market. If a woman decides to purchase 
a consumer-driven health plan in the non-group insurance market, she 
will likely encounter an additional barrier to affordability. Many 
women who purchase an HSA-qualified health plan in this market are 
charged a higher monthly premium than their male counterparts for the 
exact same benefit package, solely because they are female. Indeed, 
insurers are allowed to consider gender when setting non-group health 
insurance rates in 40 States and the District of Columbia, including 
the home States of both Chairman Stark and Ranking Member Camp. Our 
research indicates that a 34-year-old female constituent in the 
California's 13th District (represented by Chairman Stark) who is 
seeking a non-group HSA-qualified health plan would be charged between 
4 and 45 percent more than a male peer for nearly half of the plans 
available to her. If she were living in Michigan's 4th District 
(represented by Ranking Member Camp), that same woman would be charged 
more than a male peer for every non-group plan available to her--she 
would pay between 15 and 48 percent more for the exact same benefit 
plan. One might assume that these premium disparities are based on the 
fact that, unlike their male counterparts, women of childbearing age 
can make insurance claims for maternity care. However, most non-group 
HDHP policies do not cover maternity benefits at all. Of the 18 HDHP 
plans available to a 34-year-old woman in the California district, just 
four offered some type of maternity coverage, and none of the 34 plans 
available in the Michigan district covered pregnancy-related care.\23\
    \23\ Independent analyses carried out by National Women's Law 
Center (2008), using information from www.ehealthinsurance.com on HSA-
qualified health plans for women residing in zip codes 94538 (Fremont/
Alameda, California) and 48640 (Midland, Michigan).
    Women, who are more likely than men to have greater-than-average 
health care needs, are at greater financial risk under a consumer-
driven health plan. Women are more likely than men to have a chronic 
condition that requires ongoing treatment, and even healthy women use 
more health care than men. If health insurance is to be meaningful for 
women, it must cover the services that they need without exposing them 
to significant financial risk. However, those who need the most health 
care--including women with disabilities and chronic conditions--are 
most likely to struggle to meet increased cost-sharing requirements of 
high-deductible health plans. These individuals often experience higher 
medical costs and are more likely to spend amounts up to their 
deductible each year. Healthy people with very low medical expenses, on 
the other hand, are especially advantaged under an HSA arrangement 
since their HDHP premiums are lower than under traditional insurance 
plans and they pay trivial out-of-pocket amounts.
    Consumer-driven health care provides an incentive for women to use 
less cost-effective and preventive care, especially if that care is not 
exempt from the deductible. Consumer-driven health care also has 
implications for women's preventive health service use. Because 
consumer-driven health plans shift more costs to the insured, they 
provide an incentive to use less (and therefore spend less) on health 
care. HSA guidelines do permit certain preventive services to be exempt 
from the deductible, but this is a voluntary option for health plans. 
In a 2007 survey, more than 50 percent of individuals enrolled in an 
HSA-qualified health plan reported that their deductible applied to all 
health care services, including preventive care.\24\ Moreover, 
prescription drugs--even those that serve a preventive rather than 
treatment purpose--are generally not exempt from a deductible.\25\
    \24\ Paul Fronstin and Sara R Collins, Issue Brief No. 315: 
Findings From the 2007 EBRI/Commonwealth Fund Consumerism in Health 
Care Survey (2008), The Employee Benefits Research Institute, available 
at http://www.ebri.org/publications/ib/
index.cfm?fa=ibDisp&content_id=3897 (last visited May 12, 2008). 
[Hereafter ``2007 Consumerism in Health Care Survey''].
    \25\ A survey of insurers offering consumer-driven health plans 
found that less than 6 percent of these plans included coverage for 
prescription drugs as a preventive, exempt benefit. See: Association 
for Health Insurance Plans, A Survey of Preventive Benefits in Health 
Savings Account (HSA) Plans, July 2007 (2007), available at http://
www.ahipresearch.org/pdfs/HSA_Preventive_Survey_Final.pdf (last visited 
May 12, 2008).
    The majority of American women use a form of contraception that can 
only be accessed with a prescription. In the year 2002, for example, 82 
percent of women aged 15-44 who had ever had sexual intercourse 
reported that they had used the oral contraceptive pill.\26\ Women who 
use a prescription drug for family planning would be responsible for 
the full cost of their birth control under a consumer-driven health 
plan. This presents a cost-related barrier to service use, especially 
for lower-income women.
    \26\ William D. Mosher, et al., ``Use of Contraception and Use of 
Family Planning Services in the United States: 1982-2002,'' Advance 
Data From Vital & Health Statistics No. 350, at 15 (2004).
    Participating in an HSA/HDHP could have a negative impact on 
women's health if they delay or go without necessary care because they 
cannot afford to meet the high deductible. Poor women and their 
families, who have less income to contribute to an HSA and may not have 
enough funds in their accounts to cover their health care needs in a 
given year, would be particularly vulnerable to this harmful 
consequence. A recent survey found that, compared to those enrolled in 
more comprehensive plans, consumer-driven health plan enrollees were 
significantly more likely to avoid, skip or delay necessary health care 
or medications because of the cost.\27\ Indeed, this type of plan aims 
to discourage utilization of unnecessary health care, but increased 
cost-sharing has the potential to discourage the use of cost-effective 
and necessary preventive care at the same time. The landmark RAND 
Health Insurance Experiment demonstrated that greater out-of-pocket 
spending requirements reduced costs by encouraging patients to use less 
health care--including necessary care that is strongly supported by 
evidence.\28\ A more recent study of rates of biennial breast-cancer 
screenings in Medicare plans with different levels of cost-sharing for 
mammography demonstrated that even nominal copayments were associated 
with significantly lower screening rates compared to plans with full 
coverage. These effects of cost-sharing were magnified among women 
living in lower-income areas.\29\
    \27\ 2007 Consumerism in Health Care Survey, supra note 25.
    \28\ Joseph P Newhouse, Free for All? Lessons from the Rand Health 
Experiment, Insurance Experiment Group (Cambridge, MA: Harvard 
University Press 1993).
    \29\ Amal Trivedi, William Rakowski and John Z Ayanian, Effect of 
Cost Sharing on Screening Mammography in Medicare Health Plans (2008), 
New England Journal of Medicine 358(4):375-83.
    Women who need pregnancy-related care will face significant 
challenges under a consumer-driven health care model. In particular, 
consumer-driven health care has specific consequences for maternity 
care, one of the most common and costly medical interventions that 
women of reproductive age will experience. Pregnant women enrolled in a 
consumer-driven plan might be exposed to high out-of-pocket costs, 
particularly when complications arise. As demonstrated in our research 
on the health plans available in two districts in California and 
Michigan, most individual HDHP policies exclude coverage for normal 
maternity care altogether, so that expenses for these services would 
not even count towards the deductible. For plans that do cover 
maternity care, unlike other preventive services such as well child-
care, prenatal care is typically subject to a HSA-qualified deductible, 
and this significant cost-sharing might keep some women from obtaining 
prenatal care services. Nine-month pregnancies tend to span two 
insurance plan contract years and so may be subject to two annual 
deductibles, compounding the issue. A 2007 study demonstrated the range 
in out-of-pocket maternity care costs that women could face under 
several different consumer-driven health plan options--from a low of 
$3,000 for an uncomplicated pregnancy with vaginal delivery to a high 
of $21,194 for a complicated pregnancy with a Cesarean section 
    \30\ Karen Pollitz et al. Maternity Care and Consumer-Driven Health 
Plans (2007), a Report for the Henry J Kaiser Family Foundation, 
available at http://www.kff.org/womenshealth/upload/7636.pdf (last 
visited May 12, 2008).
Consumer-Driven Health Care Is the Wrong Solution for America's Health 
        Care Crisis
    In addition to the problems that HDHP/HSA arrangements pose for 
individual women and their families, this strategy is unlikely to 
deliver on its promise to help solve America's health care crisis.
    Consumer-driven health care will do little to contain rising health 
care costs. Most of America's health care costs are incurred by only a 
small percentage of very sick or injured individuals, for expensive 
treatments related to major illnesses or end-of-life care. The cost of 
this care exceeds the high deductibles required under HSAs and would 
still be paid for by the health plans. Simply put, HSA arrangements 
won't contain those high-end expenditures. For example, one study found 
that only 21 percent of total health spending falls below the minimum 
deductible level for an HSA-eligible health plan.\31\ Additionally, if 
consumer-driven plans disproportionately attract healthier and 
wealthier individuals--as research demonstrates they have done \32\--
sicker and poorer Americans will be concentrated in traditional, 
comprehensive insurance plans. This segments the pool of insured lives, 
so that risk is no longer spread between those with high and low 
medical expenditures--as a result, premiums for those in traditional 
plans will be driven even higher. A recent actuarial study of six large 
employers who offered both consumer-driven and more traditional health 
plan options to their workforce found that, indeed, a 
disproportionately younger and healthier population selected the 
consumer-driven option. Notably, most of the reduction in health costs 
that these employers experienced under the consumer-driven health plan 
option could be attributed to the more favorable risk profile of the 
workers enrolled in that type of plan.\33\
    \31\ Linda Blumberg and Leonard Burman, Most Household's Medical 
Expenses Exceed HSA Deductibles (2004), Tax Notes.
    \32\ 2007 Consumerism in Health Care Survey, supra note 25.
    \33\ Jack Burke and Rob Pipich, Consumer-Driven Impact Study 
(2008), a Milliman Research Report, available at http://
impact-study-RR04-01-08.php (last visited May 12, 2008).
    Consumer-driven health care is also unlikely to reduce the number 
of uninsured Americans. A 2004 analysis indicated that HSAs would be 
used predominately by people who are already insured, and that gains in 
coverage would be offset by the loss due to employers canceling 
insurance on the assumption that the availability of new subsidies 
makes employment-based coverage unnecessary. Analysts estimate that 
HSAs could in fact increase the number of Americans lacking health 
insurance.\34\ Additionally, in 2006 nearly two-thirds of the non-
elderly uninsured were poor or near-poor, with incomes at or below 200 
percent of the Federal poverty level (which was $40,000 for a family of 
four in that year).\35\ These lower-income families are unlikely to 
have the resources to participate in a health plan with high levels of 
cost-sharing. A recent study found that among households with at least 
one uninsured member, less than half had sufficient gross financial 
assets to meet the minimum HSA-related deductible.\36\ Furthermore, 
since many lower-income families earn too little to have any tax 
liability, coverage proposals which rely on tax deductions--such as the 
HSA initiative--will have little impact on the low-income uninsured. So 
far, research on consumer-driven plans confirms this notion, since 
surveys of plan enrollees in both 2006 and 2007 found that adults in 
this type of plan were no more likely to have been uninsured prior to 
enrollment in their plans than those enrolled in traditional coverage 
    \34\ Edwin Park and Robert Greenstein, Proposal for New HSA Tax 
Deduction Found Likely to Increase the Ranks of the Uninsured (2004), 
Center on Budget and Policy Priorities, available at http://
www.cbpp.org/5-10-04health.htm (last visited May 12, 2008).
    \35\ Henry J Kaiser Family Foundation, Distribution of the 
Nonelderly Uninsured by Federal Poverty Level, 2006 (2008), available 
at www.statehealthfacts.org (last visited May 11, 2008).
    \36\ Paul D Jacobs and Gary Claxton, Comparing the Assets of 
Uninsured Households to Cost Sharing Under High-Deductible Health Plans 
(2008), Health Affairs web exclusive, available at http://
content.healthaffairs.org/cgi/content/abstract/hlthaff.27.3.w214 (last 
visited May 6, 2008).
    \37\ 2007 Consumerism in Health Care Survey, supra note 25.
    As a growing number of national and state leaders move forward to 
address the failing health care system, there have never been so many 
opportunities to ensure that women have access to the health care they 
need. In order to address the challenges that women face in getting 
health care for themselves and for their family members, health reform 
strategies must include policies that will help women and their 
families obtain meaningful health insurance. Coverage that provides the 
most comprehensive benefits at the most affordable cost will go the 
farthest to improve women's health and financial security, but 
consumer-driven health care plans do not fit this description. Instead, 
the mechanics of HSA/HDHP arrangements shift much of the risk of 
needing expensive care from employers and insurers to women and their 
families. This can deter financially concerned enrollees from getting 
medically necessary care when they need it, and those with higher-than-
average medical expenditures--including women--may take on significant 
financial risk. Moreover, contrary to the claims of their proponents, 
strategies that rely on consumer-driven health care do little to 
address two major and interrelated problems with the American health 
care system--the increasing ranks of the uninsured and rising health 
care costs. Health Savings Accounts, and consumer-driven health care in 
general, are not an acceptable answer to the nation's health care 
    Thank you for this opportunity to testify. I welcome your 


    Chairman STARK. Thank you.
    Mr. Sensor.


    Mr. SENSOR. Good morning, Mr. Chairman, and Members of the 
    I, too, thank you for this opportunity to share our story, 
the story of Alegent Health and our journey to engage people 
more readily in their health care.
    I will acknowledge as I start my testimony today that 
certainly some of the other panelists and some Members of this 
very Committee have expressed concerns about consumer-driven 
health care and particularly high deductible plans. And I would 
quickly say in a few minutes that I will chat with you formally 
    I will attempt to create the construct that it's not just 
about the high deductible vehicle, the HSA or HRA, but far more 
powerful is the benefit plan and the construct, the environment 
that encourages the right behavior that we choose to wrap 
around those vehicles.
    I also testified to you today in an unusual position in 
that I represent both a provider and a very large employer, 
which gives me the opportunity to assure that we have an 
environment where information is readily available and people 
can and do make informed decisions. Alegent Health in a 
nutshell is a not-for-profit faith-based provider of health 
care with nine acute-care hospitals. We provide care at 101 
cites across eastern Nebraska and western Iowa. We have 1,300 
physicians and just shy of 9,000 employees in our current 
    Three years ago, we began a journey, a journey to engage 
people more readily in their health and their health care 
decisions and we decided that the natural starting point for 
that journey was our own workforce, the 9,000 men and women of 
Alegent Health. And so we began to design a plan, which took 
largely the better part of a year, and to communicate that 
plan, and to educate our workforce as to a new way to look at 
health care.
    The results I'll tease you with have been nothing short of 
exceptional. Fully loaded, our costs have increased an average 
of 5.1 percent over each of the last 2 years, 37 percent less 
than the national average. Voluntarily, 92 percent of my 
workforce that currently uses our insurance program uses one of 
our four consumer-driven health plans, 92 percent.
    Let me speak quickly to the journey that brought us to this 
point in time and then more granularly as to our results. As we 
began to think about a new way of looking at health care we 
began to populate our Petri dish, if you will, with our own 
workforce. It became apparent that this is indeed a very 
complex issue we're facing and that it would take the right 
incentives that would be a right benefit plan; that it would 
take the right tools that would be meaningful quality and cost 
    What other good or service do we buy in this country where 
you do so in a complete vacuum relative to cost and quality?
    And, thirdly, that it would require new and creative access 
points that are cost efficient, convenient, and predictable. 
I'll speak briefly to each of those points. Our new benefit 
plan to HSAs and to HRAs now including 92 percent of our 
workforce has two constructs that are really the meat, if you 
will, around the plan.
    The first is if it's preventative care and indicated for 
your age cohort it is free--no deductible--no co-pay--
everything from annual physicals, mammographies, colonoscopies, 
child immunizations. We want our workforce to utilize those 
    Secondly, we have a program called healthy rewards, which 
directly incentivizes individuals to make lifestyle changes the 
single, greatest determinant as to how much health care you'll 
consume in your life. Everything from managing your chronic 
illness to weight loss to smoking cessation, incentivizing 
people with direct dollars to make lifestyle changes to live 
healthier and consume less health care.
    The second major construct that I would say change is 
required and in the air is people must simply have tools to 
make decisions about their health care. Three years ago, we 
began publishing our quality scores that were alluded to in 
Congressman Camp's opening remarks. We also have a cost-
estimating tool on-line so you can see what it will actually 
cost you for your care.
    The third and final leg of this stool to really look at 
health care differently is access. People need choices. People 
need choices that are cost-efficient, that are high quality, 
and that are predictable. We have opened our seventh walk-in 
clinic and grocery stores--10-minute turn-around time--$24 to 
    Sixteen percent of the people that attend or go to that 
site for care express that they have no health insurance. The 
results on our HSAs, relative to our workforce, have been 
phenomenal. While I shared the aggregate results a moment ago 
relative to our HSAs during the last 2 years, we have seen a 
full 15-percent decline in the cost of care for those 
    In the HSA, we are now spending 9 percent of our total 
dollars on prevention versus 2.3 percent as a national average. 
Ninety-six percent of the people participating in our HSA now 
use generic drugs as their choice when they are available. 
Ninety-eight percent of our HSA participants regularly 
contribute to their HSA via payroll deduction. Thirty-two 
percent have already fully funded their deductible as part of 
their HSA. And, even more piercing, people earning $25,000 or 
less are funding an average of $1,400 into their HSA.
    I would conclude, Mr. Chairman and Committee Members, HSAs 
and HRAs are a wonderful tool. They will single-handedly not 
fix health care in America. I believe that people given choice, 
people given relevant information, and people incentivized to 
make the right decision can and will do so and it will raise 
the quality of their care and will indeed reduce costs.
    Thank you very much and I welcome your questions.
    [The prepared statement of Wayne Sensor follows:]
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    Chairman STARK. Thank you all very much.
    I guess, Dr. Chernew, help me with this one. From an 
economist's view, if you were ill, very ill, and knew it, 
diabetes or something that required constant and probably 
expensive medical care, and you've had a chance to buy a plan 
with a $700 deductible, but your premium was only reduced by 
$480, you'd be inclined to not take, wouldn't you?
    Mr. CHERNEW. Generally speaking, that would be right.
    Chairman STARK. Yeah. Now I think that Mr. Sensor's plans 
are almost even, as much information as we can get on them, 
that your decrease in premium about matches the increase in the 
deductible. So I don't know what you'd do there. I mean I 
imagine that it's more a matter of convenience, if you just 
leave the savings account thing aside, if you're just trying to 
save money by getting a higher deductible if you knew you were 
going to need a lot of treatment and could make that decision 
rationally, I don't know what you do where it's a match. I 
guess there again it would be convenience, and what you were 
used to doing if you were the kind of person who could save 
money and have it available, or if it was helpful for you to 
pay monthly.
    Another thing that I think it was Dr. Blumberg who 
suggested that 10 percent of the population spends 70 percent 
of the costs that we spend on medical care. And I used to think 
of it as 20 percent and 80 percent of the cost; but either way.
    But help me with this. I'm an employer and I got 100 
employees. And let's just say for the hell of it that I was to 
going to get them a high deductible plan, a $3,000 deductible, 
let's say. And it would be the same premium whether they signed 
up for a savings account or not. It's just a high deductible 
plan. Well, if I put 3,000 bucks in every employee's health 
savings account, and I had 100 employees--I did this with my 
shoes and socks on, I want you to know--I'd spend 300,000 bucks 
over and above the premium, right?
    Ms. BLUMBERG. That's right.
    Chairman STARK. But if I self-insured, when I said to you 
as my employee, ``I'll pay for any covered benefit. I'll pay 
the deductible until you get up, and I take the risk.'' I'm 
fussing around here, and with your numbers, I don't see I get 
much above $100,000 if everything turned against me.
    Ms. BLUMBERG. I'm sorry. I didn't follow where the $100,000 
is that you'd end up spending on the ill you're talking about.
    Chairman STARK. Yeah. Because if 10 percent of my employees 
use up 70 percent of the cost, that leaves 90 percent of my 
employees with the rest of it, I can't get that number to get 
much above 100 grand. Now my stockholders would be disappointed 
in me, I suspect, if I gave all these hardworking folks the 
$3,000, when I could get away giving them the same benefits by 
only spending a little more than $100,000. Does that make some 
sense to you?
    Ms. BLUMBERG. That is essentially the difference between 
the HSAs and the HRAs, in that with the HRAs the money is 
really held by the employer; it doesn't become----
    Chairman STARK. Well, even if it's not even held, just the 
employer self-insures for the deductible. And then gets the 
savings of the high deductible. And it would depend on whether 
you got an old workforce or a young workforce. But I have 
always been puzzled--and you know, I'd sure hate to go to the 
auto dealer who's loading up, paying 100 percent of the savings 
accounts, when the dealer down the street has got my plan. I 
get a better deal on my Ford or Chevy or Toyota, I'll bet you. 
But that's just a matter that I've always been puzzled by as a 
person who used to hire people, which is what we did. We just 
paid the deductible and it seemed to be a good plan, and saved 
us a lot of money.
    Mr. Dicken, do you have any indication of what's currently 
going on in terms of how many of the high-deductible plans also 
get savings accounts?
    Mr. DICKEN. Right. As has been reported as of January 2008, 
there are about 6 million Americans that have the high-
deductible health plan. But----
    Chairman STARK. How many? This is 2008?
    Mr. DICKEN. As of January 2008 it's been reported by an 
insurance carrier survey. But----
    Chairman STARK. How many, 6 million have it?
    Mr. DICKEN. Six million have the high-deductible plan, but 
not all of those have the savings account that's associated 
with it. Blue Cross studies, a nationally representative study 
as of 2007, indicated about 49 percent of those with high-
deductible health plans did not have the associated savings 
    Chairman STARK. Okay. So a higher percentage if you take 
those figures now have a savings account associated with the 
plan that had in 2005.
    Mr. DICKEN. Yeah. Blue Cross has shown a small increase. 
It's ranged from about 40 or 50 percent that they've found from 
2005 through 2007.
    Chairman STARK. And did you have any figures on how many of 
those were self-funded and how many were employer-funded?
    Mr. DICKEN. There has been a change. From 2005 through 
2007, a larger share of the high-deductible health plans are 
employer-based or group-based, rather than individual. There is 
still data that not all employers are contributing to the 
health savings account. Some industry estimates and employer 
surveys indicate that among the large employers, maybe about 
two-thirds of employers are contributing and less among smaller 
    Chairman STARK. And that's a higher number than you had in 
    Mr. DICKEN. Those data among the employer benefit surveys 
have been generally in the same ballpark.
    Chairman STARK. Mr. Camp?
    Mr. CAMP. All right. Thank you, Mr. Chairman.
    Mr. Sensor, you mentioned that you have 9,000 employees at 
Alegent, and they have a choice of whether to stay in their PPO 
or enroll in an HSA. And I believe I heard your testimony that 
92 percent of your employees elected an HSA. Can you tell me 
something about your employees, what percentage are women? Do 
you know their average income? And why might 92 percent of your 
employees made that choice?
    Mr. SENSOR. Thank you very much. A couple thoughts. First 
of all, I think 92 percent chose because we spent a year 
communicating and educating around an exceptionally well-
planned benefit plan. I think people chose it because it makes 
sense for them. The breakdown of 17 percent are in HSA, 75 
percent are in HRAs, and 8 percent remain in the PPO.
    Mr. CAMP. What percentage are women, do you know?
    Mr. SENSOR. Eighty-two point five percent of our workforce 
are women, and there is no stratification relative to which 
plans. It's about equal. They don't have a preference.
    Mr. CAMP. Do you know the average income of your employees 
of that group that's chosen?
    Mr. SENSOR. I mean there are some interesting anomalies 
when you look at the dispersement or stratification by income. 
A full 50 percent of the individuals that have chosen the HSA, 
arguably that which puts the most risk on the employee, 50 
percent of those individuals earn $50,000 or less. In addition 
to that I might add quickly that of the individuals making 
$25,000 or less, they're actually contributing quite handsomely 
to their HSA at about $1,400 a year.
    Mr. CAMP. At incomes of $25,000 and less, about $1,400 a 
year. What's the difference in the premium cost between the 
high deductible plan and the PPO that you offer your employees?
    Mr. SENSOR. It's a substantial difference, as Chairman 
commented on his opening remarks. Again, we planned our benefit 
very, very carefully to incent the right behaviors. And so the 
punch line is: You can largely entirely fund your HSA out of 
your premium savings. Plus, of course, you get free 
preventative care and incentives to live a healthier lifestyle 
or manage your chronic care.
    The specific answer is a family plan PPO would have 
premiums of $426 a month. The highest-risk HSA would have 
premiums of $24 a month, and the more moderate HSA about $200 a 
month. So the more moderate HSA is half of what the PPO would 
be for family coverage.
    Mr. CAMP. Now can you just talk about some criticism of--
high deductible plans certainly don't take into account all the 
extra initiatives you offer in your plan, including the 
incentives for changing health behaviors and wellness. Can you 
just talk about those? And if you believe if other plans 
offered those, that that might address some of the criticisms 
we've heard?
    Mr. SENSOR. Well, I'm obviously a very strong proponent in 
preventative care. The research is replete and clear. We don't 
do enough of it in this country, and we ought to incentivize 
Americans to practice more preventative care.
    The second item that you referenced was what we 
affectionately call ``healthy rewards,'' that directly 
incentivizes individuals to address high-risk factors. That 
could be everything from the obvious. That would be weight 
loss, smoking, use of tobacco, or it could be less obvious, and 
that would be managing your chronic health care problem outside 
of acute episodes, your diabetes, your chronic asthma, et 
    We have a whole plethora of resources that are brought to 
bear to assist those individuals. All of those resources are 
free, from Weight Watchers, the patches, and the gum, all the 
way to personal health coaches, who telephonically assist you 
in completing a program that will reduce your risk factor.
    And then at the conclusion of one of those programs, two, 
three, four, or five hundred additionally will drop into your 
HSA on top of the amount that the employer has already 
    Mr. CAMP. Now you offer both high deductible plans and a 
PPO. Now typically services related to normal pregnancy and 
childbirth are not covered in the individual market, are they? 
Unless mandated by the State?
    Mr. SENSOR. I think that would be typically, yes.
    Mr. CAMP. So that in that sense, high deductible plans in 
the individual market aren't any different than other 
individual market plans?
    Mr. SENSOR. I think that would be a fair conclusion.
    Mr. CAMP. All right.
    I'd also like to submit to the record testimony from the 
March of Dimes Foundation to that effect, without objection.
    Chairman STARK. Without objection.
    Mr. CAMP. Now again, I just want to comment--I see my 
time's running out--that again some of the official testimony 
we've had the second year a program worth only 1 million 
filers, used as a benchmark, comparing HSA filers to all tax 
filers, not tax filers with insurance. And I would ask Mr. 
Dicken, if you could get to me a comparison of HSA filers with 
other filers with insurance, I think that information might be 
helpful to the Committee. It may be different; it may not.
    And also again your analysis left out HSA holders without 
any account activity. So with that, I see my time's expired. 
Thank you, Mr. Chairman.
    Mr. BECERRA. Thank you, Mr. Camp.
    I'm going to go ahead and inquire--and hopefully by the 
time I complete my questioning, Chairman Stark will be back, 
and if not I'll stay until he is back. And I'm not sure if Mr. 
McCrery has already voted.
    Have you voted yet? Okay. So we'll see where we head with 
Members. But I suspect Chairman Stark will be back by the time 
I finish my inquiry.
    Let me begin by asking Mr. Dicken a question. I believe, 
Dr. Blumberg, you mentioned that the accountability for HSAs is 
somewhat suspect. We have no real way to track how people are 
using HSA moneys other than what they provide to us, to the IRS 
to prove how they ended up using dollars deposited into the 
health savings account.
    Mr. Dicken, can you tell us what IRS does to try to ensure 
that the money that's placed in an HSA and is therefore tax-
deferred, is used for health activities?
    Mr. DICKEN. Well, thank you. The information that is 
reported to IRS is self-reported by HSA accountholders as to 
whether they've used any withdrawals from their health savings 
account for qualified medical expenses or otherwise. We found 
in 2005 that tax filers reported that 93 percent of what they 
were reporting were for qualified medical expenses.
    To the extent to which IRS can confirm that, depends on the 
extent to which they are conducting audits.
    Mr. BECERRA. Are you aware of what the audit rate is for 
tax filers who have HSA accounts?
    Mr. DICKEN. We don't know the specific amount; certainly 
for general audits, that's a fairly small share of tax filers 
and less than 1 percent of tax filers in 2005 were reporting 
HSA activity.
    Mr. BECERRA. Are you aware of any activity on the part of 
IRS where they are intending to try to monitor the use in 
filing or recording purposes on HSAs by tax filers?
    Mr. DICKEN. To the extent that IRS has done more targeted 
rather than general audits, we're not aware as to whether 
that's occurring or not.
    Mr. BECERRA. So right now we know there is some $240 
billion or more I think in taxes that are not paid by Americans 
and corporations, because for the most part it's based on self-
attestation, or self-reporting by a number of individuals and 
corporations to pay their taxes. This HSA program right now 
relies on that same type of self-declaration on the part of the 
taxpayer who has an HSA account.
    It is also correct that once you reach the age of 65, any 
money that you may have deposited into an HSA over the years as 
a taxpayer then becomes yours, tax-free, whether or not you use 
it for health-related activities?
    Mr. DICKEN. Once you're 65 you can withdraw it without the 
penalty that otherwise accrues. Otherwise, if you're under 65 
and taking out moneys for non-qualified medical expenses, then 
there would be a 10 percent penalty. So that 10 penalty doesn't 
apply; although it would be taxed as income otherwise, if it 
    Mr. BECERRA. This is sounding more and more like a really 
good tax shelter if you happen to have a good amount of money 
that you've already maxed out on your 401(k), you've maxed out 
on your IRA, you've maxed out on every other municipal bond 
that you could decide to invest in. And all of a sudden you now 
find that you have a pot of $5,800, or however much it will be 
in the future, that you could put money aside in, in an HSA, 
and so long as you stay healthy--and so far I've been pretty 
healthy--if I reach 65 and hardly use any of that money, I then 
after that point can use that money for unrelated health care 
purposes, and never paid Uncle Sam money that most average 
working Americans would not have been able to do.
    Is there any way to track that type of activity by someone 
who is--and I think we've heard testimony that the wealthier 
you are, the more inclined you are to use an HSA, which means 
that we're placing folks who have the ability to pay for health 
insurance coverage in a pool where they get to save at the same 
time that they're the ones that are least likely to not want to 
have health insurance. It sounds to me like a Ponzi scheme 
    Mr. DICKEN. Well, the reliance right now is on the self-
reporting by individuals of what they're using the funds for.
    Mr. BECERRA. Okay. So that wasn't an answer that clarified 
how this isn't a really good way to try to shelter money from 
the IRS, where the average working American has to rely on an 
employer to provide health insurance.
    Dr. Blumberg, let me ask you this. Do you have confidence? 
Is there a way for you to have confidence that the HSAs are 
being used for what they're intended to be used by all people?
    Ms. BLUMBERG. I don't think there's any way we can have 
confidence in that, because there is no adjudication of the 
claims that are being drawn down out of the accounts. I mean we 
can rely on most people being honest, but other than that, we--
    Mr. BECERRA. Are you aware of any process or system that 
the IRS is implementing to try to give us that confidence that 
HSAs won't be used as a tax shelter by those who can afford it? 
This sounds like trickle-down health care.
    Ms. BLUMBERG. I don't know of any approaches that they're 
taking. What I do know is the approach that's taken for other 
tax-advantaged medical spending accounts that could be applied.
    Mr. BECERRA. Like?
    Ms. BLUMBERG. In the case of medical flexible spending 
accounts, which are a different type of structure in that they 
have some different rules. The dollars don't roll over from 
year to year. But they do have some of the same tax advantages 
within a given year for deposits. The claims on the medical 
flexible spending accounts are verified by third-party 
administrators who run those types of plans to verify that 
they've been used for medical purposes before the claims are 
paid out.
    Mr. BECERRA. Mr. Sensor, Dr. Blumberg raised a good point. 
There are some plans that do require more reporting. My 
understanding is that most of your employees have applied for 
the HRA accounts. Do you with your HSA accounts require a 
    Mr. SENSOR. We do not require a reporting. We have debit 
cards that we use to pay our medical expenses, which of course 
creates a paper trail. Or you pay with a check. And 
parenthetically I might add, as I was filing my own personal 
income taxes this year, my accountant acknowledged that I had a 
rather large dispersement for medical bills. I got to use some 
of my own health care. And indeed, she asked if I could 
document using my debit card or my checks, what I'd use those 
expenses for. When I told her ``Yes,'' she responded that upon 
audit I would be required to do so, and that that was between 
me and the IRS. I do feel like with my employees that we do 
have adequate documentation, should they be audited.
    Mr. BECERRA. Yeah. And the operative word there is ``should 
you be audited?'' And the chances of being audited, given, as 
Mr. Dicken said, that there is a very small pool at this stage 
of folks, of tax filers who are using HSAs, and whether or not 
they would be audited is another question.
    Again, I think all of us want to see Americans be covered; 
but from everything I'm hearing today, the pool of Americans 
who are uninsured, that 47 million universe of Americans, 
probably doesn't have enough money in their accounts or in 
their regular checking or the regular paycheck to be able to 
afford to put much money into any type of health savings 
account in the first place.
    In the second place, when you do open one, we rely on 
people's good faith to report accurately what they use their 
money for, which is wow, as I said, I'd love to collect the, 
what is it?--it's either $240 or $340 billion that we know 
annually we don't collect in taxes, because people aren't 
reporting properly. And this just seems to be another avenue 
for those who have decided not to report properly to continue 
to do that. That type of trickle-down health care seems to be 
taking us in the wrong direction.
    But I thank all of you for your wise testimony and 
appreciate your being here. Thank you, Mr. Chairman.
    Chairman STARK. Thank you. I got all this time while 
everybody else goes to vote.
    Let me come back, Mr. Sensor, just a couple of questions. I 
think you said 75 percent in an HRA. How much in an HSA? How 
    Mr. SENSOR. Seventeen percent.
    Chairman STARK. Seventeen? And 8 percent in your PPO?
    Mr. SENSOR. Correct.
    Chairman STARK. But your PPO is frozen?
    Mr. SENSOR. It's currently frozen, yes.
    Chairman STARK. Why?
    Mr. SENSOR. A couple reasons I would submit to you. First 
of all, we chose when we rolled out the plan not to force our 
employees into HSAs or HRAs, but rather to present the benefits 
and let them make their own choice. And as you can see, not 
very many chose the PPO.
    We've seen decline in the latter 2 years, and determined 
that at such a small enrollment, 8 percent of my population, 
that it didn't make sense to continue to trickle a very few 
people when most people were abandoning. In fact, we've seen 10 
percent migration into our HSA each of the last 2 years.
    A couple other quick items relative to the efficacy of that 
8 percent in our PPO. If it's risk that is the issue to the 
employee, our two HRA plans, which allow for Alegent to 
contribute either $1,000 or $2,000--and first dollar coverage 
comes directly out of therefore our money, not the employees--
really blunt the level of risk, if that's the reason that an 
individual chose that option.
    And lastly, but from a total out-of-pocket expense, we've 
done some analysis of all in, including premiums, including 
your co-pays, including your deductibles, where are my 
employees better off? And indeed that PPO option they spend 
considerably more dollars out of pocket in total than our HSAs. 
In fact, the gap is about $4,710 total cost out of pocket for a 
PPO participant versus $2,709 for the HSA.
    Thank you.
    Chairman STARK. Thank you. Is there a fixed dollar amount 
that you contribute to the HSA?
    Mr. SENSOR. Yes. Our contribution is $100 to open the 
    Chairman STARK. $100 a year?
    Mr. SENSOR. $100 a year, yes.
    Chairman STARK. Wow. Give the store away with that, aren't 
you? Okay. And in the HRA, let me see if I understand what 
that--that sounds like the plan that I would have proposed. But 
basically, unused funds. Each employee has an account, right? 
How much goes into that account roughly each year?
    Mr. SENSOR. If it's an HRA we're speaking to, it's between 
1- to $2,000, depending on whether it's family coverage or not.
    Chairman STARK. And that money can only be spent for 
covered benefits or proven health care?
    Mr. SENSOR. Correct.
    Chairman STARK. Okay. And the employee never gets their 
hands on it? Basically that's a bookkeeping entry that you 
control the funds and the dispersement thereof?
    Mr. SENSOR. No. I would look at that a little differently. 
They have control over dispersement of those funds. They can't 
spend them personally.
    Chairman STARK. Uh-uh. Right.
    Mr. SENSOR. They choose, however----
    Chairman STARK. And they can't buy a mutual fund with them, 
    Mr. SENSOR. Correct.
    Chairman STARK. Okay. And you watch those a lot more 
closely than you watch the government money, don't you? That's 
    So and then when the employee leaves or dies or retires, 
anything that's left in that HRA account comes back to the 
    Mr. SENSOR. That would be correct. Since the company 
contributed those funds, the proceeds would return to Alegent.
    Chairman STARK. Okay. So it's really kind of a self-
insuring by your company for the deductible, isn't it?
    With a cap.
    Mr. SENSOR. Yeah. If I may, Mr. Chairman, I would position 
it as it's a transitional vehicle that's between a PPO and an 
HSA in that it gives people the ability to control how those 
dollars are spent. We still fund prevention, we still fund 
change of lifestyles, and reduction of risk, all of which flow 
into that account, all of which they determine how they'll use 
them. But the first----
    Chairman STARK. But unlike an HSA, they can't spend it for 
college or keep it for retirement and spend it? That's your 
    Mr. SENSOR. Right.
    Chairman STARK. And you're at risk for it.
    Mr. SENSOR. Correct.
    Chairman STARK. And somehow I think I'm going to get Dr. 
Chernew to suggest even if it is--I'm too greedy to make this 
discussion--but when it's my money, I am much more interested 
in how it's invested and how it gets used than if it's your 
money, and I'm off to Rite Aid, or whoever I want to go see, 
the cosmetic surgeon to get cleaned up a little around the 
edges. You know, what the hell? If it's not mine, I don't care; 
if it's mine I'm going to watch it much more carefully.
    Okay. Could you talk to me, Dr. Chernew, about cost sharing 
under high deductible plans and health care quality? And I'm 
going to ask Dr. Blumberg to talk about this, too.
    One of the things that I recall from my dim, dark past is 
that Kaiser, who is always half the people in my district 
belong to Kaiser--and they've always had a variety of fixed-
rate $5, $10 co-pays for prescriptions or a visit to the--in 
some plans, and they vary from union to union--but they've 
always been in the neighborhood of $5 or $10. And I think that 
they said that they could deter over-utilization, abuse of the 
plan just as well as the $5 or $10 amount, and the minute they 
went above that, all they found was that people were somewhat 
more reluctant to get needed medical care. In other words, for 
some very small amount you can get the hypochondriacs and sort 
them out. But once you get above that very much or go higher, 
you start to get people who make the decision not to get the 
prescription or the service.
    So I'm going to ask--that's just something that I wonder if 
it still holds, but I'd like your thoughts, Professor Chernew, 
on what cost sharing, what effect you see that can have on 
    Mr. CHERNEW. Thank you, Mr. Chairman. I guess my opinion is 
there is probably overuse of care along the entire spectrum, 
and if you charge people money, you'll reduce the amount of 
overuse. I think there's also needed care all along the 
spectrum, and if you charge people money, you will have them 
not consume care that's needed.
    It's difficult to figure out exactly how you want to 
justify charging patients with diabetes for their blood 
pressure medication, or their diabetes medication, that is care 
that you know is needed. We've heard today that certain plans 
have incentives to prevent that type of thing, and I would 
support those incentives.
    I think the challenge is to recognize that there is a lot 
of heterogeneity in the types of plans. So we need to think 
through when we look at the different plans how those plans 
really set up their cost-sharing for things that look like 
    I think if we look broadly, the evidence is overwhelming 
that if we look at either standard measures of quality to 
``HEDIS'' measures, or other measures of quality that people 
have thought of, like how well people are managing their 
chronic disease; that in situations where people have to pay 
more--and it's not always a ton more, a lot of the studies, $15 
to $20, not a lot more--people don't take their blood pressure 
medication, they don't take their diabetes medication, they 
don't get some of the checkups that you think they might get if 
they have different illnesses.
    So if we use our standard quality metrics, I think we would 
find, on average, not in all plans or for all people, but on 
average we would see worse quality if people were 
systematically charged more.
    And I think that's a difficult argument to refute, based on 
sort of the broad peer reviewed literature.
    Chairman STARK. Thank you. Sam, did you inquire?
    Mr. MCCRERY. Not yet, no.
    Chairman STARK. I don't what the--go ahead. Mr. McCrery, 
would you----
    Mr. MCCRERY. I'll give Mr. Joseph a few minutes to gather 
his thoughts, since he just got back.
    Chairman STARK. Okay.
    Mr. MCCRERY. Thank you, Mr. Chairman.
    I appreciate you're letting me inquire even though I'm not 
a Member of the Subcommittee. I guess I am ex-officio.
    Chairman STARK. You certainly are.
    Mr. MCCRERY. Dr.--and I'm sorry, I wasn't here for 
introductions--is it Chernew?
    Mr. CHERNEW. Anyway you pronounce it's fine with me.
    But yes.
    Mr. MCCRERY. How do you pronounce it?
    Mr. CHERNEW. Chernew.
    Mr. MCCRERY. Chernew.
    Mr. CHERNEW. Just as long as it's not Blumberg.
    Mr. MCCRERY. Can you give us a list of the peer-reviewed 
literature on which you just based your generalization? That 
would be helpful.
    Mr. CHERNEW. There's a great review of some of the studies. 
The drug studies were reviewed. I think they reviewed 923 
articles and they found 132 that met their criteria. It's all 
summarized in a paper by Dana Goldman. It was in JAMA in 2007.
    Mr. MCCRERY. Is that in your materials?
    Mr. CHERNEW. It's referenced in my testimony. The article 
itself isn't in my testimony. There have been other reviews. I 
edit a journal called the American Journal of Managed Care. I 
would be happy to make it available to anyone in this room, 
actually for free, if they contact me.
    But we get a series of submissions. We've published a peer 
review article by--the lead author is a woman named Theresa 
Gibson, that's also looked at this literature. There's a 
summary of results published in a book by Joe Newhouse called 
Free for All, looking at the results of the Rand Health 
Insurance experiment, that has some discussions of the role of 
cost-sharing. And they randomized individuals. And it's 
somewhat dated now; the study was done a few decades ago.
    Mr. MCCRERY. Mm-hmm.
    Mr. CHERNEW. And I can certainly tell you the studies that 
we have done. Our study on the impact of cost-sharing on 
disparities is coming out in the Journal of General Internal 
Medicine. It's online now.
    So there's a lot of people. I apologize, I may not have 
cited some of Linda's work.
    But I think the bottom line from all of this work is 
overwhelmingly people do cut back on care, as proponents of 
higher cost-sharing plans would want, as an economist would 
expect when you charge them more. The challenge has been in 
most cases they seem to cut back on appropriate and 
inappropriate care similarly.
    Mr. MCCRERY. Well, I remember reading a summary of the Rand 
study some time ago, and I'd have to admit it's been quite some 
time since I've looked at it. But seemed to me they reached a 
contrary conclusion that in terms of health outcomes, the 
health outcomes didn't seem to be that adversely affected.
    Mr. CHERNEW. So that is right. And I should say just for--
    Mr. MCCRERY. That is right?
    Mr. CHERNEW. Well, I should say that is----
    Mr. MCCRERY. That is correct?
    Mr. CHERNEW. First let me say that the lead author is a 
colleague of mine, Joe Newhouse, and I have spoken with him 
some about this point, in part prior to this. They found that 
on average there were not large health effects in those plans. 
They found that there was reductions in the use of needed care, 
and there were some adverse health consequences, particularly 
in people with chronic disease and people that were low income. 
They believe that some of the care that was cut out was care 
that was unnecessary, perhaps harmful, and so that was useful. 
And they believe some of the care that was cut out was care 
that really was needed care, and created problems.
    I think the challenge is to understand particularly as we 
live in a world now where there's a lot greater chronic 
illness, a lot more medications for treating chronic illness, a 
lot of services that weren't available in the era of the Rand 
Health Insurance experiment to understand exactly how these 
things follow through.
    And in studies that you've seen more recently, you do find 
a lot of evidence that in some of these particularly chronic 
care areas that people aren't doing the things that we want 
them to do, and we do believe there are adverse health 
    Let me add by saying, as I said in my testimony, as an 
economist, I am not philosophically opposed to cost sharing, 
and I believe their situations with cost sharing can work. I 
believe there are people that can manage it better than other 
people. I believe there are individuals and companies that can 
design it better than other individuals and companies.
    So I am not inherently opposed in any way to this. That 
being said, I think there are areas where a general across-the-
board HSA type plan or high-deductible type plan will cause 
real harm to some individuals in the way in which they manage 
the markets because of challenges for a whole slew of reasons 
in how folks manage their illness. And it seems that when 
they're faced with a higher price, not all of them, but some of 
them do a substantially worse job. And I think it's----
    Mr. MCCRERY. I think that's a fair statement.
    Mr. CHERNEW. And I think it's a challenge of trying to 
    Mr. MCCRERY. But I did want to get the other conclusion on 
the record, though, Mr. Chairman, that the Rand study in fact 
concluded generally that there wasn't a very distinct 
diminution in health outcomes as a result of increased cost 
    Chairman STARK. That was the Rand study done in the 1970s?
    Mr. MCCRERY. I don't recall the date, it was several 
decades old.
    Mr. CHERNEW. The data was collected in the mid-1970s. There 
were many publications, so there's probably still some going 
on. I'm not familiar with them, but the publications----
    Mr. MCCRERY. But I don't think human has changed 
significantly since the 1970s.
    Mr. CHERNEW. But the medical technology for which they need 
access to has.
    Mr. MCCRERY. But we could get into a whole philosophical 
discussion about new medical technology and availability and 
affordability. I don't think this is the time or place for 
that. But it would be a nice discussion for us to have. And 
we're going to have to have that discussion at some point, Mr. 
    Chairman STARK. All right.
    Ms. Tubbs-Jones, would you like to inquire?
    Ms. TUBBS-JONES. Yes, Mr. Chairman. Thank you very much. 
Good morning, ladies and gentlemen. How are you?
    Mr. Sensor, can you tell me the racial makeup of your 
    Mr. SENSOR. I do not know that off the top of my head. I am 
so sorry. But I would be glad to send that to you 
electronically in followup.
    Ms. TUBBS-JONES. It would be interesting, because you do 
know that there are health care disparities that fall among 
    Mr. SENSOR. Absolutely.
    Ms. TUBBS-JONES. And for you to be able to really give me a 
clear sense of how well your company is going with that 
program, that is a factor that really would be useful for us.
    And over this year of training or education that you did 
with your workers, it seemed to me that that might also be 
something that ought to be factored in the process of training. 
Can you tell me the income of the people that you have in your 
    Mr. SENSOR. The average hourly income is about $24.50. And 
that would be an aggregate number for all of our 9,000 
    Ms. TUBBS-JONES. And that's a pretty--that's a decent wage 
for--and so it would be safe to say that your folks are 
    Mr. SENSOR. We have a mixture of skilled and less skilled.
    Ms. TUBBS-JONES. Mm-hmm. Thank you very much. I'd be 
interested in the information, particularly because health 
disparities, especially as it affects racial and ethnic 
minorities, is an important issue for me, as I try and make 
some decisions, or am involved in policymaking around health 
savings account and health--these accounts.
    Mr. SENSOR. Absolutely. If I may, just one followup.
    Ms. TUBBS-JONES. Oh, sure.
    Mr. SENSOR. Thank you. We will provide that information in 
    The personal health coaches that are made available free to 
all of our employees to deal with the risk factors would be 
able to speak more specifically to the unique health challenges 
of the different populace.
    Ms. TUBBS-JONES. I mean because much of the studies have 
clearly shown that low-income and racial minorities tend to the 
ones that spend the least amount of health care, and come to 
the health care system with chronic and acute illnesses as a 
result of lack of preventive care. So I'd be interested in 
hearing that information.
    Thank you.
    Ms. Waxman, on behalf of the National Women's Lawyers 
Association. A former member, glad to have you here. I'm 
interested in what your studies have shown with regard to--
well, we all know that most of the research around women's 
health didn't happen until women jumped up and down and acted 
crazy enough for them to begin to do some research around our 
    But I'm interested in the impact that these types of 
savings accounts have on women's health, and when we affect 
women's health, we affect children's health as well. So I'm 
    Ms. WAXMAN. Absolutely. There haven't been that many 
studies on the actual impact because they haven't really been 
in existence that long.
    Ms. TUBBS-JONES. Maybe I should rephrase and say women's 
access to necessary health care.
    Ms. WAXMAN. Yes. Well, the one issue I raised, and has come 
up a couple times, I think would be great to clarify about 
maternity care. Because yes, as I mentioned, it is not 
generally covered in the individual markets, certainly not in 
the HSA individual markets. But even if it is covered in the 
plans, in the small group plans or the other plans, it is 
generally subjected to the deductible. So in other words, if 
you're in a traditional plan, maternity care's covered, you get 
it, your doctors----
    Ms. TUBBS-JONES. I think if men had to have babies, it 
would be covered.
    Ms. WAXMAN. Well, I mean the plan can choose to have the 
maternity care covered, called preventive care. But if it 
isn't, and most aren't, then you have to go through the 
deductible. So as I mentioned, 9 months often spans two 
insurance calendar years, and you have to meet the deductible 
twice. So a Kaiser study of last year concluded that women were 
going to be facing between 3- and $21,000 for their maternity 
care, even if it's covered. But you have to get through the 
deductible first. And that is obviously a significant problem 
for women trying to get their prenatal care, and may deter some 
women from doing so.
    Ms. TUBBS-JONES. Sounds like the basis of a great lawsuit 
to me. And you know, let's think about whether or not we need 
to be looking at this discriminatory practice against women in 
the health care system. I know----
    Ms. WAXMAN. There are a number of other issues we could 
discuss, which maybe we should do another time.
    Ms. TUBBS-JONES. Less I be viewed as being a litigious 
Member of Congress.
    Thank you very, very much.
    Mr. Sensor, my staffer has given me one more thing. Do you 
contract out or directly employ your support staff, Mr. Sensor?
    Mr. SENSOR. To the best of my knowledge, they are employed 
    Ms. TUBBS-JONES. Okay.
    Thank you very much, Mr. Chairman. Just for the record, I'd 
like to welcome my health LA to the Committee. Her name is 
Athena Abdullah. I'm looking forward to having her work with 
    Thank you very much----
    Chairman STARK. I hope you'll explain to her that I'm 
exempt from lawsuits under these situations.
    Ms. TUBBS-JONES. Well, you know, I'm not talking about you, 
Mr. Chairman. I'm talking about it's a real issue for women 
across this country, and sooner or later we're going to get our 
appropriate dues, since we take care of you men all the time.
    Chairman STARK. Ah, and we appreciate it.
    Mr. Johnson, would you like to inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Dicken, health savings accounts were created in the 
2003 Medicare bill. Do you know the year the product was first 
made available on the insurance market?
    Mr. DICKEN. Yes. They were first available as of January 
    Mr. JOHNSON. 2004? So your 2008 report used the 2005 return 
information for your findings, is that correct?
    Mr. DICKEN. The IRS data was for 2005, as the most recent 
data from the IRS.
    Mr. JOHNSON. So the report only looked at the scope of the 
product during its first year on the market?
    Mr. DICKEN. IRS data was for the first 2 years. We were 
also able to supplement that with other information from other 
industry sources and benefit surveys for 2006 and 2007.
    Mr. JOHNSON. Okay. So you agree there's over 6 million 
individuals in the country with an HSA today?
    Mr. DICKEN. There are over 6 million individuals with a 
high deductible health plan. There's a smaller group of those 
that have the health savings account.
    Mr. JOHNSON. Okay. And 56 percent of them, I'm told, were 
opened in the last 18 months; 45 percent of HSA accountholders 
now have incomes less than $50,000. Is that true?
    Mr. DICKEN. I think that's consistent with AHIP survey 
results, yes.
    Mr. JOHNSON. Okay. Then do you believe your GAO report 
adequately describes the current situation?
    Mr. DICKEN. I think we use the most recent and credible 
information, and so recognizing that the IRS data was just for 
the second year, tried to supplement that with other surveys 
for more recent years. But certainly it is a dynamic market in 
the early years of----
    Mr. JOHNSON. Changes every day, doesn't it?
    Mr. Sensor, in 2005, you decided to provide HSA as an 
option to your employees. Can you tell us again how many of 
your employees have chosen to enroll in the HSA option?
    Mr. SENSOR. Seventeen percent of our employees are using 
that option.
    Mr. JOHNSON. Do you have an HSA personally?
    Mr. SENSOR. I do.
    Mr. JOHNSON. Wonderful. Some have argued that the high 
deductible health plans do not offer any advantages for the 
low-income workers, because they don't have the resources to 
fund an HSA. What steps have you taken to provide additional 
help for your low-income workers?
    Mr. SENSOR. As a faith-based, not-for profit, we are 
exceptionally sensitive to the lower income employees, who I 
could argue are an important backbone in health care these 
days. If an individual earns less than $14.42 an hour, we 
subsidize their premium. In essence, we pay for their 
insurance. Secondarily, we have an incredibly gracious charity 
care policy. We extend our charity care policy to 400 percent 
of the national poverty guidelines, using the HUD guidelines. 
And certainly that would relate to my employees as well if they 
were unable to pay their portion of that payment.
    And last but not least, I mentioned walk-in clinics as yet 
one more solution from an access standpoint; $24 to $52 and 16 
percent of the individuals that walk through those doors 
indicate they have no health insurance, and I think some of my 
employees find that as a viable alternative as well.
    Mr. JOHNSON. Yeah. That's great. Thank you.
    Ms. Blumberg, in your testimony you state you don't believe 
HSAs will help reduce the number of uninsured; however, in 2006 
a survey actually showed that 31 percent of HSA accountholders 
in the individual insurance market were previously uninsured, 
and 33 percent of the policies sold to firms in the small group 
market previously had not offered insurance to their employees. 
I don't know anyone in the room believes HSAs will single-
handedly solve the uninsured problem, but they obviously are 
playing a roll in fulfilling the current insurance gap.
    Based on those survey results, would you agree?
    Ms. BLUMBERG. No, I would not, sir. Part of what we need to 
recognize is that a significant share of new business in 
insurance is always coming from employers that had not 
previously insured; so, the difference between those statistics 
and what's common for all insurance plans is likely not to be 
statistically significant. So that's common with all new 
business in the insurance industry.
    We do know that the probability of employer offers and 
worker take-up among the low income population is falling 
precipitously. We see the biggest change in health insurance 
coverage is for the modest-income population. Seventy percent 
of the uninsured, non-elderly population has incomes below 200 
percent of the Federal poverty level. They really have very 
little ability to purchase health insurance coverage, high 
deductible plans or otherwise, without significant 
    So, no sir, I don't think that these are mechanisms that 
are particularly attractive to the low-income population. I 
appreciate the efforts made by the other witness to assist with 
his low-income workers; however, that does not necessarily 
translate to what other employers are doing or are able to do, 
or what's going on with the vast majority of the uninsured 
population who have no access to employer-sponsored insurance 
whatsoever, either through their own employer or through a 
    Mr. JOHNSON. Well, my experience with other employers is 
they're doing the same thing.
    So thank you very much. Thank you, Mr. Chairman.
    Mr. Becerra, would you like to----
    Chairman STARK. Mr. Becerra, would you like to inquire?
    Mr. BECERRA. I would, Mr. Chairman, and thank you for the 
second round of opportunities to ask questions. And thank you 
all for bearing with us. I want to make sure I fully develop 
this point about the tax deductibility and how we make sure 
that people are making not just the good use, but the right use 
of these tax-deducted dollars.
    Tell me if--and I probably should direct my questions at 
Dr. Blumberg and Mr. Dicken since the two of you deal on a 
monitoring or oversight basis with a lot of these programs and 
activities. I take out an HSA and a high-deductible health 
    I continue to pay, put in the maximum amount to my HSA for 
many, many years. I rarely use my health plan. Before I turn 
65, say when I'm 62, I then decide to take advantage of my 
employer's health plan, and enroll in that health plan. And I 
stop making contributions into an HSA and no longer have that 
high-deductible health plan, since I can no longer have it 
since I have my employer's-based health insurance program.
    I have accrued a great amount of money in this HSA that now 
I don't need to use, because I now have my employer's health 
insurance to help cover me. Three years later I hit 65, or even 
while I'm 63, 64, before I turn 65, I get to now make use of 
that HSA money for non-HSA purposes--can I not?
    Mr. DICKEN. At 65, you can use the money. If it's for 
qualified medical expenses, it's still tax-free. If it's for 
non-qualified expenses, it would be taxed as income, but 
perhaps at a lower rate if the individual is now at a lower 
rate and not subject to the 10 percent penalty that individuals 
under 65 would have.
    Mr. BECERRA. And so I avoid any type of penalty, and all 
those years that I will have been contributing all that money, 
which the average American would be taxed on, has not been 
taxed. And so now when I'm in my later life, 20 years, 30 years 
after I started putting that money into the HSA only now am I 
being taxed on that money.
    So I have been able to defer tax payments on all those 
dollars that the average American is ineligible to defer taxes 
on. So once again, correct me if I'm wrong, but I see the 
images of a nice tax shelter rising up again.
    Mr. DICKEN. If the individual puts in their maximum amount 
and let accrue an investment income over time, and didn't 
withdraw it, they could accrue that money for later years.
    Mr. BECERRA. Now you may not have these numbers off the top 
of your head, and I asked my staff to pull these out for me. 
It, in 2000, I think it's 2008, let's see--in 2004, the maximum 
amount of money contributed in--or the number--let's see--the 
percentage of those making a contribution at the maximum dollar 
amount allowed under the internal revenue for a 401(k) 
retirement plan, employer retirement plan, rose from, I'm 
sorry, declined from 6.3 percent of those who have access to 
401(k)'s to only 3 percent, slightly over 3 percent of people--
strike that, let me read this to you correctly.
    In 1996, 3 percent of workers who had access through their 
employer to a 401(k), or through their employment, to a--for 
a--through their employment had access to a 401(k) retirement 
plan, 3 percent of workers who had access put money into that 
    In 2004, the number of American workers who had access to a 
401(k) retirement plan, and put money into that plan, rose to 
6.3 percent.
    So as recently as 2004, 6 percent of Americans who had 
access to a retirement plan through 401(k) where they could 
defer their tax payments on money that they invest into a 
retirement, put money in there. The similar types of numbers 
are reflected for IRA's, individual retirement accounts, which 
individuals who don't have access to 401(k)'s can use to help 
build up a nest egg for retirement.
    So very low percentages of Americans who have access to 
these types of retirement vehicles, or tax-shelter vehicles, 
use them, and most of them don't max out. And so now we have 
another vehicle that will be available to tax defer or tax 
shelter your money, which without the protections and the 
accountability, leads me to believe that once again what we are 
doing is creating another shell for folks who already have 
maxed out on their 401(k), already have maxed out on their 
IRA--need another vehicle to try to shelter some of their tax 
dollars that they're earning--can now use the HSA's. Whereas 
the vast majority of working Americans who never max out on the 
IRA, never max out on the 401(k) and rarely ever use, if 
they'll ever use, an HSA are left in the dust. And I'm trying 
to figure out where the logic is in trying to now advance on an 
accelerated basis an HSA plan, which doesn't have the 
accountability we would want and doesn't target the people who 
are uninsured, or least insured.
    And I hope perhaps, since my time has expired, Mr. Dicken 
or Dr. Blumberg, you will provide some responses--further 
elaboration in writing if you think necessary, beyond what you 
have already provided in testimony--to help at least me 
understand better why HSAs are a good deal for all Americans, 
and not just for wealthier Americans.
    I thank you Mr. Chairman.
    Chairman STARK. Before--I am going to recognize Mr. Camp--
but I just wanted to ask Mr. Dicken, if you don't have the 
numbers handy, well, Mr. Camp is inquiring you to look them up. 
But I understand that there is information on--how many Federal 
employees are there? Ten million, I don't know.
    Mr. DICKEN. About 8 million are covered in the Federal 
Employees Health Benefits Program.
    Chairman STARK. And where they are in signing up for HSAs I 
haven't polled the Committee because I didn't want to raise 
that issue, but I suspect we wouldn't be much different. But we 
have current information on that, as to their income levels and 
their age levels, do we not?
    Mr. DICKEN. Part of the work that we've done is to look at 
the Federal employees health program and----
    Chairman STARK. We'll come back.
    Mr. DICKEN. Okay.
    Chairman STARK. Mr. Camp?
    Mr. CAMP. Well, I do want to just complete your answer on 
the non-qualified withdrawals. If there are senior citizens, 
they still have to pay taxes on that withdrawal. And there 
wouldn't be a penalty as there would be a penalty and taxes if 
you're under 65, but there still would be taxes paid.
    Mr. BECERRA. Mr. Camp, would you build on that?
    Mr. CAMP. Well, if I have time at the end. I mean, this 
is--I do want to understand a little bit more. I think the 
characterization I just heard isn't really accurate. But you 
know, what I'd like to understand is some of the other things 
that these plans, these high-deductible health plans, HDHP's, 
can offer and particularly the Alegent efforts in the whole 
area of price transparency.
    I mean, one of the problems we have in health care is that 
people don't know the cost, they don't have any investment in 
the cost. And one of the things we are trying to get at is 
certainly making more options available to consumers of health 
care. And in order to have options available, you have to have 
some price transparency. Can you kind of describe to me some of 
the efforts that Alegent has gone to in that regard?
    Mr. SENSOR. Absolutely. The construct that we shared 
earlier was that for this to work in aggregate, you really have 
to have great benefit plans, you really need to offer 
alternative access points. But also to have an engaged 
consumer, you need to treat them as a consumer, and that means 
give them relevant quality and cost information.
    Specifically answering your question, we have a web-based 
cost tool that I'm happy to report is patent-pending, although 
we are sharing it readily with any other interested party. It 
literally validates what specific insurance plan you have and 
because it's bouncing off a third party insurance database, it 
also can determine not only just what plan you have, and 
therefore what benefits, but it also can estimate your out-of-
pocket expense based on your co-pays and deductibles. It's a 
searchable database of some 500 existing procedures and tests.
    And of course, hit the print button at the end, because 
this is based on your self-assessment most often, and you might 
not have the right procedure at all. But it begins to engage 
them in the relevance of cost.
    Mr. CAMP. I mean, that is truly an innovative approach. And 
you know, I do want to--first of all, I appreciate all of our 
witnesses coming, even though I may not necessarily agree with 
everything I have heard from all of our witnesses.
    I do want to say though, I think Mr. Sensor, the fact that 
you--and actually have thousands of employees that you are 
providing an alternative for is something real world that none 
of the other witnesses have contributed today. And I very much 
appreciate your coming forward and doing that, being the only 
person with your point of view in this panel of five. I wish we 
could have had more with that point of view, I think we would 
have had frankly, a better debate.
    Again, I think we're getting part of the information. I am 
not afraid of a full and open debate on this subject. Frankly, 
I think that's something that would be helpful to this 
    But I very much appreciate the fact that you've come 
forward and shared the experience that you have had at Alegent 
in a real world, with real employees who have real health care 
needs. And you are providing not only the wellness portion of 
this in a way, and incentivizing that as you have described in 
your testimony, but also the price transparency side, so that 
people can actually make a better choice.
    We are not just at the whim of the provider in terms of 
what costs and what procedures we may engage in. So I thank you 
for coming forward. And again, I have some time, so I would be 
happy to yield to the gentleman.
    Mr. BECERRA. I appreciate that, Mr. Camp. My point isn't 
that they don't pay taxes on the money that they subsequently 
use for non-health-related purposes, it's that for years 
they've been able to defer the accrual of those monies and the 
interest that's been gained and not pay taxes, at least not at 
the rates that they would have paid while they were working.
    If you are now 65, and retired, your income probably has 
dropped dramatically, and you are paying taxes on income based 
on your retirement income, not your income that you earned 
while you were working. So all those years of amassing these 
dollars in these accounts can now be used at a far less 
expensive rate, tax-wise, for people who could afford money 
into these HSAs.
    Whereas, I think the average American would not have that 
opportunity to do so--that's my point here.
    Mr. CAMP. Yeah. And that may be a theoretical point, that--
but we don't have current data in terms of what is happening 
now. In fact, we had testimony that not enough people are 
putting cash in their accounts. So I don't know that's you know 
a solution without a problem maybe----
    Mr. BECERRA. I could tell you----
    Mr. CAMP [continuing]. But I tell you that----
    Mr. BECERRA. I tell you that's the theory that Wall Street 
would love to bank on, and could probably sell lots of policies 
    Mr. CAMP. I think over time, if people have saved for their 
health care needs, I don't consider that the negative that you 
    Mr. BECERRA. Oh, I----
    Mr. CAMP [continuing]. Because they are then responsible 
for their health care. And if they don't have coverage in a 
particular area, that comes out of pocket.
    Mr. BECERRA. I concur with you on that point.
    Mr. CAMP. So you know, I don't know that I see the real 
negative within accumulation of an asset. Now one of the things 
is that it is also transferable, and that is an important part 
of this as well, to give an incentive to then provide for your 
own care.
    That also is, as we have a broader debate on Medicare and 
the inadequacies of that program and the unsustainability of 
that program, I think having more seniors with a health care 
nest egg is a good thing.
    Mr. BECERRA. I agree.
    Mr. CAMP. So that's just a different point of view. But I 
understand the point you are making. And yes, they may have an 
income tax rated at a slightly lower rate, but they are 
responsible for their health care. Thank you.
    Mr. BECERRA. Mr. Chairman, we really have an opportunity to 
indulge in this type of conversation and questioning of the 
witnesses, and I am not sure if the chairman is going to gavel 
the hearing to an end. But to the degree that we still have an 
opportunity with the experts that are sitting here to continue 
the conversation, I'd love to do so.
    I mean, usually I'm in a rush as well, but this is one of 
those occasions where if I had some lunch I could share with 
you I would. Could we continue this colloquy and----
    Chairman STARK. Sure. I just want, I want to get in on 
this, just because I'm, it's interesting. I want to get back. I 
am going to come back to have Mr. Dicken tell us about what 
the, what happens to 8 million Federal employees. But I have 
felt for some time--and I guess I have some credentials--I 
taught up marketing up the river for you, in the--School a 
thousand years--before you were born probably.
    But nonetheless--and I also sold used cars once after I 
flunked out of MIT for a brief period. So I understand about 
peddling things to people they don't need, and some of the 
questions. And I had some trouble, Mr. Sensor, in--for example, 
I just don't think that we can purchase medical care the way we 
could purchase a flat-screen TV.
    I can't go to Consumer Reports. I could maybe go to U.S. 
News & World Report and look up hospitals that are in your 
group, and see where you rank in various procedures. But if I 
don't--well, if--isn't my son, and like his daddy I don't 
travel to Omaha on business--you don't know what I'm talking 
about, do you? You never read--and the animals?
    Okay. Well, read--and the anteater, that's--or the--at any 
rate--but if we go online to you and my costs for example--and 
I've come to Omaha and I decide I've been, I haven't had my 
colonoscopy, all I can get from you is that my responsibility, 
this is for self-pay, is somewhere between $1,761.60, and 
    Now that's a pretty big spread, isn't it. And worse--one of 
my staff brought this one up--I can't pronounce it, but she 
just had it, and she is now negotiating with her orthopod, so 
this may be helpful. If you want to have a cruciate ligament 
repair, you would suggest that it's between $16,338.40 and 
    Hardly--and a cardiac catheter is between 12,000 and 
16,000. But the problem is you get in to have it, and you don't 
know whether you are going to have to spend the night in the 
hospital and have--I mean, I guess what I'm saying is that 
unless these are amounts that as the economists would say, are 
below your indifference level.
    You know, if you are really thinking about--you are making 
45, 50 grand a year, and you look at this 12- to 16,000, that's 
pretty--and you only got in your account, I've only got 10. 
Okay. So I am looking at two, to six out of pocket. It, it 
isn't very helpful.
    And that's--I would love to see what your outcomes are on 
these procedures, 5 years or 10 years later, if we had that 
kind of--which we don't have. But just to load me up with my 
limited knowledge with these numbers, which are large, doesn't 
seem to be very helpful in how I'm going to save any money 
doing it. How does--that's--how does that help us?
    Mr. SENSOR. Chairman Stark, I appreciate the question, and 
I'm flattered that staff took a look at our Web site.
    Chairman STARK. Well, they were confused by it, I'll tell 
you that. And in Medicare, you can't get any information, so--
go ahead.
    Mr. SENSOR. You know, the intention of My Cost is to open 
the conversation with consumers about what the darn thing 
    And the reality is the industry has not readily come 
forward with cost estimates, because it is a complicated 
question. How many days in the stay, what peripherals are, what 
tests are going to be ordered, et cetera, et cetera, et cetera?
    Another construct that I might just throw out there for 
consideration is the individual who has just been encouraged to 
get an MRI, and they're told by their physician that MRI is 
optional, that they could wait 3 days and see what the results 
    There would be no downside of doing so. And you know, they 
might want to find out how much that MRI is going to cost.
    They might want to take a look at their monthly statement, 
which they are provided through our health plan, and determine 
whether that's the right use of their funds. So I would submit 
to you that although those complex procedures that were cited 
have a wide variance in cost, that's by definition and nature 
there's a lot of unknowns until you and your doctor decide your 
course of cure.
    But on outpatient and other costs, it's more precise.
    Chairman STARK. Some of my colleagues here in Washington 
argue that disclosing prices will actually increase them, 
because it'll undermine incentives to provide deep discounts.
    Now, has releasing your prices affected your competitive 
position in your market?
    Mr. SENSOR. I don't believe that sharing our prices has 
changed our competitive position, nor was it intended to.
    Chairman STARK. Okay.
    Mr. SENSOR. I think my competitors are now asked as to what 
their prices are on a more regular basis.
    Chairman STARK. Would you agree for example, in the--
however purchasing outpatient prescription drugs, particularly 
under part D, where transparent data could actually affect 
behavior, and could lead to lower overall spending.
    Would you agree that prescription drug costs should be 
    Mr. SENSOR. Absolutely.
    Chairman STARK. Right on. Thank you. Mr. Dicken, could you 
enlighten us as to what the 8 million bureaucrats and elected 
officials have done with regard to health savings accounts.
    Mr. DICKEN. Certainly, I can give information on that. As 
you indicate, there are about 8 million people enrolled, both 
Federal employees, retirees, and their dependents, in the 
Federal Employees Health Benefits Program.
    This year, out of more than 200 different plan options, 
over 30 have health savings account, or other CDHP option 
    The enrollment in those--we can certainly give for the 
record the actual number--but it's in the few hundred thousands 
of the 8 million that are enrolled in the HSAs.
    Chairman STARK. Let me, let me translate. You are saying 
less than 500,000 out of the 8 million are in these?
    Mr. DICKEN. Yes, I believe that's right. And we can get the 
actual enrollment if that's helpful. In 2006, we were able to 
look at some of the HSAs offered through FEHBP, and also looked 
at the premiums, looked at the enrollment, looked at the income 
of Federal employees. And we were able, in contrast to our IRS 
data, to compare people that were insured through HSAs with 
those that were insured through other health plans in FEHBP.
    And we consistently found that Federal employees had higher 
Federal incomes in the HSA plans than in the other FEHBP 
    Chairman STARK. And you're going to quantify some of that 
and submit it to use, both for my information and the record, 
could you?
    Mr. DICKEN. I certainly can.
    Chairman STARK. Okay. How about age?
    Mr. DICKEN. When we've looked at age in the Federal 
employees program, we looked at age across a number of 
different programs and have found different stories. Within the 
Federal employees health program, people enrolling in the 
health savings accounts were I believe somewhat younger than 
all Federal employees in other plans.
    But when we took out retirees, much of that was because 
these new HSAs were not covering retirees. So the difference 
was much less when we did not look at the retirees covered 
through the FEHBP.
    Chairman STARK. All right. Would you stipulate that Federal 
employees are the best guardhouse lawyers on the face of the 
Earth, and that they play these benefits like a 6-dollar harp? 
And for example, if they plan a pregnancy, they know which plan 
has better maternity benefits.
    And with our plan, we can switch, really without penalty 
every year, so that you can plan your medical necessity and get 
the best plan at the best price at that time.
    And that generally isn't available I think, to other 
employees in this country.
    Mr. DICKEN. Certainly one of the signature characteristics 
of the Federal employees health program is the choice of plans, 
with an annual open enrollment period.
    Chairman STARK. I want to thank all of you. Sure you can. 
Mr. Becerra?
    Mr. BECERRA. Thank you. And I'll try to be brief, because I 
know we have stretched this out. Actually, first to Mr. Camp's 
point. I think it would be wonderful if we found a way to help 
working Americans save up money, build up a nest egg, not just 
for the retirement, but for their health care cost, because as 
we have heard, the greatest portion of those health care costs 
come at the end stage of life.
    And so I think that's something that we should all work 
forward, work toward on a bipartisan basis. My difficulty is 
that my parents wouldn't get the benefit from this plan that we 
are discussing right now, because their income would have been 
way too low to ever be able to deposit money into a health 
savings account, and to be able to afford a high-deductible 
health plan.
    And so they would have been left out. Fortunately, my 
father, who worked as a laborer for most of his life, got 
health insurance through his union. And so we were covered. So 
with one occasion, when my mother almost died as a result of 
hemorrhaging, we were covered.
    But I know that this plan wouldn't be available to my 
parents were they not covered through their union health plan. 
And that's a concern, providing assistance to those who can 
afford to get health care, period, and really leaving out those 
who are most in need of trying to either keep what they've got 
or find it, the tens of millions of Americans.
    And Mr. Dicken, I want to go back to a point. I asked my 
staff to pull up some numbers, because I was concerned again 
about the oddity of these HSAs and what might happen if we 
don't do a good job of trying to monitor them, since they don't 
have the type of oversight that other types of tax-deferred 
programs have.
    The numbers I get back are that there are about 140 million 
tax filers in America, people who file their taxes on an annual 
basis. That's the number for 2007, probably a little bit more 
for this year, 2008, but we'll see. The audit rate in 2007 was 
1 percent, a little over a million tax filers had their filings 
audited, 1 percent.
    And here we have a program that has less oversight than 
does Medicare. Medicare requires providers to provide 
documentation for reimbursement. We have other plans, flexible 
spending accounts require documentation in order to be able to 
take advantage of the tax advantages in the FSA's.
    But here we have almost nothing, except voluntary action on 
the part of those who have these HSAs to submit documentation. 
Now let me ask this, say I have back problems, or I say I have 
back problems. I go to a chiropractor once, and I have 
documentation that I have back problems.
    I could then go and get massage services for the rest of my 
life and submit that as documentation of a health care, that I 
received massage services from whatever place that does 
massaging that I want to go to. And there's a good chance that 
would qualify if I one, was among the 1 percent who ever got 
audited by the IRS, and whether or not I used those HSA tax-
deferred dollars the right way; is that correct?
    Mr. DICKEN. It's a very small share that are audited, a 
very small share of tax filers are filing it, and the qualified 
medical expenses as defined by IRS are fairly comprehensive in 
what's included.
    Mr. BECERRA. So if I went in and got massage services that 
could qualify as a health expense.
    Mr. DICKEN. I don't know the specific tax rules on that 
provision, but there are a wide range of medical expenses that 
can qualify.
    Mr. CAMP. Would the gentleman yield briefly?
    Mr. BECERRA. Certainly.
    Mr. CAMP. Just to say that--I know we are focusing on HSAs, 
but charitable contributions I think, for the purpose of the 
record, don't require any up-front receipts. And those 
contributions dwarf anything HSAs account for--245 billion in 
charitable contributions are not substantiated, or require any 
up-front receipt as well.
    Mr. BECERRA. I think Mr. Camp raises another good point. 
There are some $32 billion that we as Americans forgo in tax 
receipts as a result of the $295 billion that are contributed 
to charitable organizations. That is $32 billion that we could 
use to pay health care for seniors under Medicare, or for 
modest-income families to have help, get access to health care.
    And we again trust that Americans actually made a 
contribution to a charitable organization, because again we 
don't monitor this, do the oversight necessary. It would be 
very difficult, given the number of Americans who do make 
charitable contributions. We take on good faith, that people 
aren't ripping off the government.
    And to some degree, there's no way we would have police, 
IRS police go into every home and asking ``please prove to us 
that you actually gave this money to a charitable 
organization.'' That is precisely my point. And so we know for 
a fact that there are people, I think the exact, more accurate 
number is $340 billion in uncollected tax revenues on an annual 
    So we know a lot of folks are taking advantage of every 
type of tax shelter, including charitable deductions, to not 
pay their fair share of taxes, which means all those other 
Americans who are paying taxes end up having to pay more to 
make up for those who are getting off the hook.
    And so my concern with HSAs is not that we shouldn't 
provide this to people so they have access to health care. 
Absolutely, if we could figure out a way to do this. But I'm 
not interested in having folks who already have access, because 
their wealth allows them to have access to health insurance, 
who probably are healthier than most, and therefore unlikely to 
have to use health care services.
    And then get to cheat the government out of paying their 
taxes the way most working Americans do, simply so we can claim 
that we are trying to increase the number of people who will 
have health care. And in some cases, perhaps it works well. But 
I'm not interested in having it work well in some cases. When 
someone in my district pays taxes, or in any of your districts 
pays taxes, they expect us to make the best use of the money.
    And if we don't do our job of oversight to make sure that 
this is a good program that is working well for all Americans, 
then we are not doing our job. And I just think at this stage, 
HSAs are not a proven commodity. They haven't proven how they 
work. We can't document that they work well.
    And at this time when we have these massive budget 
deficits, it seems to me that to not do more oversight, not put 
more requirements for oddity, simply is telling the American 
people we are not interested in taking care of the tax money 
they have entrusted to us to spend well. So with that I yield 
back Mr. Chairman.
    And one more thing, I apologize that I confused the numbers 
on IRA's and 401(k)'s, and I'll submit for the record the 
document that gives the numbers. So that way it's not, it 
doesn't seem so muddled in the record.
    I yield back.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 50037A.024

    Chairman STARK. I want to thank the witnesses for their 
intelligence and their patience. It's been very informative. I 
wanted to not only take up Mr. Chernew's offer to read, to get 
his journal, if I can get that past the Ethics Committee, and 
for any of the rest of you. Mr. Sensor, your information that 
would otherwise be public on your plans, would be appreciated.
    Any of the rest of you, you have gathered what the tenor of 
our interest is today from the Members' questions. If you want 
to send it to me, I will certainly reproduce it and distribute 
it to all Members of the Subcommittee. Much of this information 
will be helpful to us, and it will change, and we'll appreciate 
your input.
    Thank you all very much, and the hearing is adjourned.
    [Whereupon, at 12:39 p.m., the Subcommittee was adjourned.]
    [Submissions for the record follow:]
          Statement of America's Health Insurance Plans (AHIP)
    America's Health Insurance Plans (AHIP) is the national association 
representing approximately 1,300 health insurance plans that provide 
coverage to more than 200 million Americans. Our members offer a broad 
range of health insurance products in the commercial marketplace and 
also have demonstrated a strong commitment to participation in public 
programs. The innovative products offered by our members include high-
deductible health plans (HDHPs) that are compatible with Health Savings 
Accounts (HSAs).
    We appreciate this opportunity to comment on HSAs and their role in 
providing more Americans with access to high quality, affordable health 
care coverage. This innovative approach to health care financing is 
helping a substantial number of previously uninsured consumers purchase 
coverage, receive preventive health care services, accumulate savings 
for their future medical needs, and take a more active role in making 
decisions about their health care.
    Our statement focuses on three broad topics:

      The current state of the HSA marketplace, including the 
findings of a census we conducted in January 2008 and other data 
showing the value HSA products offer to consumers;
      Legislative issues, including opportunities for further 
improving HSAs and our concerns about pending legislation that would 
impose duplicative requirements on individuals and families who have 
HSAs; and
      The importance of promoting transparency in health care 
prices and quality to help HSA accountholders and other consumers make 
informed health care decisions.
    To learn more about consumers' experiences with HSAs, AHIP has 
conducted a comprehensive census of the HSA market several times over 
the past 5 years. The most recent census,\1\ conducted in January 2008, 
was based on responses from 97 health insurance companies, including 66 
companies that offer HSA/HDHP plans in the individual market, 88 
companies offering plans in the small group market, and 89 companies 
offering plans in the large group market.
    \1\ AHIP, January 2008 Census Shows 6.1 Million People Covered by 
HSA/High-Deductible Health Plans, April 2008.
    We found that HSA-compatible HDHPs covered more than 6.1 million 
Americans in January 2008, a 35 percent increase since last year. This 
increase was strongest in the small employer group market. Previous 
AHIP censuses found that 4.5 million were enrolled in January 2007, 3.2 
million in January 2006, and 1.0 million in March 2005. This growth 
represents a strong start for a relatively new health care option that 
was unknown to most Americans just a few years ago.
    A closer look at AHIP's January 2008 census data reveals a number 
of significant findings:

      Thirty percent of individuals covered by HSA plans were 
in the small group market, 45 percent were in the large group market, 
and the remaining 25 percent were in the individual market.
      HSA products accounted for 31 percent of new coverage 
issued in the small group market and, additionally, for 27 percent of 
newly purchased policies in the individual health insurance market.
      In 2007, the average balance in HSA accounts was 
approximately $1,380 and the average amount spent from HSA accounts was 
$1,080. Throughout 2007, 83 percent of HSA accounts had an average 
balance of $2,500 or less. These findings are based on responses from 
30 health insurance companies that had information on the HSA accounts 
established by their policyholders.
      The average premium for an HSA plan, for single coverage, 
was $1,519 for persons age 20-29, $2,278 for persons age 30-54, and 
$3,724 for persons age 55-64. For family coverage, the average premium 
was $3,825 for persons age 20-29, $5,125 for persons age 30-54, and 
$7,170 for persons age 55-64.
      Forty-six percent of all HSA plan enrollees in the 
individual market--including dependents covered under family plans--
were age 40 or older. Another 29 percent were age 20-39, and the 
remaining 25 percent were age 19 or younger.
      HSA plan enrollment as a percentage of individuals with 
private coverage is estimated to be the highest in Minnesota (9.2 
percent), Louisiana (9.0 percent), the District of Columbia (8.7 
percent), Vermont (7.5 percent), and Colorado (7.1 percent). The new 
AHIP census includes data for all 50 States.
Access to Preventive Care
    Other research findings by AHIP demonstrate that access to 
preventive care on ``day one'' is a central component of the HSA 
approach to health care coverage. Last year, AHIP released a survey \2\ 
showing that recommended preventive care is covered on a first-dollar 
basis by most HSA/HDHP products. This survey was based on responses 
from 36 companies that covered more than 1.7 million HSA/HDHP enrollees 
as of July 2007. Overall, this survey shows that 84 percent of HSA 
plans purchased in the group and individual markets provide first-
dollar coverage for preventive care. Virtually all HSA plans purchased 
in the large group market (99 percent) and small group market (96 
percent) provide first-dollar coverage for preventive care. 
Additionally, 59 percent of policies purchased in the individual market 
cover preventive care on a first-dollar basis.
    \2\ AHIP, A Survey of Preventive Benefits in Health Savings Account 
(HSA) Plans, July 2007.
    First-dollar coverage for preventive benefits is potentially less 
frequent in the individual market because premiums for individual 
coverage do not receive the same favorable tax treatment as premiums 
for employer-based coverage. As a result, consumers who purchase HSA/
HDHP coverage in the individual market have an incentive to pay for 
preventive benefits through their tax-free HSA rather than through 
higher premiums. AHIP supports full tax deductibility for all health 
insurance premiums to create a level playing field for consumers who 
purchase health insurance coverage on their own without an employer 
    Other survey findings show that among HSA/HDHP policies offering 
first-dollar coverage for preventive care, 100 percent cover adult and 
child immunizations, well-baby and well-child care, mammography, Pap 
tests, and annual physical exams. Nearly 90 percent provide first-
dollar coverage for prostate cancer screenings and more than 80 percent 
offer first-dollar coverage for colonoscopies. The types of preventive 
screenings covered by HSA/HDHP policies include newborn screenings such 
as PKU tests; adult blood pressure and cholesterol tests; children's 
vision tests; height, weight, and body mass index measurements; bone 
mineral density testing for women; colorectal cancer screening; 
prostate cancer screening for men age 50 or older; and adult screening 
for depression and substance abuse.
Plan-Specific Research Findings
    Additional research findings have demonstrated that HSAs are having 
a favorable impact on patient health and helping consumers to make 
cost-effective decisions.
    A 2-year study by Cigna HealthCare,\3\ focusing on more than 
110,000 persons with either HSAs or Health Reimbursement Arrangements 
(HRAs), found that persons with these plans were receiving 14 percent 
more preventive care visits by the second year, when compared to those 
with traditional coverage. This study also found that pharmacy costs 
for new HSA and HRA enrollees were 6 percent lower than for persons 
with traditional coverage, due to the use of lower cost options such as 
generic medications and mail order purchasing.
    \3\ CIGNA Choice Fund Experience Study, October 2007.
    The Cigna study also found that first-year medical costs were more 
than 12 percent lower for persons with HSAs or HRAs--and 5 percent 
lower in the second year--when compared to those with HMO and PPO 
plans. These savings were achieved while HSA/HRA enrollees continued to 
receive recommended care at the same or higher levels as when they were 
enrolled in traditional plans the prior year. This evaluation was based 
on more than 300 evidence-based measures of health care quality. Taken 
together, these findings clearly indicate that the cost savings 
resulted from consumer involvement in health care decisionmaking--not 
because consumers were foregoing needed medical care.
    Another study,\4\ by HealthPartners, found that the cost of care 
for enrollees in HSAs and HRAs was 4.4 percent lower, after adjusting 
for illness burden, than for those with traditional coverage. These 
savings did not negatively impact patient care, as the study also 
concluded that the utilization of preventive services and medication 
for chronic conditions was comparable for members in consumer-driven 
health plans and traditional plans. The probable explanation for lower 
costs is that HSA/HRA plan enrollees were 13 percent more likely to use 
HealthPartners' web-based tools that compare costs and quality. One 
such tool lists facilities that offer the most cost-effective service 
for 38 medical procedures, while another tool provides consumer 
information based on 87 measures of clinical quality and patient 
    \4\ HealthPartners, Consumer Directed Health Plans Analysis, 
October 2007.
    Additional research \5\ by UnitedHealth Group shows that its 
Definity Health plan members who have HRAs receive preventive care and 
evidence-based care at rates equivalent to or better than a benchmark 
population of other consumers. This 2007 study found that Definity 
Health plan members were 16 percent more likely than the benchmark 
population to receive both cervical cancer screening and prostate 
cancer screening. Other findings indicate that Definity Health plan 
members with diabetes, asthma, coronary artery disease, and congestive 
heart failure received care to treat or monitor their conditions at 
rates that were equivalent to, and for some measures higher than, the 
benchmark population.
    \5\ Uniprise, Quality of Care, Executive Summary, April 2007.
    United's Definity plan achieved these improvements while at the 
same time bringing costs under control. A more recent United study,\6\ 
published in April 2008, shows that overall health care costs for 
Definity's members were 10-12 percent lower than for PPO members in 
2004-2006 after being very similar in 2003. This study further 
concluded that persons with chronic conditions also were benefiting 
from slower growth in costs ``while utilization was not sacrificed.'' 
This study addressed a 4-year period (2003-2006) and covered more than 
370,000 enrollees in the final year.
    \6\ Uniprise, The Effect of Consumer-Driven Health Plans (CDHPs) on 
Healthcare Costs and Utilization, April 2008.
HSAs Have Broad-Based Appeal
    As indicated by AHIP's January 2008 census, HSA plans are being 
purchased at comparable rates by persons who are young, middle-aged, 
and near-elderly. The diversity of consumer interest in this product 
also is evidenced by the fact that although the small group market 
currently is experiencing the most rapid growth in HSA plan enrollment, 
a significant share of overall HSA plan enrollment also can be found in 
both the individual market and the large group market.
    Other research findings suggest that the broad-based appeal of HSAs 
also applies to Americans of different income categories. A report by 
eHealthInsurance indicates that 45 percent of HSA plan enrollees had 
annual incomes of $50,000 or less in 2005. Another report,\7\ issued by 
the Government Accountability Office (GAO) in April 2008, indicates 
that 41 percent of HSA tax filers for 2005 had annual incomes below 
    \7\ GAO, Health Savings Accounts: Participation Increased and Was 
More Common among Individuals with Higher Incomes, April 2008.
    The GAO also reported that tax filers who reported HSA activity in 
2005 had higher incomes on average than other tax filers. This finding 
has been used by some critics to suggest that HSAs are benefiting only 
higher income persons or that HSAs are being used as tax shelters for 
the wealthy. These assertions fail to recognize several key facts:

      The GAO analysis would have been more meaningful if it 
had compared all HSA plan enrollees to consumers who purchased other 
private health insurance coverage. Instead, the GAO comparison focused 
on one category of HSA plan enrollees (i.e., those who reported 
contributions to or distributions from an HSA) and compared them to all 
other tax filers, including those who are uninsured or covered by 
public programs.
      The GAO analysis omitted two key categories of HSA plan 
enrollees: (1) those who did not make contributions to or distributions 
from their accounts in tax year 2005; and (2) those who purchased a 
HDHP, but waited until the following tax year to open an HSA. To the 
extent that these groups include lower- and middle-income individuals 
and families, the GAO's estimate is likely to overstate the number of 
higher-income consumers who have established HSAs.
      As noted by AHIP's most recent census, the average HSA 
account balance for 2007 was approximately $1,380 and the average 
amount spent from HSAs in 2007 was about $1,080. These data indicate 
that individuals are funding their accounts for current health care 
costs and not using them to ``shelter'' large amounts of income from 
Federal and State income taxes.
      The Kaiser Family Foundation/HRET 2007 study \8\ on 
employer health benefits indicates that, among employers that help to 
fund HSAs, the average employer contribution is $806 for single 
coverage and $1,294 for family coverage. These contributions are a 
valid approach to meeting the health care needs of employees and do not 
constitute any kind of tax ``shelter.''
    \8\ Kaiser Family Foundation/Health Research and Educational Trust, 
Employer Health Benefits, 2007 Annual Survey.
    AHIP and our members have serious concerns about pending 
legislation that would impose burdensome requirements on HSA 
accountholders. We also want to take this opportunity to offer our 
recommendations for future legislation to strengthen and improve HSAs.
Substantiation Requirements for HSAs
    On April 15, the House approved legislation, H.R. 5719, that would 
require HSA accountholders, beginning in 2011, to follow substantiation 
requirements similar to those that currently apply to Flexible Spending 
Arrangements (FSAs). In addition, this bill would authorize the 
Treasury Secretary to require annual reporting by HSA trustees of 
amounts paid from HSAs that are not substantiated along with the names, 
addresses, and tax identification numbers for the account beneficiary. 
We strongly oppose these proposed requirements because they duplicate 
existing HSA requirements and would increase the cost of these accounts 
for consumers and employers. We urge Committee Members to carefully 
consider the following concerns.
    First, it is important to recognize that accountholders already 
must report all HSA activity to the Internal Revenue Service (IRS) and 
pay taxes and penalties on non-qualified expenditures. Every year, HSA 
accountholders are required to file Form 8889 with the IRS and report 
contributions to and expenditures from the account. If money in the HSA 
is used for a non-health care expense, the accountholder must pay taxes 
on the amount and an additional 10 percent penalty (the penalty is 
waived if the accountholder is age 65 or older, is disabled, or is 
deceased). The IRS can audit the accountholder if it believes the HSA 
is not being used properly.
    Another important consideration is that FSAs and HSAs are 
fundamentally different kinds of accounts and should not be treated the 
same. Employers determine how money in an FSA is spent and the employer 
is responsible for administering the account and reporting to the IRS. 
If the FSA is used for ``non-qualified'' health care expenses, the 
entire account can be disqualified. In contrast, an HSA belongs to the 
accountholder who can keep the money if he or she changes jobs or 
switches to a new insurance plan. The accountholder is responsible for 
reporting on the account and may use HSA funds for non-health care 
expenses as long as he or she pays taxes and the penalty.
    In addition, FSA-style substantiation requirements would lead to 
higher costs and increased paperwork for consumers. The majority of HSA 
transactions are electronic while many FSA transactions are paper, 
since the consumer must prove to the account administrator that they 
used the money for a health care transaction (e.g., a prescription drug 
purchased at a grocery store pharmacy). The FSA administrator must 
process and approve any expenses. Accordingly, FSA transactions cost 
more than similar transactions from an HSA. The increased costs and 
paperwork requirements of imposing FSA-style substantiation on HSAs 
likely will be passed on to the accountholder.
    We also are concerned that substantiation requirements will require 
consumers to give personal health information to the banks that 
administer these accounts to determine if money spent from the account 
was used for a qualified health care expense. As a result, 
accountholders would be required to give the bank information on the 
prescriptions and over-the-counter drugs they purchase, the doctors 
they use, and the health care services they receive.
    Finally, requiring substantiation of HSAs will reduce consumer and 
employer interest in these innovative new accounts. HSAs give consumers 
the ability to save tax-free money to pay for health care expenses and 
to make better health care decisions. HSAs also allow some individuals 
and small employers to purchase insurance for the first time. Requiring 
substantiation will increase the administrative costs borne by small 
businesses who maintain accounts for their employees. Adding cost and 
complexity to the accounts will have a chilling effect on enrollment 
and cause some employers to drop HSAs as an option for their employees.
Legislative Recommendations
    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, and many others for whom HSAs can 
be a valuable coverage option.

      Allow Increased HSA Contributions for Individuals With 
Chronic Disease: 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.
      Allow Health Plans to Include Coverage for Prescription 
Drugs for Chronic Conditions: 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. 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.
      Allow Early Retirees to Save for 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.
      Allow Spouses to Have an HSA Even if Their Spouse Has an 
FSA: Individuals should be allowed to establish an HSA if their spouse 
has an 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 
      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. Allowing 
lower embedded deductibles for each family member will make it easier 
for families with HSAs to meet their health care expenses.
      Allow HSA Funds to Be Used to Purchase 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.
      Allow Employers to Coordinate HRAs and FSAs: Employers 
should be allowed to combine HSAs with FSAs or HRAs to cover medical 
expenses below the HDHP's deductible. Currently, employers face 
regulatory barriers that significantly limit their ability to combine 
these products.
      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 accountholders to meet their health care expenses with 
after-tax dollars.
      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.
      End the Penalty on 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 3 months is prohibited from putting 
money into an HSA. This restriction hurts veterans--especially 
returning service personnel who have service-related injuries.
    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.
    In November 2006, AHIP's Board of Directors endorsed a set of 
principles that serve as the cornerstones for our involvement in 
transparency initiatives:

      Supporting a uniform approach for the disclosure of 
relevant, useful, actionable and understandable information to 
facilitate consumer decisionmaking and choice. Information should be 
made available to enrollees to permit accurate comparisons of 
physicians, hospitals and other practitioners. Additionally, 
information should be disclosed and displayed in a format that is 
easily accessible and understandable; consumers should be educated on 
how to use the information as appropriate.
      Supporting efforts that advance transparency while 
preserving competition and basing analyses on objective, agreed-upon 
measures. Consumers and purchasers need accurate information to make 
more informed health care decisions. At the same time, the disclosure 
of this information should comport with antitrust guidelines to ensure 
that vigorous competition continues to thrive in the marketplace. To 
achieve this objective, ranges--such as the 25th percentile and 75th 
percentile of payments to hospitals which are disclosed by Medicare--
should be the model for disclosing price information.
      Recognizing the importance of linking quality and cost of 
care. Disclosure of information about the quality of care which 
physicians and hospitals provide and costs of services is important to 
enable consumers and purchasers to evaluate their health care options, 
and to enable practitioners to learn how their practices compare to 
their colleagues' practices in terms of effectiveness and efficiency. 
At the same time, consumers need assistance in interpreting this 
information and using these data to make informed decisions.
      Developing the tools to analyze high-utilization, high-
cost services or conditions where variation exists. The nation needs to 
build the capacity to analyze certain agreed-upon episodes of care as 
well as certain services or procedures. Presenting data on episodes of 
care (e.g., pregnancy)--rather than merely on services (e.g., labor and 
delivery)--will allow consumers to make more comprehensive and informed 
assessments. The episodes of care selected should align with conditions 
which address areas where practice variation exists, have high 
utilization rates and are known to be cost drivers.
      Supporting the disclosure of information for physician as 
well as hospital services. To promote continuity of care and prevent 
the proliferation of silos within the health care system, stakeholders 
should advocate for the disclosure of physician performance information 
as well as the disclosure of hospital performance information. 
Disclosure of information for other providers--such as nursing homes 
and home health agencies--also should be considered.

    One area where AHIP's transparency principles can be seen in action 
is through our involvement in the AQA Alliance. AHIP and several 
prominent physician leaders began a vitally important collaboration 4 
years ago with physician groups and other key stakeholders to establish 
the AQA Alliance.\9\ This coalition, which includes private groups like 
the American Academy of Family Physicians and the American College of 
Physicians, as well as the Federal Agency for Healthcare Research and 
Quality (AHRQ), has as its goal the development of uniform processes 
for performance measurement and reporting--a fundamental building block 
needed for consumer health information systems. Its processes would: 
(1) allow patients and purchasers to evaluate the cost, quality and 
efficiency of care delivered; and (2) enable practitioners to determine 
how their performance compares with their peers in similar specialties. 
This effort now encompasses more than 135 organizations, including 
consumer groups, physician groups, hospitals, accrediting 
organizations, private sector employers and business coalitions, health 
insurance plans and government representatives.
    \9\ For more information about the AQA Alliance, see http://
    To date, the AQA has approved 218 quality clinical performance 
measures in 32 different ambulatory care setting areas, many of which 
are being incorporated into health plan provider contracts. These 
measures represent an important step in establishing a broad range of 
quality measurement. The AQA has also approved a prioritized list of 
conditions for which cost of care measures should be developed, and the 
group continues to make further progress towards that goal.
    In addition to its work in the area of performance measurement, the 
AQA has implemented a pilot program in six sites across the country, 
with support from the Centers for Medicare & Medicaid Services (CMS) 
and AHRQ. These pilots, now known as the Better Quality Information or 
BQI sites, combine public and private sector quality data on physician 
performance. This program is testing various approaches to aggregating 
and reporting data on physician performance, while also testing the 
most effective methods for providing consumers with meaningful 
information they can use to make choices about which physicians best 
meet their needs. Ultimately, we anticipate that the results of this 
pilot program will inform a national framework for measurement and 
public reporting of physician performance, which is an important step 
toward advancing transparency and providing reliable information for 
consumer decisionmaking.
    On another front, many AHIP member plans have individually 
implemented their own initiatives to empower their members by supplying 
them with price as well as quality information designed to support 
consumer decisionmaking. While they use a variety of approaches, these 
plan initiatives--often in the form of easy-to-use tools that allow 
consumers to access secure websites--encompass providing such resources 
as the following:

      Access to price data on specific physicians: Members of 
many health insurance plans can type in a particular physician's name, 
specialty, or office address and view a menu of common procedures, and 
determine the cost of procedures, such as routine office visits or x-
      Access to quality data on physicians: Members of some 
health insurance plans can access information on either plan-specific 
or regional collaboratives' websites regarding clinical quality 
delivered by a specific physician, including indicators based on 
adverse events, clinical processes, use of health information 
technology such as electronic medical records, as well as overall 
efficiency in the use of medical services.
      Access to hospital price and quality information: Members 
in many plans may have access to cost ranges for common procedures at 
hospitals and surgery centers, in some instances separating out doctor 
fees from facility costs, as well as tools to ascertain the comparable 
value of those facilities.

    Several of AHIP's members also are participating in regional 
quality collaboratives that are aggregating data across a given market. 
These data aggregation efforts combine data from multiple health plans 
in a region to give consumers a more comprehensive picture of a 
physician's quality across his/her population. Still other AHIP members 
are experimenting with pilot projects allowing consumers to rank the 
cost and quality for dozens and sometimes hundreds of common medical 
procedures. All of these pioneering efforts are designed to help 
Americans make value-based health care decisions.
    AHIP appreciates this opportunity to discuss 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.

                 Statement of American Benefits Council
    The American Benefits Council (the ``Council'') appreciates the 
opportunity to submit this written statement to the Subcommittee 
regarding the increasing utilization and effectiveness of health 
savings accounts (``HSAs'') and high deductible health plans 
(``HDHPs''). The Council is a national trade association representing 
principally Fortune 500 companies and other organizations that either 
sponsor or administer health and retirement benefit plans covering more 
than 100 million Americans.
    HSAs are a fairly new health coverage option for American families, 
having been established by Congress in 2003 as part of the Medicare 
Modernization Act. Nevertheless, for millions of Americans, HSAs have 
already become an important tool in securing essential health coverage 
for themselves and their families. Early data from the Government 
Accounting Office (``GAO'') and other third parties is encouraging, 
indicating that HSAs are working as intended for the vast majority of 
Americans who use them. HSA/HDHP arrangements can provide vital 
``first-dollar'' medical coverage for accountholders (and their spouses 
and qualifying dependents), while utilizing important cost-sharing 
principles to help lower health coverage costs generally for 
individuals and employers alike. It is critical that we allow this 
important new health care option to fully develop and that we permit 
comprehensive data to be collected on the role it can play in providing 
quality health care at an affordable price. Any actions to apply new 
restrictions or burdens on this option would be premature and would 
risk eliminating a health care tool already being successfully used by 
millions of Americans.
    The following is a summary of our comments:

      Health savings accounts have become an increasingly 
important tool for millions of Americans in securing lower cost, high 
quality medical coverage. Recent data compiled by GAO indicates that an 
estimated 6.1 million Americans were covered by HSA/HDHP arrangements 
as of January 2008.
      Early data and testimony before the Subcommittee on May 
14, 2008, indicate that the vast majority of HSAs include comprehensive 
``first-dollar'' preventive care coverage and that HSAs can succeed in 
reducing health care costs for American families, while also resulting 
in increased wellness and quality of care.
      Recent data strongly indicates that participants have 
sufficient HSA assets to meet actual out-of-pocket expenses under 
HDHPs, and (i) HSA withdrawals are being used principally for current-
year qualified medical expenses, and (ii) HSAs, rather than being used 
primarily by high-income individuals as a tax shelter, are being used 
by individuals at a broad range of income levels. For example, one 
survey found that 45% of all HSA enrollees in 2005 had annual incomes 
of $50,000 or less, and there are good reasons to believe that this 
percentage may be even higher today.
      Current rules regarding HSA substantiation are consistent 
with the treatment afforded other special purpose accounts and health 
tax provisions. As discussed below, there are numerous instances under 
the Internal Revenue Code (``Code'') where amounts withdrawn from a 
special purpose account are not subject to mandatory third party FSA-
like substantiation rules. Similarly, the general approach toward 
health expenditures under Federal tax law does not require third party 
substantiation for an individual to obtain a specific income tax 
deduction or other tax-favored treatment.
      Imposing third-party substantiation requirements on HSAs 
is not appropriate, will increase costs for HSA accountholders and 
limit options for health coverage at a time when such options should be 
expanded. The Council urges Members of the Subcommittee, and Members of 
Congress more generally, to oppose the imposition of third-party 
substantiation requirements on HSAs, such as the requirements included 
in H.R. 5719 (the ``Taxpayer Assistance and Simplification Act of 
HSAs Are An Increasingly Important Component To Many American Families' 
        Health Coverage
    Recent data compiled by GAO indicates that the number of Americans 
covered by HSA-eligible plans increased from 438,000 in September 2004 
to an estimated 6.1 million in January 2008.\1\ This represents a 
1,400% increase in their use in just over 3 years. Moreover, a recent 
study by America's Health Insurance Plans (``AHIP'') found that HSA-
usage increased by 35% in the 12-month period from January 2007 to 
January 2008.\2\ American families and workers are indisputably turning 
to HSAs in increasing numbers to help control their ever-rising health 
coverage costs.
    \1\ Health Savings Accounts (HSAs) and Consumer Driven Health Care: 
Cost Containment or Cost-Shift? Hearing Before the Subcomm. on Health 
of the H. Comm. on Ways and Means, 110th Cong. (2008) (statement of 
John E. Dicken, Director of Health Care, Government Accountability 
    \2\ Health Savings Accounts (HSAs) and Consumer Driven Health Care: 
Cost Containment or Cost-Shift? Hearing Before the Subcomm. on Health 
of the H. Comm. on Ways and Means, 110th Cong. (2008) (statement of 
America's Health Insurance Plans) (hereinafter (``AHIP'').
    Early data also indicates that the increased use of HSAs is broad-
based. Specifically, recent survey data by AHIP indicates that of those 
individuals covered by HSAs, 30% were in the small group market, 45% in 
the large group market, and 25% in the individual market.\3\ In 
addition, it is very significant that the greatest growth in the HSA/
HDHP market is in the small plan market, where health care coverage has 
been a constant public policy challenge.\4\
    \3\ See AHIP, supra.
    \4\ See Id.
HSAs Can Reduce Health Costs And Improve Quality Of Care
    In this era of ever-rising health care costs--costs that continue 
to well outpace general inflation as measured by the Consumer Price 
Index (``CPI'')--American workers and their employers continue to look 
for ways to help rein in these costs without negatively affecting 
health standards and quality of care. As Michael Chernew, Professor of 
Health Care Policy for Harvard Medical School, testified, cost sharing 
can reduce excess utilization and health expenditures generally, and 
HSA/HDHP coverage utilizes certain cost-sharing principles like upfront 
deductibles and copayments to help reduce excess utilization.\5\
    \5\ Health Savings Accounts (HSAs) and Consumer Driven Health Care: 
Cost Containment or Cost-Shift? Hearing Before the Subcomm. on Health 
of the H. Comm. on Ways and Means, 110th Cong. (2008) (statement of 
Michael E. Chernew, Ph.D., Professor of Health Care Policy, Harvard 
Medical School).
    Testimony from Wayne Sensor, CEO of Alegent Health, also provides a 
first-hand example of how HSA/HDHP coverage can both reduce costs and 
lead to increased health standards and quality of care. Specifically, 
Mr. Sensor testified that ``there is a significantly higher level of 
engagement among those participants [in one of our HSA plans].'' He 
stated that HSA participants ``consume more preventive care than any 
other plan we offer,'' and that ``[m]ore than 45% of HSA participants 
completed their health risk assessments, compared to just 16% in our 
PPO plan.'' On top of all of this, he noted that ``[f]rom 2006 to 2007, 
the cost trend in our two HSA plans declined a full 15%!'' \6\
    \6\ Health Savings Accounts (HSAs) and Consumer Driven Health Care: 
Cost Containment or Cost-Shift? Hearing Before the Subcomm. on Health 
of the H. Comm. on Ways and Means, 110th Cong. (2008) (statement of 
Wayne Sensor, CEO, Alegent Health).
    Mr. Sensor's testimony is supported by findings from another study 
performed by HealthPartners. This study found that the cost of care for 
participants in HSAs and health reimbursement arrangements (``HRAs'') 
was 4.4% lower than for those individuals with traditional low-
deductible coverage.\7\ The study also found that the cost savings did 
not impair the standard of care and that the utilization of preventive 
care services and medication for chronic illness was equivalent to that 
of individuals covered under more traditional low-deductible plans.
    \7\ Consumer Directed Health Plans Analysis, HealthPartners, 
October 2007.
Data Indicates HSA/HDHP Coverage Utilizes Important ``First Dollar'' 
        Preventive Care Coverage
    As Mr. Sensor's first-hand experience at Alegent Health 
demonstrates, HSA/HDHP coverage, if structured correctly, can achieve 
its intended result--providing quality care to Americans and their 
families at reduced costs. One component of successful HSA/HDHP 
coverage appears to be the inclusion of ``first-dollar'' preventive 
care coverage. A survey by AHIP last year showed that recommended 
preventive care is covered on a ``first-dollar'' basis by the vast 
majority of HSA/HDHP products.\8\ Overall, the survey found that 84% of 
HSA/HDHP plans purchased in the group and individual markets provide 
``first-dollar'' coverage for preventive care. Specifically, nearly all 
HSA plans purchased in the large group market (99%) and small group 
market (96%) provide ``first-dollar'' coverage, while 59% of HSA/HDHP 
policies sold on the individual market include such coverage.\9\
    \8\ See AHIP, supra.
    \9\ See Id.
    The AHIP survey also found that among those HSA/HDHP policies 
offering ``first-dollar'' coverage for preventive care, 100% provide 
coverage for adult and child immunizations, well-baby and well-child 
care, mammography, Pap tests, and annual physical exams. Nearly 90% of 
the policies provide ``first-dollar'' coverage for prostate screenings 
and more than 80% offer ``first-dollar'' coverage for 
    \10\ Id.
Early Data Strongly Indicates That Participants Have Sufficient HSA 
        Assets To Meet Actual Out-Of-Pocket Expenses Under HDHPs
    AHIP's most recent census data indicates that HSA enrollees had an 
average account balance for 2007 of approximately $1,380 and withdrew 
on average $1,080 to reimburse qualified medical expenses, including 
those expenses not otherwise covered under their HDHP.\11\ 
Additionally, early findings indicate that many employers are 
contributing substantial amounts to their employees' HSAs. 
Specifically, GAO reports that of those small and large employers that 
made contributions to HSAs in 2007, the average annual contribution 
totaled $806.\12\
    \11\ See Id. See also Health Savings Accounts: Participation 
Increased and Was More Common among Individuals with Higher Incomes, 
GAO-08-474R (April 2008), at 8 (stating that in 2005, the average HSA 
contribution was $2,100, with the average withdrawal being 
approximately $1,000).
    \12\ See Id at 9 (citing Kaiser Family Foundation and Health 
Research and Educational trust, Employer Health Benefits: 2007 Annual 
Survey (Menlo Park, Calif., and Chicago, Ill.:2007). It should also be 
noted that in a study conducted by Mercer during the same period which 
covered only large employers, the average contribution was $626. Id. at 
    The Council views these early findings as very encouraging. One 
criticism of HSAs has been that accountholders cannot contribute a 
sufficient amount to an HSA on an annual basis to meet their actual 
out-of-pocket expenses. This is due in large part to the fact that the 
maximum HSA contribution limit is almost certainly significantly less 
than the plan's maximum out-of-pocket limit (for example, for 2008, the 
maximum HSA contribution limit was $2,800 for self-only coverage and 
$5,900 for family coverage, but the maximum out-of-pocket limit for 
HDHPs was $5,600 and $11,200, respectively). Notwithstanding this fact, 
the data indicates that American families have been able to utilize 
their HSAs to effectively meet their out-of-pocket liability under the 
HDHP. This is very welcome news as it suggests that HSA/HDHPs meet both 
the cost and coverage needs of the average American family.
Data Indicates That HSAs Are Not Being Used As Tax Shelters By High-
        Income Individuals
    The early data from GAO and AHIP is also encouraging for another 
reason. Contrary to concerns by some that HSAs would be used primarily 
by high-income individuals as an IRA-like retirement savings vehicle, 
the data indicates that HSAs are being used by both lower- and higher-
income individuals principally to meet current year health costs.
    With respect to the specific income levels of those individuals who 
are currently utilizing HSAs, available data for the 2005 tax year 
indicates that nearly 50% of all HSA enrollees had annual incomes of 
less than $60,000. Specifically, the recent GAO report indicates that 
41% of HSA tax filers for 2005 had annual incomes below $60,000.\13\ 
Similarly, a survey by eHealthInsurance, an online broker of health 
insurance policies, found that 45% of all HSA enrollees in 2005 had 
annual incomes of $50,000 or less.\14\ The same survey found that 41% 
of HSA purchasers were not covered by health insurance during the 
preceding 6 months.\15\
    \13\ Id. at 6.
    \14\ See AHIP, supra (citing eHealthInsurance survey findings).
    \15\ See Id.
    Notably, the findings for the 2005 tax year may fail to accurately 
reflect current trends in HSA usage and may, in fact, understate the 
percentage of low- and middle-income HSA enrollees. This is because, as 
part of the Medicare Modernization Act, Congress allowed participants 
in early HSA-like accounts, called Medical Savings Accounts (``MSAs''), 
to convert these accounts into HSAs. Because MSAs generally were only 
available to self-employed individuals and small business owners--
persons who on average would likely have higher incomes than the 
average American worker--the data for 2005 may well underestimate the 
number of low- and middle-income individuals who are currently enrolled 
in HSA/HDHP coverage.
    Recent data from AHIP indicates that for 2007, HSA enrollees 
withdrew on average 80% of their annual contributions to reimburse 
current-year qualified medical expenses. Moreover, the GAO report 
states that ``average contributions and average withdrawals generally 
increased with both income and age.'' \16\ Thus, although higher-income 
individuals on average contributed more to their HSAs in a given year, 
they also withdrew more contributions during the same year. These early 
findings, when taken together, are very encouraging because they 
indicate that that HSAs are not being used primarily by higher-income 
individuals as a retirement savings vehicle or tax-shelter, but rather 
are being used by both lower- and higher-income individuals to obtain 
essential current-year health care coverage.
    \16\ See GAO, supra, at 8.
    Lastly, some have pointed to the early data indicating that all HSA 
account balances are not ``spent down'' on an annual basis (as is 
frequently the case with FSAs given the ``use-it-or-lose-it'' rule) as 
evidence that HSAs are being used inappropriately as a tax savings 
vehicle. Such critiques fail to recognize the mechanics of HSA/HDHP 
coverage in light of the statutory contribution limits and potential 
out-of-pocket expenses. As noted above, in the vast majority of 
instances, the HSA participant's potential out-of-pocket exposure under 
the related HDHP can be as much as 200% of the maximum HSA annual 
contribution. Thus, to the extent that accountholders do not withdraw 
all of their HSA contributions in the same year (i.e., as necessary to 
meet health expenditures), this should be viewed as positive from a 
public policy perspective. This is because any remaining account 
balance at year-end will help ensure that accountholders have 
sufficient HSA assets to meet potential out-of-pocket expenses under 
the HDHP plan in later years.
Available Data Indicates That HSA Monies Are Being Used For Qualified 
        Medical Expenses
    The early data, as compiled by GAO, suggests that amounts withdrawn 
from HSAs are being used by accountholders for qualified medical 
expenses. The GAO report states that ``[o]f the HSA funds that were 
withdrawn in 2005, about 93 percent were claimed for qualified medical 
expenses.'' \17\ Moreover, recent statements by a Treasury Department 
representative before the Ways and Means Committee, indicate that 8.4% 
of all HSA accountholders list at least some of their HSA distributions 
as nonqualified taxable distributions.\18\
    \17\ See Id at 9.
    \18\ April 9, 2008 Mark-up of H.R. 5719 by the Subcomm. on Health 
of the H. Comm. on Ways and Means, 110th Cong. (2008) (comment by 
Thomas Reeder, Benefits Tax Council, Dept. of Treasury) (as reported by 
Congressional Quarterly).
    Under current rules, amounts withdrawn from HSAs that are not used 
for qualified medical expenses are subject to substantial negative tax 
consequences. Specifically, such amounts are subject to income tax at 
the accountholder's marginal tax rate as well as an additional 10% 
penalty tax. To the extent that an accountholder fails to accurately 
report taxable withdrawals, he or she would likely also be subject to 
various accuracy-related penalties and additions for the underpayment 
of income tax, as well as related interest.
    The early data indicates that accountholders are using their HSAs 
as intended--primarily to reimburse qualified medical expenses not 
otherwise covered under the HDHP. Moreover, where amounts are withdrawn 
and are not used to reimburse qualified medical expenses, the data 
indicates that accountholders are correctly reporting such amounts as 
subject to income taxation under the current rules.
Current Rules Regarding HSA Substantiation Are Consistent With Other 
        Special Purpose Accounts And Health Tax Provisions
    Some persons have suggested that the treatment of HSAs under 
Federal tax law--specifically the lack of a third-party substantiation 
requirement--is unparalleled and otherwise unique to HSAs. Such 
assertions are not correct. There are numerous instances under the Code 
where amounts withdrawn from a special purpose account are not subject 
to mandatory third party FSA-like substantiation rules, such as with 
respect to withdrawals from 529 college savings plans or withdrawals 
from IRAs in connection with a qualifying first-time home purchase
    Under current rules, participants in 529 college savings plans are 
not required to obtain third party substantiation prior to withdrawing 
amounts from the 529 plan. However, as with HSAs, the accountholder 
must report in connection with his or her annual income tax return, the 
amount of withdrawals that were for qualified educational expenses and, 
as such, are eligible for tax-free reimbursement. Moreover, as with 
HSAs, to the extent that withdrawn amounts are not attributable to 
qualified expenses, such amounts are subject to income and penalty tax.
    This is also the case with respect to withdrawals from IRAs in 
connection with a qualifying first-time home purchase. Under current 
Federal tax rules, IRA owners generally may not make a withdrawal from 
their IRAs prior to attaining age 59\1/2\ without otherwise being 
subject to a 10% penalty for early withdrawals. If, however, the 
withdrawal is made in connection with the purchase of a qualifying 
first home, the 10% penalty does not apply. As with HSAs, there is no 
requirement that the provider or administrator of the IRA first 
substantiate that the IRA owner has satisfied the requirements 
necessary to avoid the 10% penalty. Rather, all withdrawn amounts are 
generally coded by the provider or administrator on the annual 
information return as being subject to the 10% penalty. When the IRA 
owner then files his or her annual tax return, he or she then certifies 
on the return the amount of annual withdrawals that was used for 
purposes of purchasing a qualifying first home. Thus, no third party 
substantiation is required.
    With respect to the treatment of medical expenses more generally 
under Federal tax law, it is HRAs and FSAs--rather than HSAs--that are 
in fact the exception to the rule. This is because, as with HSAs, the 
general approach towards health expenditures under Federal tax law does 
not require that a taxpayer obtain third party substantiation of 
qualifying medical expenses in order to obtain a specific income tax 
deduction or other tax-favored treatment.
    One example of this can be found under Code section 162(l), which 
allows self-employed persons to take an above-the-line deduction for 
qualified medical care. In order to avail oneself of the deduction 
under this provision, the self-employed individual must certify on his 
or her annual income tax return the amount that he or she paid for 
qualified health insurance during the respective tax year. As with 
HSAs, no third party substantiation is required under Federal tax law, 
although the taxpayer remains subject to accuracy-related penalties and 
additions under Federal tax law.
    Another example is section 213(a) of the Code, which permits a 
taxpayer to deduct qualifying medical expenses in excess of 7.5% of 
their adjusted gross income. As with HSAs, taxpayers are not required 
to obtain third party substantiation of such expenses under Federal tax 
law. Taxpayers merely certify on their annual tax return the amount of 
qualified medical expenses that they incurred that make them otherwise 
eligible for the deduction. Taxpayers do, however, remain subject to 
accuracy-related penalties and additions under Federal tax law.
    Code section 72(t) is another example of the more general rule 
under Federal tax law under which taxpayers are not required to obtain 
third party substantiation in order to obtain favorable tax treatment. 
As noted above, in very limited circumstances, pursuant to Code section 
72(t), taxpayers are excepted from the 10% penalty tax for early 
distributions from a qualified retirement plan, including an IRA or 
employer-sponsored retirement plan. In addition to withdrawals for 
purposes of a qualifying first-time home purchase, Code section 72(t) 
also excepts from the penalty withdrawals attributable to certain 
incurred qualified medical expenses. As with HSAs, Code section 72(t) 
does not impose third party substantiation requirements. Taxpayers do, 
however, remain subject to accuracy-related penalties and additions to 
the extent of mischaracterized or ineligible withdrawals.
Imposing Third-party Substantiation Requirements on HSAs Will Increase 
        Costs and Limit Americans' Options for Health Care Coverage
    In light of the foregoing, the Council urges Members of the 
Subcommittee, and Members of Congress more generally, to oppose the 
imposition of third-party substantiation requirements on HSAs, such as 
the requirements included in H.R. 5719 (the ``Taxpayer Assistance and 
Simplification Act of 2008''). The available data indicates that the 
current regime is working and that substantiation rules like those 
required with respect to flexible spending arrangements (``FSAs'') and 
health reimbursement arrangements (``HRAs'') are not needed at the 
present time.
    At a time when Americans continue to struggle to afford their 
health care coverage and/or secure appropriate coverage, imposing third 
party substantiation rules would impose additional costs and burdens on 
HSA providers and accountholders. These additional costs could operate 
to limit the attractiveness and efficacy of HSAs.
    Americans' options for health coverage need to be expanded at this 
time, not limited, and imposing third party substantiation could 
negatively affect the use and/or effectiveness of HSAs. Moreover, given 
the relative newness of HSAs generally and the encouraging early data 
indicating that such substantiation is unnecessary, the Council opposes 
the imposition of third party substantiation rules in connection with 
    HSAs were never intended to be a comprehensive answer to all of 
America's health care problems. Rather, HSAs were designed to be one 
important option for Americans families seeking lower-cost but high-
quality comprehensive coverage. As the GAO report makes clear, for a 
significant percentage of American families, HSAs have become an 
integral part of their health coverage and, thus, should not be 
curtailed at this time.
    More than ever before, Americans need good health coverage options. 
For a significant segment of American families, HSA/HDHP coverage meets 
this need by providing lower-cost, high quality coverage. Moreover, as 
noted above, early data is encouraging and suggests that for the vast 
majority of HSA participants, HSA/HDHP coverage is operating as 
intended by Congress. But early data is just that--``early.'' It is 
critical, therefore, that we allow this new health care option to 
develop without additional burdens or restrictions. The Council 
believes that there is no justification for changes that could curtail 
the use and/or effectiveness of HSAs. Otherwise, we risk taking away 
from millions of American families a vital tool in securing affordable, 
quality health care coverage.

    Statement of Consumers for Health Care Choices at the Heartland 
    Chairman Stark, Mr. Camp, and Members of the Committee,
    I would like to set the record straight on some of what you have 
been told about Consumer Driven Health Care generally, and Health 
Savings Accounts specifically.
    These programs are not a panacea for our health care problems, but 
neither are they intended to be. There are no simple solutions to the 
problems in health care and we would be foolish to think there should 
be. H.L. Mencken was famously quoted as saying, ``For every complex 
problem, there is a solution that is simple, neat, and wrong.'' There 
is hardly a problem more complex than health care, so solutions will be 
equally complex.
    But HSAs and Consumer Driven Health Care (CDHC) are significant 
steps in the right direction. They are beginning to address some of the 
most intractable problems in the system. In particular--

    1.  Patient behavior is changing--people are being more cautious 
about needless use of services.
    2.  Consumers are more compliant with treatment regimens, 
especially those with chronic conditions.
    3.  The rate of increase in health care costs is down substantially 
for people and groups in these plans.
    4.  The demand for information, transparent prices, and patient 
support services is high.
    5.  The adoption rate in the benefits market is sizzling.
    6.  The transformation of service delivery is beginning, though 
still very formative. Early indicators include the growth of retail 
clinics, concierge medicine practices, and medical tourism.

    These changes are not mere speculation. They are taking place among 
real people in real life, and have been verified by actual results 
reported on by employers, consulting firms, and health plans.
    Most of what you have been told in the testimony to date is either 
mistaken, based on suppositions or surveys of uninformed people, or 
simply irrelevant to CDHC. For example--

      You were told that lower-income people cannot afford the 
out-of-pocket responsibility that comes with an HSA. You were not told 
how those same people could afford the higher premiums that are 
required to avoid that cost. In fact, money that is paid to an 
insurance company for first-dollar coverage is money that is lost 
forever. Lowering the premium and using that saving to pay directly for 
services gives the low-income consumer a chance to save money that 
would otherwise be lost.
      You were told that the tax break associated with HSAs is 
unprecedented and a boon to the ``wealthy.'' In fact, the tax treatment 
of HSAs is precisely the same tax treatment afforded to employer-
sponsored health insurance. Premiums are untaxed and benefits are 
untaxed. It is true that the ``wealthy'' get a larger tax benefit than 
the unwealthy, but that is the case for employer-sponsored 
comprehensive coverage as well as for HSAs. Further, the opportunity to 
save, say, $2,000 a year that would otherwise go to an insurance 
company is of far greater benefit to the low-income worker who earns 
$20,000 a year than to the wealthy executive who makes $200,000, 
regardless of the tax treatment.
      You were told that ``the sick'' do not benefit from HSAs 
because of the higher out-of-pocket responsibility. In fact, both the 
healthy and the sick have less out-of-pocket exposure with an HSA, a 
point that was well documented in a recent Health Affairs article. In 
fact, HSAs limit a patient's out-of-pocket exposure, something that is 
not true for the Medicare program, for instance.
      You were told that most health care spending takes place 
above the deductible associated with an HSA, so they will not have ``a 
significant effect on overall spending.'' This is probably true, but 
irrelevant. HSAs are having a profound effect on lower-cost routine 
spending and that is significant by itself. Other strategies are needed 
for high-cost services with or without an HSA.
      You were told that many people with a high-deductible 
health plan do not open up an HSA. That, too, is true but irrelevant. 
The HSA itself is attractive for those people who are able to get a tax 
benefit from passing their direct payments through the account. Other 
people, especially those who pay no income taxes, may find it more 
suitable to simply pay cash at the time of services or to keep their 
funds in some other, non-HSA, account. Further, there is likely to be a 
lag time between the point of enrollment and opening up that account. 
This is not a problem.
      You were told that some people who have to pay directly 
for care or for prescription drugs may fail to do so to save the money. 
That also may sometimes be true. But there is never any guarantee that 
people will always fill their prescriptions and take their medications 
regardless of the financing scheme. In fact, we know that many health 
conditions are caused or aggravated by patient behavior under all 
health insurance systems. But, to the extent that people with CDHC are 
more knowledgeable and more invested in their own care, their 
compliance will be better than it is for other benefit programs. And 
that is precisely what we are seeing in the market.

    In fact, with one exception your witnesses were people with long-
standing hostility to HSAs and consumer empowerment in health care. The 
one exception could speak only to the experience of his own company and 
his own employees. But his positive experience is being replicated by 
tens of thousands of similar cases throughout America today.
    There is a revolution underway in American health care. It is being 
transformed from a system that is inconvenient, unaccountable, 
uncompetitive, bureaucratic, of questionable quality, and far too 
expensive into one that is efficient, convenient, accountable, 
innovative, and matches quality and costs in a way to deliver the best 
value to the American consumer. This is an enormous undertaking, and 
HSAs are only one element of this movement.
    I urge the Members of the Health Subcommittee to open your eyes and 
your minds to the dramatic changes that are taking place right now, 
right in front of you.
    Thank you for your attention.

    Greg Scandlen
    [email protected]

                      Statement of Consumers Union
    Recent experience with health savings accounts and high deductible 
health insurance policies has confirmed what economists and policy 
analysts have predicted for the past decade: In a voluntary health 
insurance marketplace where lawmakers have let the free market write 
the rules, encouraging high deductible policies combined with tax 
favored savings accounts, benefits the rich and increases the financial 
burden on the sick. It is time for Congress to call a halt to this 
misguided policy and turn its attention to health system reform that 
will provide guaranteed coverage to all Americans, while improving the 
quality of care in the system and constraining costs.
Concerns about High Deductible Health Insurance and Health Savings 
    Variation of risk in health insurance markets. The health insurance 
market is different from the market for other consumer goods. When a 
car manufacturer sells a car, the seller has no reason to care who is 
buying it: age, sex, health status, income simply do not matter. Health 
insurance is a different kind of market. Not only do sellers care very 
much about the nature of the buyer, if allowed they create detailed 
underwriting rules that discriminate against buyers by design--denying 
coverage to the sick, excluding any pre-existing conditions (for which 
the need for care and coverage is greatest), and charging higher 
premiums to the older and sicker.
    The key economic factor that makes health insurance markets 
different from markets for other consumer goods and services is the 
tremendous variation in risk of the population. A small percent of the 
population (regardless of whether you consider the young or the old, 
the rich or the poor, males or females) tends to account for a large 
part of health care expenditures. Most people are healthy and incur 
very small if any costs. Consumers take their own health risk profile 
into account when deciding about what type of policy (and deductible) 
they should seek. Insurers take consumers' health risk profile into 
account when deciding whether to provide coverage.
    Data from the Medical Expenditure Panel Survey (MEPS) (with 
adjustments by the Lewin microsimulation model) reveals the extent of 
variation that exists. While these numbers are from 2000, there is no 
doubt that the variation continues to exist. While average health care 
costs (of those with employer based coverage) was $2,628 in 2000, those 
with spending in the lowest fifth incurred just $30 of health care 
expenditures. Those in the top tenth of spending incurred costs of 
$16,710.\1\ This variation of risk goes to the heart of the need to 
find a way to spread costs broadly in order to keep costs affordable to 
those at the highest risk level.
    \1\ Gail Shearer, Consumers Union, The Health Care Divide: Unfair 
Financial Burdens, August 10, 2002, Table 10.
    Erosion of ``Choice'' of Low-Deductible Coverage. Employer-based 
coverage and government financed programs such as Medicare spread the 
risks and costs across broad populations. Because of the variation of 
risks, and different selections made by people of different health 
status, high deductible plans can not exist in the long-term in a 
marketplace that offers low-deductible plans as well. Ultimately, low-
deductible plans will be driven out of the market, with ``premium 
spirals'' driving out comprehensive coverage. This is the hidden secret 
that the supporters of high deductible tax breaks tend to leave off of 
their talking points: Instead of increased choice in the marketplace of 
health insurance options, over time, the ``choice'' of high deductible 
coverage is likely to crowd out low deductible choices.\2\ It is 
particularly troubling that this basic change in the health insurance 
marketplace could take place without explicit debate and consideration 
of the full long-term implications and elimination of true choice.
    \2\ Daniel Zabinski, Thomas M. Selden, John F. Moeller, Jessica S. 
Banthin, Center for Cost and Financing Studies, Agency for Health Care 
Policy and Research, ``Medical Savings Accounts: Microsimulation 
Results from a Model with Adverse Selection, Journal of Health 
Economics 18 (1999) (195-218).
    When consumers are given a choice between high and low deductible 
coverage, a small percent will elect the high deductible option. People 
with high incomes and low health care costs are most likely to be 
attracted to the high deductible/HSA option (and relatively low 
premium). It is ironic that the choice that most consumers want may 
well not be available to them as the market plays out over several 
    Benefit to the Healthy and the Wealthy from Tax Encouragement of 
High-Deductible Health Insurance. Tax policy now encourages high 
deductible health insurance policies by making contributions to health 
savings accounts tax deductible. This tax policy, combined with high 
deductible health coverage, has been predicted to appeal 
disproportionately to the healthy and the wealthy.

      The healthy benefit because they have the new prospect of 
a tax-sheltered investment in which money is not taxed when put in or 
when withdrawn (i.e., not needed by the healthy to cover health care 
      The wealthy, with higher tax brackets, benefit 
disproportionately because the tax savings are larger at higher tax 
brackets than lower tax brackets.

    A recent study by the Government Accounting Office \3\ found that 
people with Health Savings Accounts (HSAs) in 2005 had an average 
adjusted gross income of $139,000 compared with $57,000 for other 
filers. This is an alarmingly high differential and should be a wake-up 
call to policymakers for the validation that it provides to the 
concerns that opponents (such as Consumers Union) of this policy have 
expressed over the last decade. In addition, a study conducted at the 
University of Minnesota found that the average income of employees who 
enrolled in high deductible coverage was 48 percent higher than the 
income of employees who did not.\4\
    \3\ ``Health Savings Accounts: Participation Increased and Was More 
Common among Individuals with Higher Incomes,'' Letter of April 1, 2008 
from Jon E. Dicken, GAO, to Chairman Waxman and Chairman Stark, 
Government Accountability Office.
    \4\ Jon B. Christianson, et. al., ``Consumer Experiences in a 
Consumer-Driven Health Plan,'' Health Services Research, 39:4, Part II 
(August 2004).
    A study conducted of 4,680 Humana employees found that enrollees in 
high-deductible policies were ``significantly healthier on every 
dimension measured.'' \5\
    \5\ For an expanded discussion of the Humana and University of 
Minnesota studies, see Gail Shearer, ``Commentary--Defined Contribution 
Health Plans: Attracting the Healthy and Well-Off,'' Health Services 
Research, 39:4, Part II (August 2004).
    Distraction from the Issue of the Uninsured and Underinsured. The 
potential for health savings accounts and encouragement of high 
deductible insurance to split the healthy from the sick and the rich 
from the poor is alarming. But of even greater concern is the 
distraction they pose to turning the full attention of policymakers and 
the health policy community toward the challenge of providing true 
health care security to all. We should be moving full-steam toward the 
goal of guaranteed, quality, affordable health care for all consumers, 
not spending countless resources creating and analyzing new models that 
promise to split the healthy from the sick, shift costs to the sick, 
and expand the inequities in our system.

            Statement of Energy Manufacturing Company, Inc.
    To Whom It May Concern:
    Energy Manufacturing is a mid-sized designer and manufacturer of 
hydraulic cylinders located in Monticello, IA. We supply outside 
equipment manufacturers (OEMs) throughout the world. We compete with 
other manufacturers located in the United States, Europe, China, Canada 
and South America. Our competition ranges from OEMs themselves to small 
manufacturers to multinational corporations.
    We rely very heavily on a highly skilled workforce in order to 
compete. Consequently, personnel costs, including medical costs is one 
of our most critical issues. Like many Midwestern manufacturers, we 
have experienced significant increases in the cost of insuring our 
employees. We offer medical benefits that, to our knowledge, surpass 
most companies similar to us in eastern Iowa. We believe this provides 
an advantage for us in attracting and retaining talented workers in an 
increasingly competitive labor market.
    On January 1, 2008 we instituted a medical plan supported by HSAs 
for our salaried workforce. We made this change after a careful 
analysis of the issue. We attended seminars on how to reduce medical 
costs and consulted extensively with our insurance agency. Our agents 
provided considerable research to aid our decision.
    Rep. Stark's analysis of HSAs could not be more wrong as it relates 
to the situation at Energy Manufacturing. The first thing we learned in 
our research is that cost shifting will not be effective in reducing 
hyperinflationary increases in medical costs. The monthly premiums that 
our employees contribute pale in comparison to the costs resulting from 
chronic medical conditions such as diabetes, heart disease and obesity. 
Our research indicated that companies that have been successful in 
reducing the rate of medical inflation used a combination of wellness 
programs, disease management and consumer education to encourage a 
healthier workforce and identify medical risks before they become major 
medical expenses. In doing this, a medical benefits program benefits 
the employee and reduces the cost for all participants in the program.
    Our program does not discourage participants from seeking needed 
medical care. First, all of our wellness benefits including annual 
physicals, mammograms, pap smears, colonoscopies and childhood 
immunizations are covered 100% by our medical plan without deductibles 
or co-pays. Second, the company contributes a significant amount of 
money to each employee's HSA. When we combined reduced premiums to the 
employee and employer contributions, we found that the cost of the 
increased deductible was neutralized. Third, we conducted health risk 
assessments (HRA) for all employees. The HRA results in a confidential 
report that identifies each participant's (and their families if they 
choose to participate) health risks. The HRA was 100% paid by the 
company and will be performed, and company paid for, on an annual 
    Our HSA plan has not saved us any money in medical premiums or in 
the cost of administering our program. Our HSA plan is a long-term 
investment that we believe will result in a healthier, more educated 
workforce. Already, our employees have become more educated on the cost 
of medical procedures and prescription drugs. They are more likely to 
shop around for drugs and are more likely to get a second opinion 
before undergoing expensive medical procedures. This behavior benefits 
our employees and introduces incentives for cost containment by medical 
providers and prescription drug retailers. Our employees do this 
because they have now invested in a savings account (HSA) that grows 
with each day. They are committed to becoming healthier and in building 
a nest egg that can be used if major medical expenses become a 
    What Energy has done is no secret. The research is readily 
available for companies who want to invest in a program like ours. Some 
companies may believe that HSAs can be used as a cost shift mechanism 
rather than an incentive. However, we suspect that these companies will 
be very disappointed in the results. We believe that more companies 
will follow the strategy that Energy has employed as they realize that 
the only way to control medical costs is to encourage healthy and 
consumer savvy behavior.
    The bill that is being discussed is not about accountability or 
preventing fraud. It is an attack on a medical benefits model that has 
tremendous potential to benefit all parties. This is evident in the 
generalizations and false assumptions included in the May 7 advisory.
    We urge you to support the HSA structure as it is currently 
written. These plans will result in a healthier workforce. They will 
force cost control and accountability onto medical providers. Finally, 
they will provide a means for employees to save money for their own 
medical care.
    Thank you for your consideration of this extremely important 
                                               ENERGY MFG CO., INC.

                                                  Michael Szymaszek

                                                    Patrick T. Kopf
                                            Chief Financial Officer

                                                        Gregg Eiles
                                          Vice President Operations

                                                Kenneth Rosenbecker
                                               Vice President Sales
        Sen. Richard Grassley
        Sen. Tom Harkin
        Rep. Bruce Braley

                 Statement of Henderson Brothers, Inc.
Comments regarding House Ways and Means Committee hearing on HSAs & 
    In the late 1970's when, prior to managed care, when most U.S. 
citizens had employer sponsored health insurance, the typical plan was 
one that contained an up-front deductible and usually 80% co-insurance. 
The average family paid 40% of their medical bills and people were 
generally happy with what coverage they had.
    Managed care (promoted by the Federal Government) brought to the 
table a new approach that represented a pre-payment of medical care. 
What it did to the economic makeup of a private insurance risk was, in 
retrospect, catastrophic to our health care environment. Managed care's 
biggest influence at this point is to create an abnormal demand for 
services driving supply and creating double-digit insurance price 
increases for employers trying to do right by their employees. Today's 
family share of the health care bill is around 11%. The end result is 
embodied in the fact that the most widely prescribed pharmaceutical is 
a statin--so people can continue to live unhealthy lifestyles as long 
as they take the pills to keep their cholesterol under control. 
Insurance is a basic concept of risk sharing. If you apply the concept 
of today's typical health insurance model to auto insurance, you would 
have a policy that has a $20.00 copay for collision, and when your 
tires, brakes and windshield wipers showed wear, the policy would cover 
replacement. That's not the kind of risk sharing for which insurance 
was intended. And certainly not the kind of coverage that people would 
buy if you gave them the money to purchase insurance.
    My employer (approximately 100 employees) has had a CDHP/HSA plan 
in effect for over 3 years. Our rate increases, including the one for 
our fourth year, are equal to \1/3\ of the average increase for our 
region. Our most critically ill person (averaging about $80,000 per 
year in claims) was happier with her HSA coverage than with the high 
option PPO plan we had in place previously--because her out-of-pocket 
cost for the year was less!
    In holding hearings of this type, you might want to include 
individuals or companies that are on the front line and are 
experiencing how HSAs are working. Instead you include individuals who 
are already biased toward a government-based solution. What does a 
hearing mean to you--it certainly looks like you were trying to get 
people together to come to the conclusion you wanted to come to in the 
first place.

                      Statement of Melodee S. Webb
    Dear Chairman Stark and Ranking Member Camp,
    Rockwell Collins is submitting this information for the record as 
part of the 5/14/08 Health--Hearing on Health Savings Accounts (HSAs) 
and Consumer Driven Health Care: Cost Containment or Cost-Shift.
    For over 70 years, Rockwell Collins (NYSE: COL) has been recognized 
as a leader in the design, production, and support of communication and 
aviation electronics aerospace and defense customers worldwide. The 
company has 20,000 employees worldwide (17,000 in the U.S.).
    Rockwell Collins' Value Proposition for People has four broad 
initiatives--Diversity, Talent Management, Leadership Development and 
Flexible Benefits Choices. Flexible Benefits Choices was developed to 
provide employees with a basic level of company-paid benefits coverage 
and choices to fit the needs of individual employees and their 
families. ``My Health While Working,'' a component of our benefits 
offerings, is segmented into medical, prescription drugs, dental, 
vision and wellness benefits. When we were rethinking the design of our 
health plans in 2004 to allow for more choices among the plans being 
offered, the newly-passed legislation allowing for broad application of 
Health Saving Accounts presented an opportunity to design a new high 
deductible health plan with significant flexibility for plan 
    To help our employees make informed choices, we provide 
comprehensive communications to explain their benefits choices. We have 
specialized modeling tools that help employees to understand what 
health plan works best for them and their families. We also provide 
paycheck modeling to show the impact of pre-tax contributions to our 
401(k) and the HSA. Rockwell Collins' introduced a comprehensive 
wellness program in 2007 with financial encouragement for 
participation. We have also enhanced the wellness features in our 
health plans such as waiving co-payments for preventive care. 
Preventive prescriptions are not subject to the deductible in our HDHP.
    Because we designed our program to recognize differences in income 
levels (with our pay-related features), do not charge a premium for our 
high-deductible plan and supplied comprehensive, easy to understand 
information and planning tools, we have experienced strong enrollment 
since the first year the plan was offered and it has continued to grow. 
This was not a full replacement so employees continue to have access to 
a traditional medical plan if that is their preference. Our program 
changes since 2005 have resulted in improved scores in our annual 
employee attitude survey. The decisionmaking and forecasting tools, 
plan design components, and cost/benefits comparisons were key factors 
employees understanding whether the high deductible plan and HSA or a 
more traditional medical plan were right for them.
    Our employees are benefiting from these plans and the efficient 
manner in which they can be administered--with appropriate checks and 
balances but not undue oversight. Restricting these plan options or 
adding unnecessary processing burdens could make these plans less 
attractive to participants. It is important to recognize individual 
circumstances and that there are no simple answers that will serve 
    The attachment provides some details about our HSA participation. 
If you have any questions, do not hesitate to contact me.

                                                    Melodee S. Webb

 Rockwell Collins' High Deductible Health Plan (HDHP), ``My PPO Plus''

      The monthly premium is zero (compared to single and 
family monthly contributions of $73 and $203, respectively, for our 
traditional EPO Plan coverage).
      The deductibles and out-of-pocket maximums are pay-
related (those who earn more, pay more for care) as shown on the chart 
      4,910 employees are enrolled in the HDHP out of 12,900 
non-union health plan participants (38%). In recent negotiations, we 
agreed to add the HDHP as a choice in 2009 for unionized employees.
      Modeling tools are available to help employees make 
informed choices based on their personal medical costs.
      Considerable communications are provided each year about 
plan features.
      71% of those enrolled in the High Deductible Health Plan 
are contributing to an HSA via payroll deduction (for single coverage 
57% contribute and for family coverage 81% contribute). There could be 
even higher participation since individuals can choose to contribute 
directly to a personal account at many financial institutions and not 
use our payroll deduction feature.
      Those who contribute to the HSA appear to cover their 
annual plan deductible.

    The following data relates to enrollment in the HDHP for 2008:

           Annual Base Salary            Coverage    Annual HDHP     # Partici-   With     Without   Annual HSA
                                                     Deductible        pants      HSA      HSA*     Contribution
                                          Single          $1,500          597     289         308        $1,389
                                          Family          $2,500          649     500         149        $2,668
                                          Single          $1,500         1063     616         447        $1,454
$50,001 to $75,000
                                          Family          $3,000          960     757         183        $3,133
                                          Single          $2,000          301     197         104        $1,981
$75,001 to $100,000
                                          Family          $4,000          693     581         112        $3,904
                                          Single          $2,500          128      83          45        $2,280
                                          Family          $5,000          529     451          78        $4,558
* Others could be contributing directly to an HSA and not use payroll deduction.

             Statement of National Business Group on Health
    The National Business Group on Health (The Business Group) commends 
the Congress for creating Health Savings Accounts (HSAs) under the 
Medicare Modernization Act of 2003 and thanks the Committee for the 
opportunity to submit this statement for the record. The Business 
Group, representing over 300 large employers that provide health care 
coverage to more than 55 million U.S. employees, retirees and their 
families, is the nation's only non-profit organization devoted 
exclusively to finding innovative and forward-thinking solutions to 
large employers' most important health care and related benefits 
issues. Business Group members are primarily Fortune 500 and large 
public sector employers, with 63 members in the Fortune 100.
A Solution in Search of a Problem? Is HSA Substantiation Necessary?
    As health care costs escalate and consumers become more engaged, 
the Business Group supports expanding the flexibility and value of HSAs 
and opposes increasing the administrative cost and paperwork burden for 
employers and employees. HSAs encourage smart, cost-effective health 
care spending and provide people with a potential retiree health 
savings vehicle. The Business Group recommends that the Committee 
further analyze the data on the number of HSA accountholders reporting 
their non-medical expenditures as taxable income before considering 
imposing unnecessary new administrative burdens on HSA trustees and 
accountholders. The vast majority of HSA distributions are made for 
qualified health care purchases. During the previous Ways and Means 
Committee markup of H.R. 5719, the Taxpayer Assistance and 
Simplification Act of 2008, the Treasury Department presented 
preliminary information that a significant number of taxpayers with 
HSAs who also took distributions for non-qualified medical expenses 
were reporting their non-health care distributions as taxable. 
Furthermore, a significant portion of unsubstantiated distributions 
paid to non-health care merchants are likely to be valid health care 
purchases from merchants such as grocery stores, discount retailers and 
other merchants who sell health care products. Accordingly, a 
substantiation reporting requirement may be unnecessary and raise the 
cost of HSAs, decreasing their convenience for employees and also 
raising accountholders' health care costs.
The April 2008 Government Accountability Office (GAO) Report
    While the GAO did receive estimates of the number of lives covered 
by HSA-eligible health plans from 2004 through 2007 from America's 
Health Insurance Plans (AHIP), the GAO report only analyzed 2004 and 
2005 tax filer data from the Internal Revenue Service (IRS) to estimate 
the number of individuals who reported HSA activity in those years. 
Thus, the report only utilized tax data from a year when the number of 
HSA policyholders was one-sixth its current level. Specifically, the 
report found:

      2005 HSA contributions totaled $754 million, while 
withdrawals were only $366 million. This statistic reveals that people 
are saving HSA funds as intended--to pay for long-term and catastrophic 
health care expenses.
      GAO cited various employer surveys that employers often 
contribute $600-800 annually to their employees' HSAs to pay for health 
care expenses.
      GAO found that, on average, people with HSAs in 2005 
tended to have higher annual incomes--averaging $139,000--than the 
general population of tax-filers, at $59,000. However, a 2006 study by 
the online HSA sales website, Ehealthinsurance, found that 45 percent 
of people in HSA-eligible plans had incomes below $50,000 and that 41 
percent of HSA purchasers had not previously had health insurance 
coverage in the prior 6 months. Another Internet survey in 2005 by the 
Employee Benefit Research Institute (EBRI) found that 33 percent of 
people who had opened HSA accounts had incomes of less than $50,000.
HSAs Are Expanding Health Care Coverage and Growing with Small 
    Following submission of the GAO report, AHIP released its annual 
``census'' of HSA enrollment, showing 6.1 million enrollees in January; 
almost double the enrollment from 2 years ago. Specifically, the growth 
in HSA-eligible plans is concentrated among small businesses. Over the 
last year, the fastest growing market for HSA/High-Deductible Health 
Plan (HDHP) products was small-group coverage, rising from 
approximately 25 percent to 30 percent of overall HSA/HDHP enrollment.
Large Employer Examples of the Success of HSAs/Consumer-Directed Health 
        Plans (CDHPs)
    The table that follows provides some successful workplace examples 
of employer-sponsored HSAs among Business Group members.


Bank of America \1\                       HDHP with personal spending    Employees can use money
  (500,000 eligible)                           account similar to HSA, or HSA     for health care in retirement
                                          For employees who earn less    Allow employees to have
                                         than $100,000--receive up to $100 per      more control over their own
                                                    month for health expenses                           dollars
                                           Employer contributes $600-
                                                  $1,200 into the account for
                                                copayments and other expenses


Financial Services                                           HDHP/HSA            87% enrollment
  Employer                                        Provide health care    Two-thirds of employees
                                             ``navigators'' to help employees           who participate in HDHP
                                              navigate the health care system                 contribute to HSA
                                                Contributes to HSA in
                                                                January, June


General Motors                                               HDHP/HSA    Increased drug generic
  Corp.\2\                                                                            zation rate by 9%, to 65%


Owens Corning \3\                                     HDHP/HSA or HRA    300+ employee have quit
                                            Employer contributes $750                           smoking
                                              per employee, $1,500 per family          Addition of more
                                          $50 incentive to participate      disease management programs
                                                    in health risk assessment
                                              $40 non-smoker discount


Pitney Bowes \4\                                             HDHP/HSA            20% enrollment
  (18,000 eligible)                       On-site health clinics that
                                            provide preventive services, like
                                                 screenings and immunizations
                                          100% coverage for preventive


The Kroger Co.\5\                                            HDHP/HSA    23% enrollment, up from
  (70,000 eligible)                       Preventive drugs are covered                     4.6% in 2006
                                                    outside of the deductible
                                          Employer contributes half of
                                                  deductible in early January
                                                     Matches employee
                                                 contributions up to $500 for
                                             individuals, $1,000 for families

----------------------------------------------------------------------------------------------------------------Towers Perrin \6\                                            HDHP/HSA            62% enrollment
                                                    $2,850 deductible
                                                  100% coverage after
                                                  $500 per person for
                                                              preventive care
                                          Employees earning less than
                                            $50,000 receive $720 contribution
                                             from company decreases as salary
                                           $120 per person credit for
                                             employees/spouses who complete a
                                         health risk assessment and engage in
                                                              health coaching
Wendy's \7\                                                  HDHP/HSA         70-72% enrollment
  (20,000 eligible)                       100% coverage for preventive         61% generic drug
                                                                         care                  utilization rate
                                          Employer contribution covers   No increase in employee
                                                            60% of deductible     premiums for the past 4 years
                                                                                 2.5 employees per 1,000
                                                                                 had a colonoscopy--compared to
                                                                                  UnitedHealth's average of 1.4
                                                                                 38% of employees had a
                                                                                  physical, up from 20% in 2004
\1\ Atlantic Information Services. (2008, April 25). Bank of America to offer employees health care accounts for
  expenses. Inside Consumer-Directed Care, 6(8).
\2\ Atlantic Information Services. (2007, December 21). Generic rx usage reaches 65% under General Motors' cdh
  plan. Inside Consumer-Directed Care, 5(24).
\3\ Robbins, M. (2008, April 1). Employers get on the health care superhighway with next generations HSA
  programs. Employee Benefit News, retrieved from ebn.benefitnews.com.
\4\ Atlantic Information Services. (2008, May 9). Pitney Bowes account-based plans deliver health and
  consumerism. Inside Consumer-Directed Care, 6(9).
\5\ Atlantic Information Services. (2007, January 26). CDH pioneers target behavior among chronic, healthy
  enrollees. Inside Consumer-Directed Care, 5(2).
\6\ Atlantic Information Services. (2007, June 8). From burger chains to municipalities, cdh helps employers cut
  costs, improve health. Inside Consumer-Directed Care, 5(11).
\7\ Atlantic Information Services. (2007, February 9). Wendy's `beefs up' preventive care incentives. Inside
  Consumer-Directed Care, 5(3).

Employer-Sponsored HSA/HDHP/CDHPs Provide Evidence of Improved Quality
Preventive Care
    A July 2007 survey by AHIP of 36 insurance companies found that 
nearly all group HSA/HDHP policies and more than half of individual 
policies cover preventive services regardless of whether the deductible 
has been met. Specifically:

      99% of HSA/HDHP policies purchased in the large group 
market, and 96% in the small group market, provided this coverage.
      In the individual market, 59% of HSA/HDHP policies 
covered preventive care outside of the deductible.
      Approximately three-quarters (76%) of HSA/HDHP policies 
cover preventive services without any coinsurance or copayment for 
covered preventive services.

    The 2007 Kaiser Family Foundation/Health Research and Educational 
Trust Employer Health Benefits Annual Survey found that most employees 
and their families with HSA/HDHP coverage can get annual examinations, 
immunizations and screenings without a deductible. Most employers pay 
first dollar coverage, while others require a small copay or 
coinsurance. Specifically, the survey found that:

      88% of employees in CDHP/Health Reimbursement 
Arrangements (HRA) have access to preventive benefits with no 
deductible; while 86% of employees with HSAs can access preventive care 
without a deductible.
    The Blue Cross Blue Shield Association's 2007 CDHP member 
experience survey reports that consumers in CDHPs are more engaged than 
their non-CDHP counterparts in wellness programs, including:

      Smoking cessation--20% vs. 6%;
      Stress management--22% vs. 6%;
      Nutrition/diet program--27% vs. 12; and
      Exercise program--29% vs. 12%.

Treatment Adherence
    An April 2007 UnitedHealth Group study found that CDHP enrollees 
with a chronic illness abide by their treatment regimen at the same 
rates comparable to, or even better than, enrollees in more traditional 

      Diabetes: CDHP enrollees were 16% more likely to receive 
HbA1c tests than members in traditional plans.
      Coronary Artery Disease (CAD): CDHP enrollees were 22% 
more likely to have lipid tests, and were equally likely to see a 
      Congestive Heart Failure (CHF): CDHP enrollees were 6% 
more likely to use ACE inhibitor medications.
Urgent Care
    The March 2007 Journal of the American Medical Association examined 
the effect of CDHPs on emergency room usage because urgent care 
represents a large portion of today's health care costs, it was 
important to examine whether enrollees (1) were getting needed care, 
and (2) were going to the emergency room for symptoms that could be 
treated at much less expense by a primary care physician (PCP).

      Hospitalizations for patients whose symptoms could be 
treated by a PCP declined by 29.6% in the HDHP group compared to the 
control group.
      For the HDHP group, the odds of increasing emergency room 
utilization after hitting the deductible were no greater in comparison 
to utilization below the deductible.
Increased Use of Provider and Other Health Information
    AHIP's January 2007 ``census'' found that HSA/HDHPs encourage 
enrollees to use available resources to aid them in making health care 
choices on the basis of quality and cost; and, in addition, encourage 
them to use tools to become healthier individuals.

      86% of HSA/HDHPs provide hospital-specific quality data; 
50% provide physician-specific quality data.
      88% of HSA/HDHPs make cost information (negotiated rates, 
drug prices) available to plan members.
      72% of HSA/HDHPs provide personal health records (PHRs).

    The 2007 EBRI/Commonwealth Fund Consumerism in Health Care Survey 
also reports that individuals with CDHPs tend to use consumer health 
information at higher rates than those in more traditional plans, 

      Requesting a generic drug substitution;
      Talking to a doctor about treatment and options;
      Checking the price of a service before getting care;
      Participating in wellness programs; and
      Using online cost tracking tools.
Employee Satisfaction

      A 2005 study by Fidelity Investments found that re-
enrollment rates for CDHPs reached 95%--the highest of any plan type.
      A 2005 GAO report found that enrollees from the American 
Postal Workers Union rated CDHPs higher in terms of overall plan 
performance, compared to other plan enrollees.
      A 2006 Blue Cross Blue Shield Association CDHP member 
experience survey found that 73% of CDHP enrollees said they are likely 
or very likely to renew their current health coverage for the following 
CDHPs Cover Every Age Group
    A 2007 EBRI/Commonwealth Fund consumerism in health care survey 
found that CDHP enrollees cover every age group fairly well:

      20% between ages 21-34;
      31% between ages 35-44;
      30% between ages 45-54; and
      19% between ages 55-64.

    Again, the Business Group appreciates the opportunity to submit 
this statement for the record. We look forward to working with the 
Congress and the Members of this Committee to expand the value and 
increase the flexibility of both HSAs and CDHPs and to improve the 
effectiveness and efficiency of health care.

                      Statement of Ross Schriftman
    Dear Members of the Committee,
    Below is my testimony to a hearing of the PA House Insurance 
Committee a few years ago. It demonstrates the value of Health Savings 
Accounts for low- and middle-income people. Unfortunately, I have come 
to the conclusion that Members of the Committee have been blinded by 
their opposition to the HSA Concept so much so that they have failed to 
do the math and realize that the more higher-income people take up HSAs 
the greater Federal revenue will result.
    In fact, many wealthy people whose businesses provide health 
insurance are more interested in keeping their tax favored expensive 
plans. It is virtually impossible to get a bigger tax break with a high 
deductible plan and an employer HSA contribution than it is to keep the 
current plan.
    The greatest beneficiaries of these programs are actually lower- 
and middle-income workers. The plans are almost always designed with 
first-dollar benefits for preventive services, coupled with wellness 
programs. People with chronic conditions also benefit more than they do 
with co-pay plans that slowly bleed their finances and cost them more 
in premiums.
    I believe certain Members of Congress are afraid that the Health 
Savings plans will become very popular and then there would be less 
interest among the American people for a national government-run health 
care financing system.
    May I also remind the Committee that the biggest government 
program, Medicare has a high deductible health plan with a $1,024 
deductible for each hospital benefit period. That is why so many people 
buy private insurance to fill the gaps.
    It is important to note, that unlike Medicare, Medicaid and other 
government programs, no government unit is making any contributions to 
Health Savings Account. Contributions are made by individuals and 
businesses. This is our money. Not yours. All the government is doing 
is giving us a deduction for the contribution and not taxing the 
interest. We are accumulating money because we know that programs like 
Medicare will not be there in its current form in 10 years when we need 
it. Please let us accumulate our own money.
    It is our responsibility to report distributions on our tax returns 
whether they are qualified 213d expenses or not. You do not have a 
right to be looking at my day-to-day disbursements from my account 
because it is no different than my regular checking account. You are 
stepping over the line of constitutionality.
    I urge the Committee to take testimony from individuals and 
businesses at all income levels and get their input before any efforts 
are made to take away this valuable benefit. You should be encouraging 
people to put money aside, not forcing them back into expensive plans.
    If you really want to do something useful, look at the $70 billion 
reported by one study of this year's waste and fraud in Medicare. That 
is a far more serious problem than one company without solid evidence 
reporting ``misuse'' of accounts when in fact people can take out money 
for whatever they want. They just have to report as taxable amounts 
that are not for medical purposes.

            Thank you,
                                                    Ross Schriftman
      Health Savings Accounts will help those who need it the most
               By Ross Schriftman, RHU, LUTCF, CBC, MSAA
    The recently enacted ``Medicare Prescription'' legislation contains 
one unrelated provision that will go far in changing the way health 
care is funded in our nation. Health Savings Accounts (HSAs) will now 
be allowed in combination with a high deductible health insurance 
policy for most Americans. These policies cost 30% to 50% less than the 
current type of plans most people have. The significant savings is then 
contributed by workers, their employers or both into the HSAs. These 
funds can then be utilized tax free for a wide range of expenses 
including dental, chiropractic, and therapy services as well as out of 
pocket expenses not covered by the high deductible policy. Even certain 
long term care insurance policy premiums can be paid out of these 
accounts tax free. The beauty of the HSA concept is that funds can be 
used tax free for expenses that may or may not normally be covered by 
insurance and done so at the direction of the patient. (Please consult 
your tax advisor.)
    Opponents of HSAs claim incorrectly that this type of program will 
only benefit wealthy and healthy people. This is an unhelpful 
misreading of a valuable program that will give millions of Americans 
the opportunity to afford quality healthcare.
    As far as the tax break, the HSA plans will benefit low- and 
middle-income workers; not the wealthy. Under the current system, many 
wealthy business owners have their companies' fund their own premiums 
tax free and enjoy the benefits tax free. When adding the premiums for 
a high deductible policy and the contribution to the HSA, it is 
virtually impossible to spend more than the current system. (See 
Exhibit 1.) That is because the HSA contribution can not be higher than 
the policy deductible. So, wealthy people actually get less of a tax 
benefit under the HSA program. On the other hand, a low-income worker 
may be paying a large portion of premiums now. A reduction in premiums 
and tax free contributions by employers and their workers to an HSA 
will result in tremendous value for the middle- and low-income 
employees. (See Exhibit 2.)
    Under our current system for privately insured patients, most 
dollars for health care run through the hands of insurance companies 
and then are returned in the form of benefits. Administrative costs of 
processing these claims come out of the premiums. Dramatic rate 
increases in the last several years are the result of high plan usage 
and higher costs per service due to regulations, litigation and 
defensive medicine.
    In a sense, there is a perfect storm in our health care system. 
More employers, especially small businesses, are shifting significant 
amounts of the premiums to their workers or raising deductibles and co-
pays. If workers' premiums are dramatically cut under the new HSA 
plans, these employees benefit directly. The opportunity for small 
businesses to grow and hire more workers also increases resulting in a 
much better economic climate for all of us.
    The new law also allows flexibility. Businesses can fully fund the 
premium for workers, fully fund the HSA contributions or create 
innovative sharing arrangements to meet specific needs of their 
employees. This allows a business to better direct the dollars that 
they and their workers have available for health care.
    Finally, it is absolutely untrue that sicker workers are at a 
disadvantage with these new programs. Under the current system, not 
only is the worker paying larger premiums and higher co-pays and 
deductibles every year, but those out-of-pocket expenses can really add 
up. According to benefit consulting firm Hewitt Associates, the average 
out of pocket costs including co-pays and other charges doubled in the 
last 5 years to $2,126. And that was only for large companies. As an 
example, suppose someone goes to a specialist twice a month and has a 
$20 co-pay for the service. That is $480 out-of-pocket during the year 
just to see the specialist. This person could have an HSA program, see 
a reduction in his or her premiums and utilize the HSA tax free for 
those doctor visits. If the employer were fully funding the HSA, then 
the result could be no out-of-pocket expenses for the worker.
    I predict that as time goes by more people will recognize the 
valuable tool that they now have and begin to take control over their 
own health care spending decisions. They will reduce their dependence 
on third party payers for each and every health care need. The result 
will be lower costs and a patient driven health care system for our 
    Ross Schriftman is an employee benefit specialist with Kistler 
Tiffany Benefits in Berwyn, PA. He holds the professional degrees of 
Registered Health Underwriter, Life Underwriters Training Council 
Fellow, Chartered Benefit Consultant and Medicare Supplement Accredited 
Advisor. Mr. Schriftman served as the Legislative Chair for the 
Pennsylvania Association of Health Underwriters and the Associate Chair 
for Long Term Care of the National Association of Health Underwriters. 
He teaches insurance courses to other insurance professionals including 
a course in preparation for the Chartered Benefit Consultant 

                                            Health Savings Accounts
                                   Ross Schriftman, RHU, LUTCF, CBC

                    Exhibit 1.  High Income Business Owner with Company-Paid Health Coverage
                                          (Age 40 with Family Coverage)
                                                  High Deductible Plan ($3,500
        Current PPO Plan Annual Premium                   Deductible)             HSA Contribution       Total
         $12,720                                                       $4,775               $3,500       $8,275
Outlay (premium and contribution) savings to business by using HSA contribution is $4,445Tax Breaks (38.6% marginal rate)Current Plan--$4,910High Deductible Plan and HSA Contribution--$3,194Additional Federal Revenue by using HSA Contribution--$1,716

 Exhibit 2.  Benefit to Low- or Middle-Income Worker with HSA Plan with Employer and Employee Each Paying 50% of
                                      Premiums and Employer Funding the HSA
                                          (Age 40 with Family Coverage)
                                                      High Deductible Plan
         Current PPO Plan Annual Premium              ($3,500 Deductible)        HSA Contribution        Total
          $12,720                                                     $4,775                $3,500       $8,275
    Employer's Share                                        Employer's Share      Employer's Share
           $6,360                                                     $2,387                $3,500       $5,887
Outlay Savings to Employer                                                                                 $473
    Employee's Share                                        Employee's Share      Employee's Share
           $6,360                                                     $2,387                 --0--       $2,387
Outlay Savings to Employee                                                                               $3,973
Note: Bottom line result is that the employee will save $3,973 in premium AND have $3,500 available for out-of-
  pocket expenses in the first year alone while the employer still saves $473 in total outlay.


                        Statement of Terri Buck

    Chairman Stark, Mr. Camp, and Members of the Committee:
    I read some of the material that was submitted to you regarding 
HSAs and high deductible health plans and am writing to give my input.
    My husband is self employed and I work two part time jobs. Neither 
of us is eligible for health insurance through an employer. We have a 
10-year-old child who we also have to provide for.
    We have a high deductible plan with a $10,000 deductible. We have 
an HSA that we contribute to on occasion, when we can afford it. We are 
not wealthy or high income. My husband draws a check from his business 
when he makes enough money to do so. He sets his salary at $500 a week, 
gross income. If we took a pay check each week his pay would be $26,000 
a year. Then, if you consider my income from two part-time jobs at 
minimum wage you would get a clearer picture about how we live. We have 
two vehicles (no SUVs). One is a 2004 and the other is a 1997.
    We pay $341 a month for the health plan. I called around to the 
local pharmacies to see who gives the best discount for cash and that 
is where I go. Our family doctor gives a discount for cash. Our eye 
doctor gives a discount for cash. Our dentist does not.
    Paying for the prescriptions we need monthly (one is $28 a month 
and the other is $135 a month) and the doctor visits as needed is more 
cost effective for our low income family than paying for a health 
insurance policy that would cost $600 or $700 a month with all of its 
mandates (required by State and Federal laws and regulations).
    You have been given an impression that isn't true about those of us 
that use these products. We are paying our own way. We are NOT wealthy. 
I am not using anything as a tax shelter. I pay my taxes and hope one 
day we have enough money to put in the HSA on a regular basis.
    I urge you to leave these products alone. They are serving us well 
as they are. If you mess with them I will not be able to afford them.
    I urge you to talk to the people like me that use and depend on 
these products. We are regular people who don't use it for tax purposes 
but to cover ourselves in the event we need the insurance coverage. We 
don't expect anyone to pay our routine expenses through a traditional 
health plan. We can pay those ourselves and it is cheaper for all.
    Thank you for your consideration.

                                                         Terri Buck
                                                     Burlington, IA


    Statement of the Council for Affordable Health Insurance (CAHI)
    Mr. Chairman and Members of the Subcommittee,
    The Council for Affordable Health Insurance (CAHI) is a research 
and advocacy association of insurance carriers active in the 
individual, small group, Health Savings Account and senior markets. 
CAHI's membership includes health insurance companies, small 
businesses, physicians, actuaries and insurance brokers. Since 1992, 
CAHI has been an advocate for market-oriented solutions to the problems 
in America's health care system.
    We at the Council for Affordable Health Insurance believe that all 
Americans should have access to affordable health coverage. We also 
believe that consumer driven health plans offer one of the best options 
for affordable health insurance.
    This testimony will focus on two main points:

    1.  Consumer Driven Health Plans (including plans involving Health 
Savings Accounts) are part of a larger movement that is positively 
transforming health care delivery, utilization and financing in this 
    2.  The evidence that suggests HSAs are being used inappropriately 
is weak.
Consumer Driven Health Plans
    As companies have struggled to control the rising cost of health 
benefits, many have raised deductibles and co-payments, which require 
employees to pay directly for services without any tax advantage. Other 
employers have simply stopped providing coverage. In both cases, 
consumers are responsible for making their own decisions on purchasing 
a health insurance policy or paying directly for the care they consume. 
While this certainly increases consumer cost awareness and demand for 
information that helps stretch their health care dollars, the core of 
consumerism in health care is associated with HRAs and HSAs, known 
together as ``Consumer Driven Health Plans.''
    Consumer Driven Health Plans have been around for about six years. 
They began in June 2002, when the Internal Revenue Service released its 
first guidance on Health Reimbursement Arrangements (HRAs). Then in 
December 2003, Congress enacted and the President signed legislation 
enabling Health Savings Accounts (HSAs) as part of the Medicare 
Modernization Act. Both programs reduce the amount of services covered 
by an insurance plan, but supplement the insurance with an account of 
money that receives the same beneficial tax treatment as the insurance 
portion of the coverage. Money not spent in one year may be rolled over 
and used for future expenses.
    The two approaches--HRAs and HSAs--are centerpieces of consumer 
driven health, but they are not the only elements. Other approaches 
include flexible spending accounts that enable workers to set aside 
some money to pay directly for the care they need. Other aspects 
include a renewed focus on patient-centric care services such as 
personal health records, disease management programs, wellness 
programs, preventive care, care coordination, and the like.
    After 5 years of experience, the evidence clearly shows that:

    1.  Patient behavior is changing and people are being more cautious 
about needless use of services.
    2.  Consumers are more compliant with treatment regimens, 
especially those with chronic conditions who are high utililizers of 
    3.  The rate of increase in health care costs is down substantially 
for people and groups in these plans.
    4.  The demand for information, transparent prices and patient-
support services is high.
    5.  The adoption rate in the benefits market continues at a rapid 
    6.  The transformation of service delivery is beginning, though 
still very formative. Early indicators include the growth of retail 
clinics, concierge-medicine practices, and medical travel (both 
domestic and international).
Enrollment Trends
    America's Health Insurance Plans (AHIP) is the largest trade 
association of the insurance industry. Every year since March 2005, it 
has surveyed its members about HSA enrollment. AHIP found there were 1 
million enrolled in HSA programs as of March 2005, 3.2 million in 
January 2006, and 4.5 million in January 2007.
    On April 30, AHIP released its 4th annual survey of enrollment in 
HSA-qualified health plans. As of January 2008, more than 6.1 million 
Americans are covered under HSA plans, a 35% increase over last year 
and almost double the number in 2006. This is an increase of 
approximately 1.6 million Americans enrolled in an HSA plan since 
January 2007.
    Other key findings from the latest survey include:

      The majority of the enrollment continues to come from the 
employer-based group market--4.6 million Americans with HSA coverage 
had employer-based coverage; 30% of individuals covered by an HSA plan 
were in the small group market; 45% were in the large-group market, and 
the remaining 25% were in the individual market.
      Small businesses are strongly embracing HSAs--HSA 
enrollment in the small group market increased 70% over the past year. 
Over 1.8 million Americans working for small businesses now have 
coverage through HSAs.
      HSAs continue to make health insurance more affordable 
for the uninsured--HSA products accounted for 31% of new coverage 
issued in the small group market and 27% of their new purchases of 
health insurance in the individual market.

    AHIP also found that people enrolled in HSA programs have wide-
spread access to preventive services, disease management programs, and 
information and patient-support tools. The vast majority has access to 
account information on line (93% of all HSA enrollees), health 
education information (99%), physician-specific information (97%), 
hospital-specific quality information (86%), and health care cost 
information (88%). The companies offer coverage of disease management 
for diabetes (91%), coronary artery disease (90%), congestive heart 
failure (89%), and asthma (87%).
    More recent surveys find CDHPs have continued to grow rapidly. In 
2007, United Benefits Advisors (UBA) surveyed 10,000 employers and 
found that 56% more companies offered CDHPs in 2007 than in 2006, and 
76% more people were enrolled. It also reported that this growth is 
concentrated in the 25-100 employee group market.
Cost Trends
    The growth in enrollment is fueled largely by favorable cost 
trends. The UBA survey cited above found that the cost of CDHPs went up 
just 2.7% in 2006, compared to 7.2% for all other health plans. This 
finding is supported by many other reports:

      Deloitte reports that trend for CDHPs in 2006 was 2.6%, 
as opposed to 7.4% for HMOs, 7.5% for PPOs, 7.3% for POS, and 6.6% for 
traditional indemnity coverage.
      Cigna reports an overall trend of 10.3% in 2005, but only 
4.8% for its HRA products and minus 1.2% for its HSAs.
      An updated report from Cigna (October 2007) found that 
medical trend for its CDHP enrollees was less than half the trend for 
its PPO and HMO enrollees, even though out-of-pocket costs were similar 
for the two groups.
      Minneapolis-based HealthPartners reported in October 
2007, that medical costs for its CDHP enrollees was 4.4% lower than for 
people in traditional coverage, even after adjusting for health status.
      In the non-group market eHealthInsurance reported that 
premium costs for HSAs dropped 17% for individuals and 4.6% for 
families from 2004 to 2005.
      Aetna reported on 4 years of experience with HRAs and 
found a 1% annual increase for full-replacement employers and 6.7% for 
employers that offered them as an option.

    Clearly something important is happening here. The same phenomenon 
is being reported by many different and independent sources. The cause 
is not a mystery. It comes from very favorable utilization changes.
    Utilization Trends
    Enrollment is going up and costs are stabilizing because Consumer 
Driven Health Plans are doing exactly what they promised to do--change 
patient behavior.
    UnitedHealth Group has recently reported that people in CDHPs are:

      Far more likely to see a doctor for diabetes (73% vs. 
54%) and 16% more likely to receive HbA1c tests if they have diabetes.
      22% more likely to have lipid tests if they have coronary 
artery disease.
      6% more likely to use ACE inhibitors, 41% more likely to 
get creatinine tests and 26% more likely to receive potassium tests if 
they have congestive heart failure.
      16% more likely to get cervical and prostate screening
      10% more likely to get cholesterol screening
      Similar on all other measures.

    The Blue Cross Blue Shield Association reported in 2006 that people 
with HSAs are more likely to--

      Use nurse hotlines (10% v 6%).
      Participate in wellness programs (20% v 8%).
      Use provider information tools (39% v 10%).
      Use Rx cost and comparison tools (42% v 19%).
      Use website based coverage information (53% v 32%).

    A more recent report from the Blue Cross Blue Shield Association 
confirms these findings. They show us that CDHPs empower consumers and 
help them become more engaged in their health care decisions.
    Some of the information provided includes the following:

      HSA enrollees are much more likely to research health 
information, including:

        Doctor quality: 20% of HSA enrollees; 14% of non-CDHP 
        Doctor costs: 14% HSAs; 4% non-CDHPs.
        Hospital quality: 12% HSAs; 7% non-CDHPs.
        Hospital costs: 10% HSAs; 3% non-CDHPs.
        Insurance information: 25% HSAs; 17% non-CDHPs.

      HSA enrollees are much more likely to plan and save for 
future health care expenses:

        Track health care expenses: 63% of HSAs; 43% of non-
        Estimate future health care expenses: 38% of HSAs; 19% 
of non-CDHPs.
        Save for future health care expenses: 47% of HSAs; 18% 
of non-CDHPs.

      HSA enrollees are much more likely to participate in 
wellness programs:

        Smoking Cessation: 20% of HSAs; 6% of non CDHPs.
        Stress Management: 22% of HSAs; 8% of non-CDHPs.
        Nutrition Programs: 27% of HSAs; 12% of non-CDHPs.
        Exercise Programs: 29% of HSAs; 12% of non-CDHPs.
      HSA enrollees are no more likely to forego care due to 

        Did Not Go To Doctor: 18% of HSAs; 18% of non-CDHPs.
        Delayed Treatment: 17% of HSAs; 17% of non-CDHPs.
        Delayed Prescription: 15% of HSAs; 15% of non-CDHPs.

    Cigna studied the experience of 38,211 ``Choice Fund'' (including 
both HSAs and HRAs) enrollees and compared it to the experience of 
231,680 people enrolled in its PPO and HMO products. It found the 
Choice Fund enrollees had 11% lower costs for pharmaceuticals, 24% 
lower for inpatient care, and 10.7% lower for outpatient care. It found 
these savings were not the result of healthier enrollment. It also 
found that Choice Fund enrollees were 12% more likely to use preventive 
care and that, ``Choice Fund'' members are more compliant with 
medications that manage ongoing conditions, and more discerning in 
their use of medications with over-the-counter alternatives.
    These findings were confirmed by Cigna in October 2007, in a 
followup report that said, ``First year member preventive visits 
increased and second-year member visits remained significantly higher 
than those among traditional plan members (and) use of maintenance 
medications that support chronic conditions increased while costs 
    McKinsey & Company reports that people in CD health programs are:

      More likely to comply with treatments than people in 
traditional plans (36% vs. 27% for diabetes, and 51% vs. 31% for HBP).
      25% more likely to engage in healthy behaviors and 30% 
more likely to get an annual physical.

    A study in the Journal of the American Medical Association (March 
14, 2007) found that people in CDHPs have 10% fewer ER visits overall 
and 25% fewer repeat visits, almost entirely for non-severe conditions: 
``Our study showed that for most members, the high-deductible plan 
seemed to work as intended,'' said Frank Wharam, MD, MPH, research 
fellow in the Department of Ambulatory Care and Prevention at the 
Harvard Medical School and the study's lead author. ``Patients went to 
the emergency room less frequently for non-emergency conditions.''
    We are in the midst of a transformation in American health care. 
Not everything about consumer directed health care will succeed, but 
the overwhelming preponderance of the evidence says it is working 
exactly as it was intended to work. Policymakers who ignore or deny 
this development are missing out on the most significant change in 
health care in recent times.
HSAs Are Not Tax Shelters for the Wealthy
    A recent report by the Government Accountability Office (GAO) has 
been used by some to suggest that HSAs are merely tax shelters for 
wealthy individuals. This conclusion is based on two findings from the 

      The average adjusted gross income was about $139,000 for 
Health Savings Accounts enrollees compared to $57,000 for all other 
filers in 2005.
      The total value of all Health Savings Accounts 
contributions reported to the IRS in 2005 was about twice that of 
withdrawals--$754 million compared to $366 million--suggesting an 
interest in it more as a tax shelter than a vehicle to obtain needed 
health care or supplement inadequate coverage.

    Furthermore, GAO's findings are being used to justify support for 
legislation passed earlier this month in the House (H.R. 5719) that 
would require HSA enrollees to substantiate that HSA withdrawals were 
used for allowable medical expenses.
    It is important to realize that the data used by the GAO was from 
2005--only the second year of the HSA program. According to the AHIP 
survey for that year, only 1 million Americans were even covered by 
HSAs, over half of which were covered by HSAs in the individual (non-
group) market. Unfortunately, GAO did not conduct any further analysis 
of these individuals to determine whether these ``early adopters'' of 
HSAs may have been better educated people buying policies on their own, 
including many self-employed people.
    Still, GAO does not present a strong case for HSAs being ``tax 
shelters for wealthy Americans.'' For example, the average contribution 
to an HSA in 2005 was $2,800 for taxpayers with income above $100,000 
vs. $1,400 for those with income under $30,000. But the average 
taxpayer with an HSA also made withdrawals--$1,300 for those with 
income above $100,000 vs. $600 for those with income below $30,000. So 
the net-net is that taxpayers with HSAs with income above $100,000 
``sheltered'' $1,500 vs. $800 for those with income below $30,000.
    Finally, it is not appropriate to compare income for taxpayers with 
HSAs to the average income for all taxpayers, the latter of which 
includes individuals who do not have access to HSAs because they are 
covered by Medicare, Medicaid, Tricare and other programs. A better 
comparison would be to compare the incomes of individuals with HSAs 
only to individuals with private health insurance coverage. We hope the 
Subcommittee will ask the GAO to revise and update its analysis to 
reflect this fact.
    CAHI appreciates the opportunity to submit our statement for the 
record. HSAs are providing some measure of tax equity to Americans who 
are individually purchasing health insurance. People are uninsured 
because they cannot afford to buy health insurance coverage. We believe 
HSAs help fill that need by helping millions of Americans gain and keep 
health insurance coverage. We look forward to working with Congress and 
Members of this Committee to preserve and expand this vital health care