[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HEALTH SAVINGS ACCOUNTS (HSAs)
AND CONSUMER DRIVEN HEALTH CARE:
COST CONTAINMENT OR COST SHIFT?
=======================================================================
HEARING
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
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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
STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York
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
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
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
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
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C O N T E N T S
__________
Page
Advisory of May 7, 2008, announcing the hearing.................. 2
WITNESSES
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)
AND CONSUMER DRIVEN HEALTH CARE:
COST CONTAINMENT OR COST SHIFT?
----------
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:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
May 07, 2008
HL-25
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.
BACKGROUND:
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
possible.''
FOCUS OF THE HEARING:
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
benefits.
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
deductible.
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
idea.
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
conclusion.
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:]
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[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?
STATEMENT OF JOHN E. DICKEN, DIRECTOR, HEALTH CARE, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE (GAO)
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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Chairman STARK. Thank you.
Dr. Chernew, would you like to enlighten us?
STATEMENT OF MICHAEL E. CHERNEW, PH.D., PROFESSOR OF HEALTH
CARE POLICY, HARVARD MEDICAL SCHOOL, BOSTON, MASSACHUSETTS
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
emotional.
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
nature.
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
services.
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
questions.
[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
inappropriate.\4\
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
individuals.\17\
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
used.
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.
Summary
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.
References
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.
251-257.
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.
2344-50.
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-
112.
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-
27.
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?
STATEMENT OF LINDA J. BLUMBERG, PH.D., PRINCIPAL RESEARCH
ASSOCIATE, THE URBAN INSTITUTE
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
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 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
to.
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
shoppers.
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.
Background
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
problems.
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
injury.
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
Distribution
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
health.
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
occurs.
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
population.
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
plans.
---------------------------------------------------------------------------
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.
Conclusion
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.
References
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,
April.
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?
STATEMENT OF JUDY WAXMAN, VICE PRESIDENT AND DIRECTOR OF HEALTH
AND REPRODUCTIVE RIGHTS, NATIONAL WOMEN'S LAW CENTER
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
required.
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
coverage.
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
deductible.
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
crisis.
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
families;
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
http://www.kff.org/womenshealth/upload/Women-and-Health-Care-A-
National-Profile-Key-Findings-from-the-Kaiser-Women-s-Health-Survey.pdf
(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://
www.nwlc.org/pdf/NWLCCommonwealthHealthInsuranceIssueBrief2007.pdf
(last visited May 12, 2008). [Hereafter ``The Affordability Gap
(2007)''].
\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
earn.\9\
---------------------------------------------------------------------------
\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,
2008).
---------------------------------------------------------------------------
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
individuals.\22\
---------------------------------------------------------------------------
\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
delivery.\30\
---------------------------------------------------------------------------
\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://
www.milliman.com/expertise/healthcare/publications/rr/consumer-driven-
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
plans.\37\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
Conclusion
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
crisis.
Thank you for this opportunity to testify. I welcome your
questions.
Chairman STARK. Thank you.
Mr. Sensor.
STATEMENT OF WAYNE SENSOR, CEO, ALEGENT HEALTH, OMAHA, NEBRASKA
Mr. SENSOR. Good morning, Mr. Chairman, and Members of the
Committee.
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
today.
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
configuration.
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
information.
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
services.
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
$52.
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
individuals.
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
account.
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
employers.
Chairman STARK. And that's a higher number than you had in
2005?
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
cetera.
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
contributed.
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
were----
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
here.
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
reporting?
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
many?
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
account.
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,
or----
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
interesting.
So and then when the employee leaves or dies or retires,
anything that's left in that HRA account comes back to the
company?
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
money.
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
quality.
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
quality.
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.
[Laughter.]
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
consequences.
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
work----
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
sharing.
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.
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
company?
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
races.
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
company?
Mr. SENSOR. The average hourly income is about $24.50. And
that would be an aggregate number for all of our 9,000
employees.
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
skilled?
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
followup.
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
issues.
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
interested.
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
staff.
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
us.
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
2004.
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
subsidization.
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
spouse.
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
plan.
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
401(k).
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
Committee.
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
on.
Mr. CAMP. I think over time, if people have saved for their
health care needs, I don't consider that the negative that you
do----
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
$2,826.40.
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
$23,850.40.
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
costs.
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
are.
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
transparent?
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
available.
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
options.
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
basis.
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)
I. INTRODUCTION
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.
II. AN OVERVIEW OF THE HSA MARKET
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
sponsor.
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
service.
---------------------------------------------------------------------------
\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
$60,000.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
III. LEGISLATIVE ISSUES
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
FSA.
Allowing Separate Deductibles for Individual Family
Members: HDHPs for family HSAs should be allowed to include separate
deductibles, also known as ``embedded deductibles,'' for individual
family members below the family deductible set by the statute--but at
least as high as the individual deductible set by the statute. 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.
IV. IMPORTANCE OF TRANSPARENCY FOR HSA ACCOUNTHOLDERS
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.
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\9\ For more information about the AQA Alliance, see http://
www.aqaalliance.org/.
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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-
rays.
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.
V. CONCLUSION
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
2008'').
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.
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\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
Office).
\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'').
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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\
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\3\ See AHIP, supra.
\4\ See Id.
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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
colonoscopies.\10\
---------------------------------------------------------------------------
\10\ Id.
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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
9.
---------------------------------------------------------------------------
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.
Conclusion
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
Institute
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
Summary
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
Accounts
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
years.
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
costs).
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
basis.
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
necessity.
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
matter.
Sincerely,
ENERGY MFG CO., INC.
Michael Szymaszek
President
Patrick T. Kopf
Chief Financial Officer
Gregg Eiles
Vice President Operations
Kenneth Rosenbecker
Vice President Sales
Cc:
Sen. Richard Grassley
Sen. Tom Harkin
Rep. Bruce Braley
Statement of Henderson Brothers, Inc.
Comments regarding House Ways and Means Committee hearing on HSAs &
CDHP
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
participants.
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
everyone.
The attachment provides some details about our HSA participation.
If you have any questions, do not hesitate to contact me.
Sincerely,
Melodee S. Webb
ATTACHMENT
Rockwell Collins' High Deductible Health Plan (HDHP), ``My PPO Plus''
Background:
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
below.
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:
----------------------------------------------------------------------------------------------------------------
Average
Annual Base Salary Coverage Annual HDHP # Partici- With Without Annual HSA
Deductible pants HSA HSA* Contribution
----------------------------------------------------------------------------------------------------------------
Single $1,500 597 289 308 $1,389
--------------------------------------------------------------------------
<$50,000
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
--------------------------------------------------------------------------
>$100,000
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
Businesses
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
utili-
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
care
----------------------------------------------------------------------------------------------------------------
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
deductible
$500 per person for
preventive care
Employees earning less than
$50,000 receive $720 contribution
from company decreases as salary
increases
$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.
Wellness
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
plans.
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
doctor.
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,
including:
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
year.
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
country.
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
designation.
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
country.
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
services.
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
pace.
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
enrollees.
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-
CDHPs.
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
cost:
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
decreased.''
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
report:
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.
Conclusion
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
option.