[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 115-326
 
 THE POTENTIAL FOR HEALTH CARE SAVINGS ACCOUNTS TO ENGAGE PATIENTS AND 
                    BEND THE HEALTH CARE COST CURVE

=======================================================================

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 7, 2018

                               __________

          Printed for the use of the Joint Economic Committee
          
          
          
          
          
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]          






                 U.S. GOVERNMENT PUBLISHING OFFICE
                   
 30-658                  WASHINGTON : 2018      
 
 
 


                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Erik Paulsen, Minnesota, Chairman    Mike Lee, Utah, Vice Chairman
David Schweikert, Arizona            Tom Cotton, Arkansas
Barbara Comstock, Virginia           Ben Sasse, Nebraska
Darin LaHood, Illinois               Rob Portman, Ohio
Francis Rooney, Florida              Ted Cruz, Texas
Karen Handel, Georgia                Bill Cassidy, M.D., Louisiana
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico, 
John Delaney, Maryland                   Ranking
Alma S. Adams, Ph.D., North          Amy Klobuchar, Minnesota
    Carolina                         Gary C. Peters, Michigan
Donald S. Beyer, Jr., Virginia       Margaret Wood Hassan, New 
                                         Hampshire

                   Colin Brainard, Executive Director
             Kimberly S. Corbin, Democratic Staff Director
             
                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota     1
Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New 
  Mexico.........................................................     3

                               Witnesses

Scott W. Atlas, M.D., David and Joan Traitel Senior Fellow, 
  Hoover Institution, Stanford University, Stanford, CA..........     5
Mr. J. Kevin McKechnie, Executive Director, HSA Council and 
  Senior Vice President, American Bankers Association, 
  Washington, DC.................................................     8
Ms. Tracy Watts, Senior Partner, Mercer and Board of Directors, 
  American Benefits Council, Washington, DC......................    10
Kavita Patel, M.D., M.S., Primary Care Physician, Johns Hopkins 
  Medicine and Fellow, Brookings Institution, Washington, DC.....    11

                       Submissions for the Record

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. 
  Representative from Minnesota..................................    26
Prepared statement of Hon. Martin Heinrich, Ranking Member, a 
  U.S. Senator from New Mexico...................................    27
Prepared statement of Scott W. Atlas, M.D., David and Joan 
  Traitel Senior Fellow, Hoover Institution, Stanford University, 
  Stanford, CA...................................................    29
Prepared statement of Mr. J. Kevin McKechnie, Executive Director, 
  HSA Council and Senior Vice President, American Bankers 
  Association, Washington, DC....................................    42
Prepared statement of Ms. Tracy Watts, Senior Partner, Mercer and 
  Board of Directors, American Benefits Council, Washington, DC..    75
Prepared statement of Kavita Patel, M.D., M.S., Primary Care 
  Physician, Johns Hopkins Medicine and Fellow, Brookings 
  Institution, Washington, DC....................................   100
Letter dated April 18, 2018, from Representative Maloney to 
  Chairman Paulsen...............................................   107
Response from Dr. Atlas to Questions for the Record Submitted by 
  Senator Sasse..................................................   110
Response from Dr. Atlas to Questions for the Record Submitted by 
  Representative Maloney.........................................   117
Response from Mr. McKechnie to Questions for the Record Submitted 
  by Senator Sasse...............................................   121
Response from Mr. Kevin McKechnie to Questions for the Record 
  Submitted by Representative Maloney............................   125
Response from Ms. Watts to Questions for the Record Submitted by 
  Senator Sasse..................................................   127
Response from Dr. Patel to Questions for the Record Submitted by 
  Senator Sasse..................................................   134
Response from Dr. Patel to Questions for the Record Submitted by 
  Representative Maloney.........................................   135


   THE POTENTIAL FOR HEALTH CARE SAVINGS ACCOUNTS TO ENGAGE PATIENTS



                  AND BEND THE HEALTH CARE COST CURVE

                              ----------                              


                         THURSDAY JUNE 7, 2018

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 3:00 p.m., in Room 
216, Hart Senate Office Building, the Honorable Erik Paulsen, 
Chairman, presiding.
    Representatives present: Paulsen, Handel, and Maloney.
    Senators present: Heinrich, Klobuchar, and Hassan.
    Staff present: Ted Boll, Colin Brainard, Kim Corbin, 
Gabrielle Elul, Alaina Flannigan, Connie Foster, Colleen Healy, 
Alice Lin, and Russ Rhine.

   OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A U.S. 
                 REPRESENTATIVE FROM MINNESOTA

    Chairman Paulsen. We will call the hearing to order. Thanks 
everyone for being here.
    All Americans deserve access to affordable patient-centered 
health care. Unfortunately, the fight to achieve this worthy 
goal has become politicized to the point where it is perilous 
to even acknowledge the shortcomings of our current Byzantine 
system.
    There are bipartisan solutions to this problem, and today 
we will be discussing one of those. That is why I am excited to 
convene today's hearing titled ``The Potential For Health Care 
Savings Accounts To Engage Patients and Bend the Health Care 
Cost Curve.''
    When does a patient decide that a common cold is not worth 
the expense of a doctor's visit? Or whether it would be worth 
saving dollars by going to a general practitioner who could 
easily treat an ailment rather than a pricey specialist?
    Patients would have a hard time answering these questions, 
because the actual cost of care remains obscured until long 
after services are rendered. Even after patients receive an 
explanation of benefits, the true cost is obscured by what 
providers charged and what the government or insurers decided 
they would pay for a service.
    This lack of transparency has contributed to rising health 
costs, which ultimately leads to more unaffordable insurance 
and even less satisfaction with the health care system.
    Yet in the current environment consumers and providers 
alike are divorced from the true cost of care. As the economist 
Milton Friedman once said, ``Nobody spends somebody else's 
money as wisely or as frugally as he spends his own.'' 
Americans are excellent comparison shoppers--television, direct 
mail marketing, billboards, and storefronts all appeal to 
consumers' senses of value for price when making important 
choices for themselves and their families.
    An important part of everyday life is making decisions 
based on personal preferences, needs, and of course cost. And 
it is for this reason that competition thrives among auto 
manufacturers, food producers, and home builders to deliver 
safe, healthy, and long-lasting products that people can 
afford.
    We all acknowledge that American health care and health 
insurance are very expensive. And in today's hearing we will 
investigate how health savings accounts, or HSAs, allow 
Americans to lower the cost of health care by drawing on an 
important idea, an area of their expertise, and that's 
themselves.
    HSAs have delivered great benefits, and there may be even 
more to come if lawmakers strengthen HSAs' hold in the 
marketplace. I believe they can broaden access to quality 
medical care, increase patient choice, and improve health for 
all Americans.
    It is for this reason that I joined with the Senate Finance 
Committee Chairman, Orrin Hatch, to enhance both health savings 
accounts and flexible spending accounts to give hard-working 
Americans more choice and control when it comes to their health 
care decisions.
    According to one estimate, if half of employer-sponsored 
insurance incorporated HSAs, national savings and health care 
spending could total $57 billion annually. So how do they work?
    An HSA is a tax-exempt account that is set up to pay or 
reimburse certain medical expenses incurred while covering--
while covered by the kinds of high-deductive health care plans 
many Americans have today. Employees and employers contribute 
these funds pre-tax, and the money that has gone unused can 
roll over year to year, and consumers continue to have access 
to the money even if they change employers or leave the 
workforce. So it is portable.
    And since the creation of HSAs in 2003, the number of 
people who have an HSA has risen dramatically. In 2005, roughly 
1 million people were enrolled, and today 22 million people 
have HSAs. Americans clearly see the benefit of directing their 
own health dollars towards their own health care needs and 
expenses.
    My own home State of Minnesota has the third-highest 
enrollment in HSAs in the country, with nearly 1.2 million 
enrollees. And a 2016 study of large employers that offered 
consumer-directed health plans, CDHPs, in the form of a high-
deductible health plan with HSAs, found significant long-term 
cost reduction and no evidence of worse health outcomes.
    In recent years, the State of Indiana implemented an HSA 
structure both in its Medicaid program and in insurance offered 
to State employees. Then-Governor Daniels noted that this 
consumer-driven approach resulted in savings and customer 
satisfaction. In 2010, state employees who enrolled were 
expected to save more than $8 million, compared to their co-
workers in the traditional health care alternative.
    Ultimately, the HSA is a vital tool that helps improve our 
health care system even for those who do not have an HSA. By 
putting consumers directly in charge of their health care, the 
health care sector becomes more consumer-conscious.
    As in many areas of our economy, the answer usually lies in 
the wisdom of the American people. I look forward to hearing 
from our distinguished panel of witnesses today how HSAs and 
the idea of consumer-driven health care can help improve the 
affordability of health care.
    But before I introduce them, I now recognize the Ranking 
Member, Senator Heinrich, for his opening statement.
    [The prepared statement of Chairman Paulsen appears in the 
Submissions for the Record on page 26.]

 OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Heinrich. Thank you, Chairman Paulsen. I am looking 
forward to today's discussion on health savings accounts. These 
tax-free accounts play a constructive role for some consumers 
to cover health care costs. HSAs are particularly helpful for 
those earning more than $100,000 who are already saving for 
retirement and have less trouble covering their monthly bills 
and student loan payments.
    But HSAs do little to bend the so-called ``Health Care Cost 
Curve.'' This is the fundamental problem that we must focus on: 
How do we provide top-quality care while reducing our overall 
national health care spending, and lowering consumers' out-of-
pocket costs?
    But HSAs seem to generate the most savings through cost 
shifting, not cost savings. Here employers pay less by offering 
skimpier plans, coupled with an HSA. But employees shoulder a 
greater share of costs: the financial risks of getting sick, as 
well as yet another obstacle to navigate between themselves and 
their actual health care.
    And this is happening at the exact time when wages remain 
stubbornly stagnant, and more and more families are struggling 
to get ahead. But my chief concern is this:
    Part of the reason that we are here today is that our 
Republican colleagues seem to be gearing up for yet another 
attempt to repeal the ACA. If the new proposal is anything like 
the last, we can expect it to gut Medicaid, drop millions from 
coverage, take away comprehensive coverage, and further hike 
premiums.
    Central to the Republican vision has been to move more and 
more consumers to high-deductible plans which have lower 
premiums but ask consumers to pay more for doctor visits and 
services before the health plan covers care.
    If paired with an HSA, a family can put aside up to $6,900 
tax-free to use for qualified health expenditures. The 
investments in the HSAs grow tax-free. The thinking behind the 
HSAs is that if people put aside their money for their health 
care, they will spend it more wisely and, on average, spend 
less.
    They will have, as they say, ``skin in the game.'' The 
problem, though, is that without knowing what we're paying for 
and how much we're paying, without transparency, consumers 
simply do not have the tools that they need to make rational 
decisions about costs. And HSAs are unable to help with this 
problem.
    What we do know is that HSAs sometimes encourage people to 
forego needed care, which is the main way that they save money. 
If you need chemotherapy to treat your breast cancer but you've 
under-funded your HSA and have a $2,700 deductible, what 
happens?
    If your child gets sick, will you take her to the doctor, 
or keep her at home, based on how much of your deductible 
you've paid down?
    If you or a loved one is grappling with an opioid 
addiction, a reality for far too many across the country and in 
New Mexico, will an HSA cover your treatment?
    Can someone battling addiction, or managing a serious 
mental health issue, make enough money to save into an HSA in 
the first place?
    These are important questions. No matter where you live, 
what you do for a living, or what party you belong to, these 
questions are at the heart of our health care conversation.
    I am worried that HSAs, an idea that has merit for some 
well-off consumers, are being twisted into a quick fix that 
will only exacerbate the challenges in New Mexico such as our 
ongoing fight against the opioid epidemic.
    I am all for working together on real solutions to making 
needed improvements in our health care system, improvements 
that will reduce costs on consumers, increase price 
transparency, so that consumers can make informed decisions and 
prevent surprise medical bills, as well as reduce the overall 
cost of health care in our country.
    But focusing on HSAs while avoiding an honest conversation 
about the key drivers of health care costs could have real 
negative impacts on real people who are simply trying to manage 
an illness or care for a sick loved one.
    We must focus on actions that can actually bend the cost 
curve, like investing in preventive care, using the 
government's purchasing power to lower drug prices, and paying 
for quality of care rather than quantity. And we have to focus 
on making things simpler for families.
    I look forward to our witnesses' testimony today, and to 
hearing their perspectives on how we can bring down health care 
costs for families. Thank you.
    [The prepared statement of Senator Heinrich appears in the 
Submissions for the Record on page 27.]
    Chairman Paulsen. Thank you, Senator Heinrich.
    And with that, we will begin by introducing our witnesses. 
First we have Dr. Scott W. Atlas, who is the David and Joan 
Traitel Senior Fellow at Stanford University's Hoover. Dr. 
Atlas has published more than 120 journal articles. Two recent 
books include ``Restoring Quality Health Care: A Six Point Plan 
for Comprehensive Reform at Lower Costs.'' And also ``In 
Excellent Health: Setting the Record Straight on America's 
Health Care System.'' Dr. Atlas has been published or 
interviewed by The Wall Street Journal, Forbes Magazine, CNN, 
Fox News, the PBS Newshour, and many others. As Professor in 
Chief of Neuroradiology at Stanford University Medical Center, 
he has trained more than 100 neuroradiology fellows. Dr. Atlas 
received a B.S. degree in Biology from the University of 
Illinois in Urbana-Champaign, and an M.D. from the University 
of Chicago School of Medicine.
    Also with us is Kevin McKechnie, who joined American 
Bankers Association back in 2001. He is currently the Executive 
Director of the HSA Council, and a Senior Vice President. Mr. 
McKechnie is also a principal in HSA Holdings, which provides 
health care financing expertise to several governments around 
the world. Previously he served for four years as government 
relations representative for Marsh & McClennan. Mr. McKechnie 
also served as Director of Government Relations for 
International Financial Services, and Legislative Assistant for 
former Representative William Dannemeier of California. Mr. 
McKechnie has a B.A. in History and Political Science from York 
University in Toronto, Canada, and pursued graduate studies in 
American History at American University.
    Tracy Watts is a Senior Partner in Mercer's Washington, 
D.C., office and is on the Policy Board of Directors for the 
American Benefits Council. A consultant with Mercer for 30 
years, Ms. Watts specializes in health care cost management, 
assisting employers in the design, evaluation, and ongoing 
management of health and group benefit plans for active and 
retired employees. As a spokesperson for Mercer she has been 
quoted in The Wall Street Journal, The New York Times, The 
Washington Post, Money Magazine, USA Today, and many others. 
Ms. Watts is a graduate of Texas Christian University.
    And also with us today is Dr. Kavita Patel, who is a non-
resident Fellow at the Brookings Institution, as well as a 
practicing primary care internist at Johns Hopkins Medicine. 
Dr. Patel served in the Obama Administration as Director of 
Policy for the Office of Intergovernmental Affairs and Public 
Engagement. As a senior aide to Valerie Jarrett, Dr. Patel 
played a critical role in policy development and evaluation of 
policy initiatives connected to health reform, financial 
regulatory reform, and economic recovery issues. Dr. Patel also 
served and worked as a Deputy Staff Director on Health for the 
late-Senator Edward Kennedy. Being in this room, as she 
mentioned to me a little earlier. She earned her medical degree 
from the University of Texas Health Sciences Center and her 
Masters in Public Health from the University of California, Los 
Angeles.
    And with that, we will welcome each of you to the hearing 
today, and we will begin by recognizing you, Dr. Atlas, for 
five minutes.

   STATEMENT OF SCOTT W. ATLAS, M.D., DAVID AND JOAN TRAITEL 
    SENIOR FELLOW, HOOVER INSTITUTION, STANFORD UNIVERSITY, 
                          STANFORD, CA

    Dr. Atlas. Thank you, Chairman Paulsen, Ranking Member 
Heinrich, and Members of the Committee. Thank you for the 
invitation and opportunity to speak today about health care 
reform, and specifically about the role of health savings 
accounts.
    It is in the context of overall health care reform that I 
will discuss the importance of HSAs, including the rationale 
for incentivizing their use, and for strategically reforming 
them to leverage their impact on broadening access to quality 
medical care, increasing patient choice, and improving health 
for all Americans.
    The critical concept here is that reducing the cost of 
medical care itself is the most effective pathway to broader 
access to quality care and lower insurance premiums, and 
ultimately of course better health.
    Instead, the Affordable Care Act, and most post-ACA ideas, 
continue to stress making insurance more affordable, mainly 
through refundable tax credits or other subsidies. But 
insurance premiums are secondary, and historically chiefly 
reflect two factors: Mainly the cost of medical care accounting 
for the majority and the regulatory environment. Therefore, 
strategies that subsidize premiums artificially prop up 
insurance coverage that typically has minimized out-of-pocket 
payment. This is directly counter productive because it shields 
medical care providers from competing on price.
    Two key points are essential to clarify from the start:
    Number one, the HSA is a vital and highly effective proven 
tool to broaden access to affordable high-quality health care 
for all Americans, even those without HSAs. It does so by 
putting consumers directly in charge of buying their own health 
care, and better than tax deductions HSAs uniquely incentivize 
savings. The fundamental purpose of an HSA is not simply to 
provide a tax-sheltered benefit for individuals in order to 
cushion the blow of high health care expenses.
    Two, the HSA is not an isolated, independent component of 
the health care system. Reforms to maximize their positive 
impact for consumers are tied to other reforms. To broaden 
access to affordable high quality health care for all 
Americans, there are three fundamental steps that must occur, 
and all directly relate to HSA reforms.
    One, patients must be strongly incentivized to consider 
medical care prices and simultaneously equipped with the tools 
to do so. This is accomplished through universally available 
large, liberalized and transferable HSAs in conjunction with 
lower-cost, higher-deductible insurance. The key question is: 
Is it realistic to suggest that patients could even consider 
price?
    Among privately insured adults under 65, almost 60 percent 
of all health expenditures is for elective outpatient care. 
Even in the elderly, almost 40 percent of expenses are for 
outpatient care. Outpatient services dominate America's health 
care spending, and these are amenable to price-conscious 
purchasing. To fully leverage the impact of HSAs, it is 
important to position more patients as paying directly. Despite 
the ACA's regulatory attempt to shift consumers to more 
comprehensive, what I call ``bloated coverage,'' a shift toward 
high-deductible plans with HSAs has continued. Indeed, by 
increasingly choosing HSAs when given the opportunity, 
Americans are approving their value.
    HSAs with high-deductible coverage have proven to reduce 
health care prices. Spending reductions average 15 percent per 
year and increase with the level of deductible and when paired 
with HSAs. Adding HSAs to high-deductible plans correlates to 
50 percent to double the savings of high-deductible plans 
alone.
    Downward pressure on health care prices from doctors 
competing for patients who pay directly for care has been 
demonstrated by procedures originally not covered by insurance, 
like Lasik Corrective Eye Surgery, or MRNCT and CT screening.
    Data from MRI and outpatient surgery-covered care confirms 
that, when patients are motivated to compare prices, prices 
come down significantly. And this reduces prices for all health 
care consumers, not just HSA holders.
    The issue is not whether HSAs are effective in making 
health care more affordable, it is how to maximize their 
adoption and fully leverage them.
    All HSAs should be fully owned and controlled by 
individuals. Restrictions on full HSA participation by seniors 
on Medicare should be abolished. Given that seniors are the 
biggest users of health care, it is critical to have them 
exerting downward pressure on health care prices.
    HSA limits should be expanded and uses should be eased, 
including for the expenses of the HSA account holder's elderly 
parents. And the list of allowable services and products should 
be expanded. They should be delinked from specific insurance 
deductibles. HSAs have also been a valuable vehicle for 
effective wellness programs. The ACA limited the financial 
incentives from employers, including deposits into HSAs. That 
should be abolished.
    The second big point is introduce the right incentives into 
the Tax Code to maximize the use and benefit of HSAs. And my 
belief is the Tax Code should cap the amounts of deductions or 
income exclusions if they're maintained, but it should limit 
those deductions or exclusions to two categories of expenses: 
HSA contributions and the amount of premiums for catastrophic 
coverage. To have tax deductions for all health care expending 
is counterproductive. It gives an incentive to spend more on 
health care.
    Three, strategically increase the supply of medical care to 
stimulate competition and increase choices. In large part, this 
means removing archaic, anti-consumer barriers to competition 
among doctors, other medical care providers, health care 
technology, and drugs.
    In conclusion, in other countries governments hold down 
health care costs mainly by limiting the use of medical care, 
drugs, and technology through its power over patients and 
doctors often as single payer. And those countries get the 
expected results when looking at the actual data: long waits 
and worse medical outcomes than the United States, particularly 
for their poor citizens who are the only ones unable to 
circumvent those systems.
    We should consider a different approach: creating 
appropriate incentives, and eliminating harmful regulations so 
that prices of care come down and high-quality care is 
affordable for everyone. Thank you.
    [The prepared statement of Dr. Atlas appears in the 
Submissions for the Record on page 29.]
    Chairman Paulsen. Thank you. Mr. McKechnie, you are 
recognized for five minutes.

 STATEMENT OF MR. J. KEVIN McKECHNIE, EXECUTIVE DIRECTOR, HSA 
      COUNCIL AND SENIOR VICE PRESIDENT, AMERICAN BANKERS 
                  ASSOCIATION, WASHINGTON, DC

    Mr. McKechnie. Thank you, Mr. Chairman, Ranking Member 
Heinrich, Members of the Committee:
    I appreciate you having this hearing today. Mr. Chairman, I 
would like to request that my written testimony appear in the 
record as if read, if that's alright?
    I founded the Council in 2004 with the hope of accelerating 
adoption velocity of HSAs and the qualified insurance that goes 
with them, and we've succeeded. According to Devenir Research 
of Minneapolis, there are now more than 22 million accounts 
containing about $54 billion to pay for the future health care 
needs of about 30 million Americans. We think that is the 
number as of about January of this year in 2018. And that is an 
extrapolation, to be entirely candid.
    Let me start with an observation from some of your former 
colleagues. So far, most of the proposals before Congress 
attempt to deal with access but do not adequately address the 
more important factor, cost control.
    ``We have introduced legislation that would give consumers 
an incentive to monitor spending carefully because to do 
otherwise would be wasting their own money.'' So says United 
States Senators Sam Nunn, John Breaux, Tom Daschel, David 
Boren, Richard Lugar, and Dan Coates on September 18th, 1992. A 
bipartisan group, they were obviously ahead of their time and I 
suggest onto something. HSAs are the only health insurance 
plans in America that allow their owners to save for the 
future. Every other plan, even the ones a lot of health 
advocates call ``good insurance'' start their participants off 
at the beginning of the year with nothing in the bank to 
satisfy out-of-pocket expenses.
    HSAs allow their owners to pay for routine care with tax-
exempt dollars, rather than after-tax dollars. And the Kaiser 
Family Foundation says the average deductible for single 
coverage in a small firm last year was $2,120. An important 
consumer question is how to satisfy that deductible. With pre-
tax dollars from your HSA? Or after-tax dollars from your 
wallet?
    Fidelity Investments reports that a 65-year-old couple 
would need $275,000 just to pay for the health expenses 
Medicare doesn't cover in retirement. I'm quite sure none of 
you are under the impression that our pension system is over-
funded. HSAs can be a useful public policy tool to address that 
problem, too.
    My good friend Jody Dietel, Chief Compliance Officer for 
Wage Works, testified yesterday before your colleagues on the 
House Ways and Means Committee that the median household income 
for an HSA account holder, according to their data, is only 
$57,060. Our anecdotal data of six companies just like Wage 
Works lowers that to $53,000.
    Additionally, most HSA owners, 77 percent in fact, were 
born after 1965. Only 22 percent are Baby Boomers, which is to 
say people at the height of their income potential. Devenir 
says the average HSA balance is a little more than $2,000, and 
that 78 percent of account holders have less than that in their 
account.
    Accordingly, I conclude these accounts are used for their 
intended purpose, which is paying for routine health care 
expenses by Americans of mostly modest income, comprised mostly 
of the three generations that followed the Baby Boomers, 
Generation Z, Millenials, and Gen Xers.
    I am here today on their behalf to ask for your help. While 
HSAs are one important tool for managing costs, they need 
improvement. You can't have an HSA and be enrolled in Medicare 
or a traditional health plan, and you can't take Social 
Security benefits because that automatically enrolls you in 
Part A. You can't have access to Tricare, or Indian Health 
Services, or Veterans Administration benefits. You can't be 
covered by a medical FSA, and you can't have access to retail 
medical clinics or telemedicine at no cost.
    Accordingly, HSA owners would like more flexibility. HSAs 
should be able to cover more value-based services like direct 
primary care, expenses associated with chronic disease 
management, and telemedicine services.
    There are bipartisan bills in both Houses of Congress, 
several supported by you and your colleagues, Mr. Chairman, 
that would allow these services in a HSA, and the H3A Council 
strongly supports all of them.
    We also support allowing plans with an actuarial value of 
up to 80 percent to be considered HSA-qualified, so we don't 
have to come and petition Congress or the IRS to achieve plan 
flexibility. As long as you had a plan that was below 80 
percent, you'd be able to offer whatever services made that 
bucket full.
    We agree that HSAs should be more flexible. We further 
suggest allowing an increase in allowable contributions, up to 
the out-of-pocket maximum, in order to help people pay for 
these additional services, or at least have the potential to 
cover their entire out-of-pocket risk with tax-exempt funds.
    We also want to allow seniors who choose to keep working 
and are covered by an employer-sponsored HSA plan to enroll in 
Medicare and still be HSA-eligible. The President has gone 
further and proposed allowing HSAs in the Medicare Advantage 
Program. We agree with him. We agree with him and in any event 
know that this subject merits further discussion. Medicaid 
should be broadened so that the example of Indiana's HIP2.0 
program can be expanded if a State so chooses. Vice President 
Pence, then Governor Pence, accomplished by Federal waiver what 
we think states should have a right to do if they want. Now I 
don't think HSAs can solve every problem--to your point, 
Ranking Member Heinrich--but at least they have all the 
incentives in the right place. They let people save for the 
future. It's very important. They promote transparency in 
pricing, exerting downward pressure on costs, and they respect 
well-known and proven insurance principles.
    I think more Americans should have access to HSAs, and 
recommend that legislative proposals pending before Congress be 
quickly enacted.
    Mr. Chairman, thank you for holding this hearing, and I 
look forward to any questions.
    [The prepared statement of Mr. McKechnie appears in the 
Submissions for the Record on page 42.]
    Chairman Paulsen. Thank you. Ms. Watts, you are recognized 
for five minutes, as well.

   STATEMENT OF MS. TRACY WATTS, SENIOR PARTNER, MERCER; AND 
     POLICY BOARD OF DIRECTORS, AMERICAN BENEFITS COUNCIL, 
                         WASHINGTON, DC

    Ms. Watts. Chairman Paulsen, Ranking Member Heinrich, and 
Members of the Committee:
    Thank you for this opportunity to meet with you to discuss 
the critical role of health savings accounts and making health 
care more affordable.
    My name is Tracy Watts. I'm a Senior Partner at Mercer, and 
I am testifying today on behalf of Mercer and the American 
Benefits Council where I serve on their Policy Board of 
Directors.
    I have more than 30 years of experience helping Fortune 500 
employers develop innovative strategies to control their health 
care costs.
    Mercer is a business unit of Marsh & McClennan Companies. 
The businesses of MMC include Mercer, Oliver Wyman, and Marsha 
& McClennan Agency. We employ 25,000 colleagues in the U.S., 
including more than 350 in your District, Chairman Paulsen.
    The American Benefits Council is a public policy 
organization that represents Fortune 500 companies and 
collectively the Council's members either sponsor directly or 
provide services to retirement and health plans covering more 
than 100 million Americans.
    So I would like to begin my testimony by highlighting some 
relevant findings from Mercer's National Survey of Employer-
Sponsored Health Plans. The survey includes responses from 
2,500 employers, and it is the oldest, longest, and most 
comprehensive survey of its kind. The results can be projected 
to any size employer population in the U.S.
    Our survey shows that an increasing number of American 
workers and their families enrolled in consumer-directed plans, 
or CDHPs. And on page 3 of the PowerPoint attachment to my 
written testimony you will see about 34 percent of American 
workers employed by large companies, those with 500 or more 
employees, enrolled in a CDHP.
    Since 2009, the enrollment in CDHP plans has increased an 
astounding 325 percent. In addition to increased reliance on 
consumer-directed plans by American workers, if you turn to 
page 4 you will see that HSA-eligible plans cost 20 percent 
less than PPO plans in general, and they are 6 percent less 
costly than PPO plans with deductibles over $1,000. It is 
important to note that the success of HSA-eligible plans in 
reducing plan costs is one of the few strategies proven to help 
bend the curve, and in turn help manage premium costs for 
employees.
    A driving force behind growth into HSA-eligible plans is 
the threat of the 40 percent Cadillac tax, now delayed to 2022, 
and we thank you for that. And thank you, Senator Heinrich, for 
your leadership in working to repeal the tax.
    Next I would like to share an example of how we help 
clients analyze and evaluate their health plan performance. 
This particular example shows the positive impact of HSA-
eligible plans on both cost and health risk.
    In this example, the employer has sponsored an HSA-eligible 
CDHP plan alongside a PPO plan for more than three years. And 
on page 8 you will see that we matched enrollees in the PPO 
plan to enrollees in the CDHP option who shared the same 
demographic and risk profiles at the start of the three-year 
comparative period.
    There were approximately 13,000 plan members in each of the 
comparison groups. So it is a good sample size. When we looked 
at how the participants in each plan option used their medical 
services over the three-year period, it was quite similar 
across the two groups. There was basically no difference in the 
use of preventive screenings and annual physicals.
    The CDHP plan did have lower utilization of the emergency 
room, of office visits, and prescriptions. However, the day 
supply for the prescriptions was actually higher for CDHP 
members, which could mean better utilization of mail-order 
benefits, and better compliance with their prescribed 
therapies.
    The most interesting finding, though, from this study is 
shown on page 12, where we look at health risks over the three-
year period. The PPO plan had a significant decline in the low-
risk category, and an increase in the high-risk category while 
the risk structure for the CDHP plan was virtually unchanged.
    We valued the change in the PPO risk at approximately an 8 
percent increase in the risk of the PPO members. This suggests 
that the CDHP plan may have been more effective at helping 
participants manage existing or new medical conditions or 
health risks.
    As for costs, the data were clear that the HSA-eligible 
plan ended up costing on average 15 percent less per capita 
than the PPO plan over the three-year period. We've performed 
this analysis for other employer clients with very similar 
results.
    We thank you for holding this hearing today to highlight 
how HSAs can indeed engage patients and bend the cost curve. I 
appreciate the opportunity to share these findings with the 
Committee, and I am pleased to answer your questions.
    [The prepared statement of Ms. Watts appears in the 
Submissions for the Record on page 75.]
    Chairman Paulsen. Thank you, Ms. Watts.
    Dr. Patel, you are recognized for five minutes.

STATEMENT OF KAVITA PATEL, M.D., M.S., PRIMARY CARE PHYSICIAN, 
  JOHNS HOPKINS MEDICINE, AND FELLOW, BROOKINGS INSTITUTION, 
                         WASHINGTON, DC

    Dr. Patel. Thank you very much. Thank you, Chairman 
Paulsen, Ranking Member Heinrich, and other Members of the 
Committee:
    This is a great honor for me to be here on this side of the 
dais. I am a former Senate staffer and career in health policy, 
but I am coming here today kind of bringing all of those worlds 
together, and perhaps most importantly as someone who delivers 
care to over 1,000 patients as part of a regular community-
based primary care practice. And so that is actually where I 
start from.
    The one thing I would ask you on this very important topic 
about bending the cost curve is to really consider what I would 
say should be all of our north star. That is, how do we make 
care better and less costly for all Americans? So that is where 
I come from.
    The majority of my patients are primarily insured by either 
Medicare or Medicaid, and do have commercial insurance as well. 
So I take care of kind of all gamuts. And I want to tell you 
about one specific patient, just because she will ring true 
probably to all of you on some level.
    A 47-year-old female--I did get her permission, not her 
name, but I am going to share her story--a 47-year-old female 
who actually works for the Federal Government, has a high-
deductible health plan, and a health savings account, three 
children. Average income is about $63,000. And so she is right 
in that ballpark. She was unfortunately diagnosed with a very 
complex kidney cancer that fortunately has a very advanced 
immunotherapy that can actually target her cells, but costs 
about $150,000 per treatment.
    No question that this is something that I think American 
innovation has brought to her doorstep, but she will regularly 
use this very advanced medical device with me, one of her 14 
doctors, to try to understand what tests does she really need? 
What is it that she can actually get on a weekly basis in order 
to make sure she can afford the very expensive drug that she 
absolutely must take. But then she will sit and bargain with me 
over which lab test does she need? Which doctor's visits does 
she need to go to? And these questions are exacerbated at the 
end of the month when she is looking to next month to think 
about paying for her rent, thinking about putting food on the 
table. And this is something with a health savings account.
    When I asked her, when I talked to her in preparing for 
this hearing, how does that HSA help you? And she said probably 
the most profound thing that I want all of you to take home. 
She said:
    It really doesn't matter whether I have an HSA or not. She 
said, I have to think about the money that I have to spend in 
that moment, and what I have to do or not do in order to make 
that work for my finances.
    So I want everybody to kind of take a broader view and 
think about the growing cost of care, and also what people do. 
They don't hear ``HSA'' or a pre-deductible, they just think 
about the money that is being asked of them when they get the 
call from their pharmacy, or when the person in my front office 
desk asks them for their payment at the time of service. And 
all of us have been to the doctor where we see that sign that 
says ``payment requested at the time of service.''
    And that $20 adds up when you're dealing with these types 
of illnesses. So I come to you in that context. And I think 
that the conversation around bending the cost curve is 
absolutely the right one to have. I just want to make three 
points about the drivers of those costs:
    Number one, hospitals. Hospitals, one of whom I work for, 
hospitals have, year-over-year, had double-digit cost 
increases. And these increases have been held constant, no 
matter who your payer is.
    Number two, ambulatory services. Costs in ambulatory 
services, physician offices, have increased 71 percent. As a 
primary care doctor, I would tell you that's a good thing. We 
should be spending way more money in high-value services, but 
we're not. We're spending them across the board.
    The third is prescription drugs. Prescription drugs from a 
recent Office of the Inspector General Report have grown out of 
proportion--and I'll just give one statistic that I'll actually 
read to you because it's startling--total reimbursement for all 
brand name drugs in Part D increased 77 percent from 2011 to 
2015, despite a 17 percent decrease in the number of 
prescriptions for these drugs.
    So less actual prescriptions; higher actual reimbursement 
in Part D. These are not facts to be ignored. So these are 
three huge cost drivers. I have included some--Senator 
Kennedy's time taught me that graphs are always wonderful to 
have, so I've got some graphs in my written testimony that 
illustrate some of this in I hope a very clear way.
    Those are three huge cost drivers. That is not to say that 
health savings accounts can't play an important role. 
Absolutely. Innovative services like direct primary care, 
having access to chronic management services, pre-deductibles 
so that you don't even have to think about whether you need to 
spend an HSA on kind of higher value services, work that the 
University of Michigan has done to identify what's high value. 
Opioid treatment, for example, should not apply to your 
deductible. I don't care what you're doing. These are things 
that just make sense for everyday Americans, and we need to do 
more of that.
    We started some of that by making preventive services 
covered before deductibles in the Affordable Care Act. That was 
not enough.
    So in closing, I just want to--I know that we will get 
into, hopefully, an extensive kind of debate about health 
savings accounts and what fixes. Think about all of this as 
kind of a large balloon, and think about the real people and 
the real voices, particularly of patients as well as the 
doctors who are taking care of those patients, who are just as 
frustrated. And I hope that we can have a more productive 
conversation. Thank you.
    [The prepared statement of Dr. Patel appears in the 
Submissions for the Record on page 100.]
    Chairman Paulsen. Thank you, Dr. Patel, and thanks for 
sharing the perspective of a physician and an actual patient 
that you deal with.
    I remind all members we will keep our questioning period 
time to five minutes, and I will just begin. We have really 
enjoyed the testimony. And I certainly by no means would 
recommend or say that health care savings accounts would be a 
silver bullet or an answer to these challenging problems that 
we have across the board for the health care spending here in 
the United States, or for a lot of patients.
    But it is being proven to be widely utilized and widely 
appreciated when you have the average income of folks that use 
these health care savings accounts of about $57,000, and they 
are becoming more popular. But I am more interested in how they 
actually affect bending the cost curve a little bit.
    I know that one of the challenges we have in health care 
today is that health care payments are ending up being made 
essentially by a third party and not by the patients. So often 
physicians, often patients don't know what the cost is when 
they're not able to compare, or they're not aware in terms of 
utilizing what health care services to use.
    So you have got somebody spending other--somebody else 
spending money, and they may not spend it as wisely as they 
would spend their own, for instance. So these consumer-directed 
health care accounts have successfully addressed some of those 
challenges.
    So maybe, Dr. Atlas, I will just start with you. Can you 
elaborate maybe a little bit on how--or maybe explain to us 
some of the ways in which these consumer-directed health care 
plans have allowed consumers with their own skin in the game 
essentially a little bit to help put more in the driver's seat 
and make the right informed consumer choices? And how has that 
helped to bend the cost curve a little bit?
    Dr. Atlas. Yeah, I mean I think you can look at--we at 
Hoover, and I am trying to be part of what the person who down 
the hall from me had his office, which was Milton Friedman, 
spoke quite a bit from evidence. And when you look at the 
evidence in the published literature on people who have the 
information necessary to make decisions, and have a health 
savings account and a high-deductible type plan, the price of 
care comes down significantly.
    When you look at published studies, I mentioned them very 
quickly on MRI, and on Outpatient Ambulatory Surgery, these are 
in the literature. And we see that the prices came down 18, 19 
percent per year. Of course it is very true what Ranking 
Minority Member Mr. Heinrich said, which is that the 
information has to be there. And so in these studies, patients 
had visibility of price.
    The question really is, is there legislation necessary to 
do that because we really don't do that in other goods and 
services? You don't have to say to the computer store, you 
know, you better show your prices.
    The fact is that the most compelling reason for doctors and 
hospitals to post their prices would be knowing that they're 
competing for patients' money. When patients care what they're 
spending, they are going to save money. And this is not an 
assertion that's proven in the literature.
    We can also look back at things that weren't covered at all 
by insurance. So here I'm talking about MRI, whole-body CT, 
whole-body MRI screening. And I'm a neuroradiologist, so I am 
very familiar with what happened. When that came out, it was 
$1,500 to $2,000 in the shopping mall. And within a year or 
two, the prices came down to $300.
    Now that is not the only reason that prices came down, but 
that's a critical part. There's a value-seeking behavior that 
is completely missing from the equation here.
    So it is factually proven that, when the prices are visible 
and when signs of quality are visible--which they would be, 
once you have a competitive environment--the prices come down 
significantly.
    And the key point here is, it's not just the prices for the 
people who have the health savings accounts. We want health 
savings accounts as a vehicle to reduce the prices of medical 
care for everyone, while avoiding the way other countries do 
this, which is by limiting access to care. This way it is 
really ``consumer driven,'' to use the phrase that you're 
using, and that is the way to get prices down without impacting 
quality negatively.
    Chairman Paulsen. Maybe, Ms. Watts, you can explain a 
little bit, or follow up on that from the employer's side of 
the equation, who have a lot of employees who may utilize these 
accounts. I mean, what have you seen in terms of employers 
benefiting from these types of consumer-driven plans themselves 
in terms of costs.
    Ms. Watts. Access to tools and resources is key to the 
success of these programs, and even the one that I talked 
about. So you've got your design and the incentive, if you 
will, to have the skin in the game. But it is true, consumers 
feel very ill-equipped to be able to shop for their health 
care.
    And so, tools exist that provide transparency information. 
But the truth is, right now only about 30 percent of your 
medical care that you would be seeking is ``shoppable,'' where 
you could find out the price, do comparative research for what 
the prices are.
    For everything else, it's too complex. There's too many 
parties involved to be able to know exactly what something is 
going to cost. And so one of the things that employers have 
done is to add advocates for the consumer. The advocate might 
be within the health plan, or it may be a third party that 
helps that patient navigate the health care delivery system.
    Someone gets this diagnosis and they are a little scared 
and asking themselves, should I be getting another opinion 
somewhere else? Is this the type of thing that maybe we want to 
send this off to a panel of doctors to take a look at, because 
it's a little bit more complicated?
    And, because there's this challenge of knowing what the 
price is, and shopping based on price, but also knowing, what 
is the quality of the provider that you're going to be going 
to? Are they best equipped to be able to help you get the 
outcome that you're looking for the fastest?
    Chairman Paulsen. Thank you. Alright, Senator Heinrich, you 
are recognized for five minutes.
    Senator Heinrich. Thank you, Chairman.
    Dr. Patel, it is evident from this hearing, and I have 
experienced this in the past, that policymakers love high-
deductible insurance plans. I can assure you, my constituents 
do not.
    The other feedback I get from them is that high-deductible 
plans cause them to forego treatment at times. Is that 
something you've seen in your practice?
    Dr. Patel. Yes, Senator. So it's very routine. Go to any 
kind of community-based, or even hospital-based practice where 
you have a high volume of patients. We all know the phenomenon 
of having people try to seek care, or plan out their year to 
try to understand when and how they will hit their deductible. 
And it is a very common phenomenon to have patients actually 
space out services that they need. And many of my patients, I 
can tell when the fall cycle hits, or when we get into the new 
year and they're more susceptible to that annual deductible, 
they will not come in.
    And so there is a very conscious decision. And I think it 
speaks to something that I have seen over a decade of 
practicing. We talk about wage growth? I have not seen, and I 
can say I have now treated--I tried to tally--I've taken care 
of about 22,000 patients of all types, and I have yet to hear 
somebody say, you know, I got into a high-deductible health 
plan, and I'm making more money as a result of it.
    Senator Heinrich. Yeah, I am waiting for that constituent.
    Dr. Patel. I am, too. I am waiting for that patient to tell 
me that. Now that is not to say that that is happening, but my 
experience has been that--and in the data that we are seeing, 
is showing that people are foregoing that care.
    My former employer, the Rand Corporation, ran something 
called The Rand Health Insurance Experiment, which actually 
illustrated that, depending on where you put that deductible, 
people will forego necessary care. And that is exactly where I 
think, as stewards of the American economy, we need to be 
careful.
    Senator Heinrich. Absolutely. We do not want people running 
to the doctor every time they have a cold, but we sure want 
them running to the doctor when they have indications of 
serious illness.
    The first chart in your written testimony shows the cost of 
prescription drugs growing dramatically faster than other 
health care costs. The very steep line here in your chart. And 
frankly I hear more about that than anything else in health 
care, no questions asked.
    What policy should Congress be looking at to lower the 
skyrocketing costs of prescription drugs?
    Dr. Patel. Absolutely. And it is certainly not simple. I 
was in the Senate when we were launching and designing the Part 
D Program. I would argue that the Part D Program in 2006 did 
not reflect the innovation in American medicine that can be 
made available in the Part D Program in 2018.
    So one essential--and I would hope that it is a bipartisan, 
this is not a partisan issue, it is a bipartisan issue--is to 
modernize the Medicare Part D Program in order to bring the 
very innovations that we have in Medicare Parts A and Parts B, 
to actually do that in Part D.
    Right now we have no ability for plans to bring any of the 
innovative tools, or things that we've done to manage services 
in other parts of the program. That's one.
    Number two, better access to generics and biosimilars. You 
are hearing that not only does the Trump Administration kind of 
agree with that, but many health policy experts also feel like 
that is doable.
    Number three is a very direct conversation. It's what Dr. 
Atlas had referred to about kind of a direct conversation about 
transparency. And that is transparency in all the levels 
between the manufacturer, the pharmaceutical benefit manager, 
the pharmacy, and the person who it really impacts, the 
consumer at the end.
    Senator Heinrich. I think that is an area of commonality 
here, that I hear, that transparency is key to people making 
good decisions.
    And, Dr. Atlas, you said this very eloquently. You said 
when the prices are visible. And it seems to me that is one of 
the challenges here. And we seem to agree that transparency is 
a good thing. And when people are given more information, they 
make better choices. It is really hard--myself included, and 
almost anyone I talk to--that is not the lay of the land in our 
health care system today.
    Dr. Atlas, how do we make that change and require more 
transparency in the system?
    Dr. Atlas. I think this is really a critical point, and I 
think we do all agree that this transparency is necessary.
    First I want to talk about drugs and price transparency 
because this is the biggest offender of all. Because, you know, 
recent data shows that there were $179 billion in these very 
complicated arrangements with pharmacy benefit managers. 
Patients have no idea what the real price of their drug is.
    But the real reason they have no idea is because, just like 
me when I get my high cholesterol drug, I personally pay $2. I 
don't care what the price is if I'm only paying $2. And this is 
the problem--when you have an insurance model, or any program 
that minimizes to near zero, or to relatively speaking near 
zero, what you, the patient, pays out-of-pocket for something.
    In fact I'm sure that everybody here is aware of the study 
that came out very recently that in over 20 percent of patient 
co-pays for drugs, when they're using insurance, their co-pay 
is larger than if they paid for the entire drug out of pocket 
because there are contractual agreements that muzzle 
pharmacists from revealing to patients the prices of the drug 
if patients would pay out of their pocket.
    This is unconscionable and scandalous, but this is an 
example of the perversion of the system when patients don't 
know what things cost. So the question really is: How do you 
get that to occur, and have them care what it costs? It's not 
just the visibility. Because if the prices were visible but 
they really didn't care--they didn't get a reward for paying 
less, okay, fine, I know the price. So they need to be able to 
get a positive incentive to pay less, because it's not 
necessarily the same.
    When you say someone foregoes medical care, the question 
isn't that. The more relevant question is about necessary 
medical care. And when you really look at the data in the 
literature, and Haviland is the author of one of the studies, 
she showed that the patients did forego medical care, but they 
did not get harmful health effects by foregoing that medical 
care.
    So you have to look at the data and be careful not to mix 
up the kind of activity here. It's a very difficult problem, 
particularly with drugs, because it's so complicated to get 
prices there. But as one of my colleagues told me, if you just 
mandate and legislate that prices have to be posted, it could 
be like hotel rooms where on the back of the door you see the 
price, and the price is meaningless. No one even looks at it, 
no one cares. You have to be far more thoughtful about how you 
get the prices visible, and I think it's by demand from 
patients who care what they spend.
    Chairman Paulsen. Representative Handel, you are recognized 
for five minutes.
    Representative Handel. Thank you very much, Mr. Chairman, 
and thank you to all of our witnesses today. I appreciate it. 
It has been a very good dialogue.
    I want to stay on the topic of transparency and come to 
you, Mr. McKechnie. The HSAs are designed to encourage 
consumers, patients, to shop around for health services. And we 
have heard a lot of conversation about whether that is easy to 
do, or hard to do. There are some new services companies out 
there, Meta-bids, Vendi-Health, Health Care Blue Book, that are 
working very hard to make it easier. In fact, I have availed 
myself of one of those--I will not say which one, obviously--to 
check the prices of a mammogram. And it is stunning, the broad 
array of pricing on it. But no one would know that unless they 
actually picked up the phone and called each of those and said, 
``If I come in and pay cash, how much would it be?''
    So can you speak to the services that these companies 
offer, and whether you think that is a good way to go? Or do we 
need legislation to really drive and foster transparency?
    Mr. McKechnie. We think, obviously--thank you for your 
question, first of all. We think, obviously, the reason there 
is a request for legislation is because perhaps some of the 
other methodologies have yet to work. And they will be working 
whether or not legislation is passed in the first place. That 
is the nature of consumerism.
    They tend to work best, as Ms. Watts said, in that 30 
percent where visibility tends to be around nonemergency 
services, which is why the companies you described can tell you 
where and when you can get an MRI, and for how much money. They 
are very good at that kind of diagnostic centric price 
transparency function.
    And when you look at a bank's HSA platform and their web 
representation of that service, you can see that all of those 
things are plugged in to help people do exactly what we have 
been describing here today, which is to take their dollars, 
find their treatment choice or the one that has been prescribed 
to them by their doctor, and then where is the most efficient 
way to spend their scarce resources in the time that is 
important to them. And I think that is one of those qualitative 
questions that you miss frequently, which is not just that you 
need a service or it has been insured and therefore it is 
inefficient, which is very important and I agree with, but also 
it needs to be available to you, the essence of consumerism. 
When do you want to do it? And with whom do you want to do it? 
And that choice is yours to make. And the services you describe 
make them easier.
    Transparency would be achievable more easily with 
legislation, since you would have to do it. And so we support 
that. It is a shame, though, because the point of the story is 
everything should be transparent and it is not.
    Representative Handel. That is right. Thank you very much.
    Dr. Atlas, you mentioned briefly in your testimony that 
policy priorities over the past few years have really been 
focused more on, I think you called it, the insurance model, or 
lowering the cost of health insurance, rather than focusing 
more on lowering the actual cost of health care.
    Can you just expand on that a little bit more? Because I 
think that is a very important differentiation there, and a 
very important point.
    Dr. Atlas. Right. Thank you. When you subsidize insurance 
premiums, which is what the Affordable Care Act essentially 
did, or when you give refundable tax credits, which is 
essentially cash to people like a lot of the Republican 
proposals were proposing, all you are doing is literally 
propping up the price of the good. In this case, the good is 
insurance. And when you do that, you are forgetting about the 
fact that the driver of the cost of insurance, the main driver, 
is the payout for medical services. At least historically it's 
been roughly 80/20, 20 being administrative or other things.
    And there are some good actuarial estimates that say that 
the price, as you know, of an insurance premium has went 
significantly higher under the Affordable Care Act. And it is 
estimated that about 90 percent of the increase is due to 
regulations, not the cost of medical care.
    So that is sort of an outlier in this. So the key here is 
to understand what is really the driver of insurance premiums. 
It is the cost of care. That is the root problem. And the way 
to solve that, as we are all discussing--or at least I think 
the gist of this is--is to have exposure in, I don't like to 
use ``skin in the game,'' but I just like to say ``caring about 
the cost of what you are buying.'' Medical care is the only 
good or service that you don't know what it costs until after 
you've used it. Okay? And even when you get the bill, it is 
indecipherable, particularly in Medicare.
    I want to make one additional point about the idea about 
the idea that higher deductibles and HSAs--first of all, it is 
not a panacea. It is not for everyone. And I don't think anyone 
is saying that. But the reality is that everyone benefits from 
other people having them, even the people who don't have HSAs 
themselves.
    And if you look at what happened--which I have a chart in 
what I submitted in my written document here--under the 
Affordable Care Act it is true that all insurance prices went 
up. But the fact is that high-deductible premiums selectively 
went up faster than everything else, even though people still 
buy them more than they did in the past. And so the economist 
friends of mine at Hoover said, well how could that be? If your 
data shows that the prices selectively went up faster for high-
deductible care--premiums, why would more people buy? It's 
because it is still cheaper, okay?
    But the problem is that it was selectively punished. It's 
the exact opposite outcome of what you would want to legislate. 
People are voting by their actions for the value of HSAs and 
high-deductible plans.
    You look at the curves. There are record numbers, 22 to 30 
some million, depending upon what estimate, of people who have 
HSAs, and increasingly employers are offering them, and people 
want them. Even in the models where there are multiple 
companies that have formed so-called exchanges, people when 
they were given a defined amount of money to use on health 
benefits, they opted more for high-deductible plans and HSAs. 
It is not true that people don't want them, they do.
    Representative Handel. Sorry to interrupt. I'm out of time. 
Thank you so much. I yield back.
    Chairman Paulsen. Thank you. And, Mr. McKechnie, let me ask 
you this question, because Indiana has been cited as a model in 
many respects, particularly because of their State employees. 
But can you talk a little bit more about the success we've seen 
in Indiana, or what changes, if any, there have been in 
Indiana's success since 2010? Can you comment on any lessons 
that have been learned from other states' approaches in 
implementing HSAs?
    Mr. McKechnie. Sure. I think it is important to understand 
the landscape here, which is that in 2008 in that Presidential 
election Medicaid covered slightly more than 50 million people. 
And by the time we got to election 2016, Medicaid covered 
slightly less than 75 million people, 74 million people.
    And so the Affordable Care Act is largely responsible for 
that growth, but of course it left the states with the question 
of how do you want to expand? And Indiana took up the 
Affordable Care Act's challenge and said, yes, we want to 
expand but we want to expand by having an account-based system 
where it made sense to do so.
    And so their system had traditional Medicaid of course, but 
it also allowed for what they call Indiana Power Accounts, 
which is called the HIP2.0 Program. And of course most of your 
current officials at CMS were former Indiana officials, so they 
know exactly what they are talking about and can enhance 
whatever answer you might need on this question. But it goes 
like this:
    The marketing for Medicaid 2.0 was--HIP2.0, was so 
successful the program had to be closed. And that enrollment 
shut down in that first year because people, it turns out, at 
the lower end of the economic spectrum aren't illiterate when 
it comes to finance, did want to have money in an account, did 
want to see portability, were happy to trade preventative care 
services for getting $1,100 in their account again next year.
    And we think that's a very salutary benefit for teaching 
people how to use financial instruments. We spent a lot of 
money at the American Bankers Association trying to promote 
financial literacy. The Governor actually did it in Medicaid 
and should be congratulated for it. It doesn't exist too many 
places.
    So it is going well. There are some problems, however. 
Obviously nothing is perfect. And one of the imperfections is 
that as people move in and out of jobs, and in and out of 
Medicaid, that is a very significant complexity to have to 
manage. This is not Medicare where you age into it and you're 
there forever.
    This is the kind of thing where you earn out of Medicaid 
eligibility, and you may fall back into the program. And there 
are integration problems with what happens at that moment.
    So they're working on it, trying to make that more 
seamless, but that is one of the issues, sir.
    Chairman Paulsen. Okay. Let me ask a question, and anyone 
can answer it, but, you know, you have got a lot of different 
consumer-directed health plans. You have got HSAs. You have got 
Flexible Spending Accounts. You have got Health Reimbursement 
Accounts. I mean, any thoughts on which of those might be best 
that are showing track record of actually helping lower costs, 
or what might be best for average Americans? I mean it is 
always individualized for individual folks, but any thoughts?
    Ms. Watts. I will share one of Mercer's survey data points 
with you. Of the consumer-directed plans, the account-based 
plans, about 77 percent of them are HSA plans. The remaining 
are HRA plans. And those HRA plans are really more legacy 
plans, because that is what we had first. Employers put in 
consumer-directed plans to begin with an HRA, and then we got 
the Health Savings Accounts. And so for most employers today, 
their consumer-directed plan is an HSA-based plan.
    Chairman Paulsen. Got it.
    Dr. Atlas. I would just add, I think it is very important 
that all of these accounts are shifted into ones that people 
actually own, rather than are dependent on their employer, and 
that they don't have this use-it-or-lose-it phenomenon at the 
end, which of course HSAs do not. This is really critical. In 
fact, it should be easier--and I have this chart----
    Chairman Paulsen. Flexible Spending Accounts would, right?
    Dr. Atlas. Yes, but the reality is I'm not sure why there 
is a need for different types, because they all should be 
liberalized in their uses, and rules, and things like that. And 
I think that really there are certain incentives necessary to 
institute for all HSAs. There is incentive to save if you do 
not lose it. There is also an incentive to save if you are 
going to be able to pass it on in a tax-sheltered way, as 
opposed to just your spouse, which is now one of the rules. Or, 
use it for your elderly parents, or someone else, even if it is 
an individual account. There's a lot of things to be done that 
make HSAs more attractive and more valuable to you.
    Chairman Paulsen. Dr. Patel, have you seen other patients 
experience, you know, they have to use it or lose it, on a 
Flexible Spending Account versus maybe an HSA?
    Dr. Patel. Oh, absolutely, yes. And I do think that the 
everyday American does not actually understand HSAs and FSAs as 
well. I think they are offered these choices during the 
enrollment period, and then they just kind of pick. And they 
are not necessarily at the time of enrollment kind of savvy 
about what they are doing.
    And I would add one more category, Mr. Chairman: Pre-
deductible coverage. Think about how much we spend on tax 
dollars to allow employers to offer kind of these benefits. 
Think about just really kind of honing in on kind of what's, 
you know, necessary care and thinking about pre-deductible 
coverage.
    And I'll just make one little comment about the healthy 
Indiana plan, because I think it is important to level set. I 
go back to my days as a health services researcher. There were 
over 500,000 people that were eligible; 55 percent of the 
people for the Power Accounts either missed a payment, or never 
made the first payment; and 14 percent of those eligible never 
enrolled; 9 in 10 of those people that were actually in those 
Power Accounts actually ended up falling to that lower tier.
    So while people talk about it as a success, and some might 
say it's a failure, the truth is that there's a lot more work 
to be done before you think about HSAs and Medicaid.
    Chairman Paulsen. Senator Heinrich, you are recognized for 
five minutes.
    Senator Heinrich. For every time I hear about HSAs, I hear 
ten times about premium inflation, obviously, and premiums are 
projected to increase by about 15 percent next year, at least 
according to CBO.
    Dr. Patel, do you have an opinion on how the Trump 
Administration's actions with regard to undermining the 
individual markets affect those premiums over time?
    Dr. Patel. Well I think the critical--yes, I do have an 
opinion. I think that premium costs, unfortunately, in the 
current Administration there has been an interpretation that 
this is all just benefit inflation that's driving the premium 
costs, and therefore if we release people from kind of these 
requirements around kind of essential health benefits, et 
cetera, that somehow magically we'll offer these better value 
plans, and therefore they will be cheaper, and that will bring 
down premiums.
    Unfortunately, by changing some of the rules around what 
plans must, or the way they can offer benefits, you are 
actually creating kind of a two-tiered system where if people 
know that they are going to have to deal with chronic illnesses 
like the patient I talked about, there is no universe where she 
is going to try to get one of these less generous plans. That 
is just simple math.
    So the critical question is: How are we, without getting 
into--I realize the word ``mandate,'' and all these things are 
just toxic politically--but what we really need to do is have 
an honest conversation about what are the services and valuable 
benefits within the care delivery system that we must have 
coverage for? And then, what are the things that we really need 
to have people drive away from?
    And that is the places where you--I know that she had to 
leave, but when you talk about the cost of mammograms, I can go 
within one mile and find a mammogram that is ten times the 
cost, and I can find something that is a couple hundred 
dollars.
    So how do we get at that issue? And that is certainly not 
being addressed in the current Administration.
    Senator Heinrich. HSAs are premised on a consumer's ability 
to shop around for the best value. And certainly, you know, I 
have found that for my upper-income constituents in New Mexico, 
who tend to be on the lower end of the overall curve, but for 
people making over $100,000 a year, they have a lot of value. 
But my rural constituents oftentimes do not have any ability to 
shop around. I mean, they are really captive of whatever 
infrastructure is left in rural America.
    Is there--what is the HSA value for them? Is it just 
primarily the fact that you might receive the tax benefit? But 
do you lose the ability to impact the overall system when you 
cannot choose between providers, really for any of you?
    Mr. McKechnie.
    Mr. McKechnie. I would be happy to try and answer. I am not 
sure that is a HSA-specific question. I know the country is 
going through a discussion about the availability of providers 
by county, and insurers by county, and so leaving aside the 
question of HSAs for a moment, I can understand, and I have had 
the privilege of working with some of the members of the New 
Mexico State Legislature, Carol Lovell particularly, in this 
topic area. As we come to the HSA question, a gentleman 
actually responded I believe to--from our Board, addressing 
that exact issue, which is not necessarily where you live in 
the State, but where are you on the economic spectrum?
    Because the question of how do you satisfy that first 
thousand dollars of obligation is a very important one, and not 
everybody has a thousand dollars, and we recognize that, too. 
But if you are going to pay a thousand dollars, and the tax 
rates vary between 15 and 40 percent for income, is it $1,150 
that you owe? Is it $1,400 that you owe? And how are those any 
better than owing simply $1,000?
    And so on that issue I imagine we can just leave that aside 
now, the point having been made. But I think you are right. If 
there is nobody around the corner from you to go and get 
treated, I am not sure that is an insurance question. I think 
that is probably something much more difficult to answer.
    Ms. Watts. Could I comment?
    Senator Heinrich. Ms. Watts.
    Ms. Watts. We co-authored a paper, Mercer, with the 
American Benefits Council on employer innovations in health 
care. And I believe one of the case studies in there is one of 
our ABC member companies that is a rural company in the coal 
industry. And they have access issues for their employees. And 
they have actually done direct contracting with some providers, 
and some of the care that they provide is virtual health care 
because people don't have access. And somebody previously said 
this isn't just an HSA issue. The HSA is really just more of a 
funding vehicle, and it does get people to have skin in the 
game.
    The question you are asking about is access. But thanks to 
technology we are on the verge of having much more of an open 
door to access, no matter where you are. And having people 
understand the value and being able to make better decisions--
--
    Senator Heinrich. I would agree with you wholeheartedly, 
with the exception of one issue. To have that world exist, we 
actually have to have the infrastructure to be able to access 
telemedicine and virtual medicine in those rural areas. And I 
will tell you that there are vast areas in this country where 
the broadband access, the infrastructure to make that happen, 
which I think you would find Republicans and Democrats both 
agree, is a great change to our health care system, does not 
actually exist.
    Dr. Atlas. Could I add one quick comment on telemedicine, 
which is there is another anticompetitive problem in the M.D. 
world, which is that states have their own licensure of 
doctors, and that prevents, in addition to other rules, 
prevents active telemedicine, and actually limits competition. 
And this is a problem.
    Chairman Paulsen. I want to thank everyone for taking the 
time to testify today. This has been great. We unfortunately 
had some Members who were confined to some other important 
hearings and issues, particularly on the House side.
    So we will--I want to make sure that we know that Members 
who wish to submit questions for the record, the hearing record 
will remain open for three business days. And you may 
anticipate some opportunity to respond in writing, as well, 
from some of those Members who were unable to attend.
    Thank you, again. And with that, the Committee is 
adjourned.
    [Whereupon, at 4:14 p.m., Thursday, June 7, 2018, the 
hearing in the above-entitled matter was adjourned.]

                       SUBMISSIONS FOR THE RECORD
                       
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    I call this hearing to order.
    All Americans deserve access to affordable, patient-centered health 
care.
    Unfortunately, the fight to achieve this worthy goal has become 
politicized to the point where it's perilous to even acknowledge the 
shortcomings of our current Byzantine system.
    There are bipartisan solutions to this problem, and today we will 
be discussing one.
    That is why I am excited to convene today's hearing, titled ``The 
Potential for Health Care Savings Accounts to Engage Patients and Bend 
the Health Care Cost Curve.''
    When does a patient decide that a common cold isn't worth the 
expense of a doctor's visit? Or whether it would be worth saving 
dollars by going to a general practitioner who could easily treat an 
ailment rather than a pricey specialist?
    Patients would have a hard time answering these questions, because 
the actual cost of care remains obscured until long after services are 
rendered.
    Even after patients receive an explanation of benefits, the true 
cost is obscured by what providers charged and what the government or 
insurers decided they would pay for a service.
    This lack of transparency has contributed to rising health costs, 
which ultimately leads to more unaffordable insurance and even less 
satisfaction with the health care system.
    Yet, in the current environment, consumers and providers alike are 
divorced from the true cost of care.
    As the economist Milton Friedman once said, nobody spends somebody 
else's money as wisely or as frugally as he spends his own.
    Americans are excellent comparison shoppers--television, direct 
mail marketing, billboards, and storefronts all appeal to consumers' 
senses of value for price when making important choices for themselves 
and their families.
    An important part of everyday life is making decisions based on 
personal preferences, needs, and, of course, cost, and it is for this 
reason that competition thrives among auto manufacturers, food 
producers, and home builders to deliver safe, healthy, and long-lasting 
products that people can afford.
    We all acknowledge that American health care and health insurance 
are very expensive. In today's hearing, we will investigate how health 
savings accounts, or HSAs, allow Americans to lower the cost of health 
care by drawing on an important area of their expertise: themselves.
    HSAs have delivered great benefits, and there may be even more to 
come if lawmakers strengthen HSA's hold in the marketplace.
    I believe they can broaden access to quality medical care, increase 
patient choice, and improve health for all Americans.
    It is for this reason that I joined with Senate Finance Committee 
Chairman Orrin Hatch to enhance both Health Savings Accounts and 
Flexible Spending Accounts to give hard-working Americans more choice 
and control when it comes to their health care decisions.
    According to one estimate, if half of employer-sponsored insurance 
incorporated HSAs, national savings in health care spending could total 
$57 billion annually.
    So how do they work? An HSA is a tax-exempt account set up to pay 
or reimburse certain medical expenses incurred while covered by the 
kinds of high-deductible health care plans many Americans have today.
    Employees and employers contribute funds pre-tax. Money that has 
gone unused can roll over year to year, and consumers continue to have 
access to the money even if they change employers or leave the 
workforce.
    Since the creation of HSAs in 2003, the number of people who have 
an HSA has risen dramatically.
    In 2005, roughly one million people were enrolled.
    Today, 22 million people have HSAs. Americans clearly see the 
benefit of directing their own health dollars towards their own health 
care needs and expenses.
    My own thrifty State of Minnesota has the third-highest enrollment 
in HSAs in the country, with nearly 1.2 million enrollees.
    A 2016 study of large employers that offered consumer-directed 
health plans (CDHPs) in the form of high-deductible health plans with 
HSAs found significant long-term cost reduction and no evidence of 
worse health outcomes.
    In recent years, the State of Indiana implemented an HSA structure 
both in its Medicaid program and in insurance offered to State 
employees. Then-Governor Daniels noted that this consumer-driven 
approach resulted in savings and customer satisfaction.
    In 2010, State employees who enrolled were expected to save more 
than $8 million compared to their coworkers in the traditional health 
care alternative.
    Ultimately, the HSA is a vital tool that helps improve our health 
care system, even for those who don't have an HSA. By putting consumers 
directly in charge of their health care, the health care sector becomes 
more consumer conscious.
    As in many areas of our economy, the answer usually lies in the 
wisdom of the American people.
    I look forward to hearing from our distinguished panel of witnesses 
today how HSAs and the idea of consumer-driven health care can improve 
the affordability of health care.
    Before I introduce them, I now recognize our Ranking Member, 
Senator Heinrich, for his opening statement.
                               __________
   Prepared Statement of Hon. Martin Heinrich, Ranking Member, Joint 
                           Economic Committee
    Thank you Mr. Chairman.
    I'm looking forward to today's discussion on Health Savings 
Accounts.
    These tax-free savings accounts play a role for some consumers to 
cover health care costs.
    HSAs are particularly helpful for those earning more than $100,000 
who are already saving for retirement, and have less trouble covering 
their monthly bills and student loan payments.
    But HSAs do little to bend the so-called health care cost curve.
    This is the problem we must focus on--how do we provide top-quality 
care while reducing our overall national health care spending AND 
lowering consumers' out of pocket costs.
    But HSAs seem to generate the most savings through cost shifting, 
not cost saving.
    Here, employers pay less by offering skimpier plans coupled with an 
HSA.
    But, employees shoulder a greater share of costs, the financial 
risks of getting sick, as well as yet another obstacle to navigate 
between themselves and their health care.
    And this is happening at the exact time when wages remain 
stubbornly stagnant, and more and more families are struggling to get 
ahead.
    But my chief concern is this: part of the reason we are here today 
is that our Republican colleagues seem to be gearing up for yet another 
attempt to repeal the ACA.
    If the new proposal is anything like the last, we can expect it to 
gut Medicaid, drop millions from coverage, take away comprehensive 
coverage, and further hike premiums.
    Central to the Republican vision has been to move more and more 
consumers to high-deductible plans, which have lower premiums but ask 
consumers to pay more for doctor visits and services before the health 
plan covers care.
    If paired with an HSA, a family can put aside up to $6,900 tax free 
to use for qualified health expenditures. The investments in the HSAs 
grow tax free.
    The thinking behind HSAs is that if people set aside money for 
their health care, they will spend it more wisely, and, on average, 
spend less. They will have some ``skin in the game.''
    The problem, though, is that without knowing what we're paying for 
and how much we're paying, consumers simply do not have the tools they 
need to make rational decisions about cost.
    And HSAs are unable to help with this problem.
    What we do know is that HSAs sometimes encourage people to forego 
needed care, which is the main way they save money.
    If you need chemotherapy to treat your breast cancer, but you've 
underfunded your HSA and have a $2,700 deductible, what happens?
    If your child gets sick, will you take her to the doctor or keep 
her at home based on how much of your deductible you've paid down?
    If you or a loved one is grappling with an opioid addiction--a 
reality for far too many across the country and in New Mexico--will an 
HSA cover your treatment?
    Can someone battling addiction or managing a serious mental health 
issue make enough money to save into an HSA?
    These are important questions.
    No matter where you live, what you do for a living, or what party 
you belong to, these questions are at the heart of our health care 
conversation.
    I'm worried that HSAs--an idea that I agree works for some 
consumers--are being twisted into a quick-fix that will only exacerbate 
the challenges in New Mexico, such as our ongoing fight against the 
opioid epidemic.
    I am all for working together on real solutions to make needed 
improvements to our health care system.
    Improvements that will reduce costs on consumers, increase price 
transparency so consumers can make informed decisions, prevent surprise 
medical bills, as well as reduce the overall cost of health care in 
America.
    But focusing on HSAs, while avoiding an honest conversation about 
the key drivers of health care costs, could have real negative impacts 
on real people who are simply trying to manage an illness or care for a 
sick loved one.
    We must focus on actions that can bend the cost curve, like 
investing in preventive care, using the government's purchasing power 
to lower drug prices, and paying for quality of care, rather than 
quantity.
    And we have to focus on making things simpler for families.
    I look forward to our witnesses' testimony and to hearing their 
perspectives on how we can bring down health care costs for families.


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