The Case against Health Savings Accounts

Asking employees to pay more for their care can be a plus on balance sheets but a minus on medical charts, say critics.

The growth, however, has been matched by a wave of negative research and criticism. One widely heard barb is that HSAs appeal only to a small number of young and healthy employees. “Most people would rather overinsure than underinsure,” notes Edward Kaplan, national health practice leader of The Segal Company, a New York-based benefits consultancy. “It’s a product looking for a market.” By that reasoning, not enough employers will offer HSAs/HDHPs to change national buying patterns, let alone cure the nation’s health-cost woes.

Another criticism is that by encouraging “adverse selection,” HSAs would unravel the employment-based insurance system as a whole. HSAs “are attractive to healthier individuals, who will be tempted to opt out of company plans, leaving less healthy individuals behind,” wrote Paul Krugman and Robin Wells in the March 23 issue of The New York Review of Books. Since the employees who remained in traditional plans would be less healthy, on average, insurers would have to charge higher rates to cover their increased risks.

Long before the Medicare act created HSAs, however, consumer-driven health plans (CDHPs) were already the subject of forceful attacks that targeted their effect on employee health. Studies have recently confirmed the worst fears about such plans: They can induce beneficiaries to stint on health care that they truly need. According to the Employee Benefit Research Institute study, 35 percent of the people in CDHPs and 31 percent in HDHPs “reported delaying or avoiding care, as opposed to 17 percent of those in comprehensive plans.”

Even more damaging to the notion of consumer-driven health care, perhaps, is new research on the use of cholesterol-lowering drugs by heart patients. Published in the January issue of The American Journal of Managed Care, the study — based on claims data from more than 62,000 patients in 88 health plans — found a link between higher pharmacy co-payments and poorer health.

Specifically, the authors of the AJMC study found that when the co-payments were raised from $10 to $20, the portion of patients who took their full course of medication dropped by between 6 and 10 percentage points. The researchers also found that compared with patients who weren’t taking their medications properly, high-risk heart-patients who completed their full course of treatment suffered 357 fewer hospitalizations per 1,000 cases each year.

Fewer hospitalizations, of course would lead to lower health-care costs in the long run. Interestingly, however, the AJMC authors wouldn’t do away with these co-payments entirely; they’d fine-tune them. By eliminating co-payments for high-risk and medium-risk patients but raising them from $10 to $22 for low-risk patients, they argue, plan sponsors and insurers could eliminate nearly 80,000 hospitalizations and 31,000 other hospital visits per year. Total annual saving: $1 billion.

Along those lines, Segal’s Kaplan says that some employers have contemplated a “tiered” health plan that would offer higher coverage for conditions that have a higher overall medical risk. For instance, he suggests, such a plan might pay for 90 percent of the care for cancer or heart disease but only 50 percent for asthma or dermatological therapy.

Even those who favor other types of plans acknowledge the appeal of HSAs for certain people. One benefit design that Kaplan especially favors is a “personalized PPO” plan, in which participants choose from various levels of co-payments deductibles, and coverage. In other words, he says, participants select the kind of insurance they want rather than make the direct cost choices about medical care that are required with an HSA.

Nevertheless, among the levels of coverage in the personalized plans, there’s a place for the healthy employee with an appetite for risk: a health savings account, complete with high-deductible coverage, can be made available.

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