One More Change, and It’s a Biggie

Last week, in my list of ways in which health care insurance has improved over the past few years, I didn’t mention one major change, because it’s kind of complex.

The change was a piece of health care reform that Congress passed in 2003 that allowed employers to offer a new way to pay for health care expenses using a health savings account.

A health savings account (HSA) enables employees to pay for their share of health care with pretax dollars and is offered in conjunction with a low premium, high deductible health insurance policy. Employees can save money in the HSA tax-free and draw out funds anytime they want to pay for the premium, deductibles, co-pays or other medial costs. Employees don’t have to spend what they put into an HSA by the end of the year.

The benefits of the HSA-high deductible plan to employers are fairly obvious: By switching to the high-deductible plan, the employer lowers the insurance premium and can shift to a more cost-sharing arrangement with employees. The lower cost of the HSA may make it the only plan that some small employers can afford to offer. And if the prediction of many experts is correct, that the HSA-high deductible combination makes people more careful consumers of medical services, then switching promises to yield overall reductions in healthcare cost inflation in the future.

Most high-deductible plans set the deductible at $1,500 or $2,500 per year. Simply by adding a deductible of $1,500-$2,500 to a health care plan but maintaining every benefit and feature in the plan will cut the premium cost by about 25% on average over the same plan but with a zero deductible.

Over the course of a year, adding a high deductible leads to an average decrease in premium costs to employer and employee of $3,836 after switching from a PPO plan to the HSA/high-deductible combination, according to a recent study by the Kaiser Family Foundation. And a multi-year study my company, UnitedHealthcare, recently completed showed that after adjustment for demographic and health status, the HSA-high deductible plans lowered overall health care costs by 7% in 2006 and 9% in 2007. The employer’s share of health care costs was down 12%.

There are many benefits to employees of the HSA-high deductible combination:

• The HSA account is portable, which means employees keep the money in the HSA account if they move to another employer.
• Anyone else can contribute to an employee’s HSA account.
• The employee has easy access to the funds, and with many plans may be able to pay for medical expenses using a debit card tied to the HSA.

A recent OptumHealth study demonstrates that those in HSAs are aware of overall health care costs, and in a sense become more informed consumers. For example, in the last year:

• 64% of HSA holders asked providers about generic options for prescription medications.
• 47% asked providers about the charges for visits or treatments.
• 30% used websites or other resources to research the range of costs for health care services in their area.

Like all of the recent innovations about which I have been talking, the HSA-high deductible combination does not solve all our health care problems. But it does offer a cost-effective option for both employers and employees.