How Health Savings Accounts May Change Patients Experiences with Health Care
| Author | Daniel C. Brown |
| Position | Graduated summa cum laude from the American University Washington College of Law in 2006 |
| Pages | 02 |
Daniel C. Brown graduated summa cum laude from the American University Washington College of Law in 2006. He received his B.S. in Foreign Service, magna cum laude, in 1997 from Georgetown University's Edmund A. Walsh School of Foreign Service. His publications include Stop Loss: Illegal Conscription in America? 54 AMERICAN UNIVERSITY LAW REVIEW 6 (2005), for which he received a 2006 Burton Award for Legal Achievement. This fall he joined the Office of General Counsel of the U.S. Department of Housing and Urban Development.
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AMERICAN HEALTH CARE is in the midst of an ideological struggle between those who want it to be more influenced by market forces and those who believe it is a right whose costs should be shared by society as a whole. Advocates of consumer driven health care seek to put patients in control of their own care, limited only by the same cost considerations that consumers face in most other sectors of the economy. They claim that if patients have incentives to act like demanding consumers-just as they do when buying a car-they will be more judicious with their consumption of services and force health care providers to become more efficient and improve quality of service. This article explores the leading model of consumer driven health care, Health Savings Accounts (HSAs). It concludes that HSAs will probably be less effective at achieving their stated goals than advocates claim, will nonetheless increase competition in some sectors, and may increase costs for the chronically ill to a degree that should concern policy makers now.
Predominant health care funding models have frustrated patients and failed to contain costs.1 When managed care plans attempted to deny reimbursements for medical services they deemed exorbitant or unnecessary, legislatures reacted to public resentment by mandating a patchwork of minimum services such as forty-eight hour hospital stays after childbirth.2 Additionally, many critics of medical care in the United States note that the industry lags behind other sectors in quality control and customer service. Even while many Americans shun the waiting lists and rationing of health care they hear about in Canada and the United Kingdom, they in fact endure delays and inconveniences they would never tolerate if shopping for shoes or a car. Patients in the United States must seek out doctors who accept their insurance, wait weeks for an available appointment, and finally suffer through inevitable delays in doctors' waiting rooms. Furthermore, medical errors are far more common than many patients find acceptable. Finally, unlike many other technology- intensive sectors of the economy in which prices tend to fall over time, medical services become more and more expensive each year.
Advocates of consumer driven health care see a single cause underlying all these problems: the third party payer approach that has come to support the vast majority of medical care spending in the United States. Whereas in 1960 consumers directly paid 56% of all health care costs, today that number is down to 15%, with government and private third party payers picking up the difference. 3 Critics argue that so long as it is the resources of a third party-the insurer or government-that are spent as a result of treatment decisions, patients will always have an incentive to overconsume health care services. However, patients will not have the incentive to demand the high quality and efficiency that they would if they were spending their own money.4 It is meaningless for third party payers to limit expenditures to "necessary" care only, these critics suggest, because the supply of potentially beneficial treatments is nearly infinite.5 And they point to the lasik surgery and vision care industries as examples of how the health care sector can become efficient and customer friendly when it must compete directly for consumers' own dollars.6 Only if patients must truly weigh cost considerations along with other factors will they make resource-prudent decisions and also hold doctors and hospitals accountable for quality and efficiency as they do in other sectors.
Health Savings Accounts are designed to remedy these market failures by giving patients the power and responsibility toPage 8 control expenditures on their own health care. HSA subscribers receive high-deductible insurance policies, so they receive few7 or no benefits unless their annual expenses exceed the deductible, which averages $1,654.8 But plans partially offset the high deductible by giving patients an annual cash-like deposit-averaging $8249-that can only be spent on health-related expenses.10 The result is that participants must spend up to an average $830 of their own funds if they expend their entire HSA balance before reaching the annual deductible. However, any HSA balances remaining at the end of the year can be rolled over to the next year and accumulated over time, so the risk that participants will have to draw on their own funds before reaching the annual deductible is highest in the initial years of participation. HSAs are also "portable," so participants keep their balances even if they change jobs.
Although experience with HSAs is still very limited,11 a number of studies provide some evidence of whether they in fact affect spending behavior, either by reducing overconsumption or by encouraging patients to demand greater efficiency, convenience, and quality.
The limited data suggests that adoption of HSAs may tend to reduce overall health care spending, at least somewhat. For example, in one study of three large employers that adopted HSA options alongside traditional plans, Anthony Lo Sasso and colleagues found expenditures of those in the HSA plans were significantly below those in the traditional plans.12 At the one site where year-on-year data was available, those who enrolled in the new HSA plan had total expenditures that were 30% less than the previous year, when they had been enrolled in traditional plans.13 At a second site, expenditures for employees in the HSA plan were 50% less than those who remained enrolled in the traditional PPO plan, but data limitations prevented the authors from determining whether those in the HSA plan were spending less on average than they as a group had spent in previous years.14 The third site did not report expenditure data.
Other experiences show more modest results. In a study of a single employer by Stephen Parente and colleagues, overall expenditures for those in HSA plans were approximately 3% less than those for Preferred Provider Organization (PPO) participants, but 13% more than participants in a competing Health Maintenance Organization (HMO) offering.15 Discovery Health, a consumer driven health plan in South Africa, has found that patients submitted claims for 16% fewer prescriptions than those on traditional plans, suggesting that HSA-type schemes discourage patients from requesting or filling prescriptions they view as less necessary.16
While the limited data support the possibility that overall expenditures might be reduced under HSA plans, there is very little data to show whether or not HSAs in fact encourage patients to comparison shop to find the best deal for their money. HSA opponents, including Consumers Union's Gail Shearer, argue that the frequent need for urgent or timely treatment, the control that doctors must exercise over decision-making, and the inadequate information and decision-making ability of consumers make such comparison shopping unworkable.17 Supporters answer that much of medical care is not delivered on an emergency basis, and that as many as 70 million American patients can and regularly do access medical information on the internet, even using it to challenge their doctors' preferred courses of treatment.18
South Africa's Discovery Health has found that those on HSA-type plans spend at least 11% less on prescription medications, and 48% of participants had asked their pharmacists about the availability of generic alternatives to more expensive name brand equivalents.19 While such data is at best anecdotal, it does suggest that participants in HSA plans are more likely to comparison shop for cheaper, equally effective alternatives, at least in the case of pharmaceuticals.
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On the other hand, such data does not directly refute Shearer's claim either, since drugs are not usually prescribed on an emergency basis, and patients often have the option of asking their pharmacist about generic equivalents after their doctor has made the prescribing decision. And since generics are supposed to deliver the same effective ingredients as their name brand equivalents, the patients' decisions really only turn on one variable: price. It is a far more complex decision-even with the expertise of a well qualified doctor-to choose between a cheaper, less effective drug with serious side effects, and a newer, much pricier alternative with none of those disadvantages. Decisions can be all the more complex with surgical and other alternatives. In such situations, patients might very well simply defer to their doctors' recommendations rather than comparison shop as the consumer driven health care model assumes.
Another concern is whether patients truly view HSA deposits as their own money. HSAs will only facilitate the...
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