HSAs: A Partial Answer To Cost-Shifting

Posted by David Edman in Blog, Health Benefit Strategies, September 2010 on September 7th, 2010 | No Comments »

The Latest News on Benefit Costs and Cost-Shifting

The following are highlights of a recent news release from the Kaiser Family Foundation on the rising costs of health care and the resultant shifting burden of costs from employers to employees:

• Family health premiums overall rose by 3% in 2010, to $13,770 per year
• An average workers’ share of those premiums increased by 14%.
• The percent of workers with deductibles of at least $1000 increased from 22% to 27%.
• Among smaller businesses (less than 200 employees), 46% of workers face deductibles of $1000 or more.

The Changing Paradigm…

The marketplace is responding to health care costs that have been increasing at rates far in excess of general inflation AND data that shows a significant portion of healthcare spending is wasted on unnecessary care, inappropriate care, and poor quality care.  For the last several decades (and still today to a significant degree), someone else was paying the bill.  Patients had little or no “skin in the game”, so why say “no” even if a service is either unnecessary or costs too much?

That, my friends, is changing.  We are witnessing is a gradual shift “from paternalism to shared responsibility”.  It is about aligning incentives between employers and their employees.  If you are one of those employees with a deductible of $1000 or more, you have “skin in the game”.  Now, before seeking care, you must ask yourself, “do the benefits justify the costs”?   Only if the answer is yes are you going to proceed with the care that you’ve chosen to purchase and receive.

How HSAs Help To ‘Save Costs Without Shifting Costs’

Clearly, a high deductible health plan (HDHP) is a cost-shift to the employees.  But, the impact can be partially or significantly ameliorated with an underlying Health Savings Account funded by the employer (see HSAs Work…Here’s Why).  HSAs are a model for properly applying insurance principles to health care.  In other words, insurance is means to protect you from large, unpredictable financial losses—it is not an appropriate financing mechanism to pay for smaller and more routine expenses.   You can be sure that those employees who are paying the first $1000 of expense are motivated to avoid services and expenses that are unnecessary, inappropriate, or may result in a poor outcome.

What’s missing from the Kaiser Family Foundation statistics, for those workers who are subject to high deductibles, is the amount of money contributed to an HSA by the employer.  We strongly recommend that employers take a portion (even a small portion) of what they save and/or would otherwise pay in premium and use it to fund an HSA, and thereby pay for some level of an employees’ primary care needs.  This, we believe, is the model for the future…