Medical Savings Account Expansion in President?s Budget

IN THIS ISSUE:


? Medical Savings Account Expansion in President?s Budget

? Consumerism Good Even For Poor, Aged & Disabled: NCOA

? Consumer Driven Plans Gather Steam

? Worker Education Overcomes Skepticism

? Higher Co-Pays Are a Good Thing

? More Information Leads to Lower Costs

? 46% of Large Employers Interested in Consumer Driven Plans ? Hewitt

? Vendors? Corner


Medical Savings Account Expansion in President?s Budget


We had quite a scare over the weekend. The media reported on Saturday a Treasury proposal to create new ?lifetime savings accounts? that could be set up to pay for things like education and health care. These would be modeled after Roth IRAs, in which the contribution is after-tax, build-up is tax free, and withdrawals are tax free. Several papers including the Washington Post said, ?existing medical savings accounts and education accounts would not be eliminated, but savers would be encouraged to convert them into lifetime savings accounts.?


YIKES! Does ?existing accounts? mean those that are already in place? Does that imply that no new accounts could be set up? Is this the end of MSAs? Doesn?t the Administration realize that it is the tax treatment of the MSA contribution that is important, not the build-up?


We were getting geared up for battle, but then on Monday, the President?s budget proposal was released, containing a major expansion of MSAs, as we had been expecting. The budget calls for most of the key provisions we?ve all been discussing for years now ? lifting the caps on enrollment and employer size, lowering allowable deductibles to $1,000 for individuals and $2,000 for families, allowing contributions by both employer and employee and up to 100% of the deductible, and making the program permanent. Plus, it allows for up to $100 per person in preventive services to be covered by the insurance plan.


WHEW!! That?s a relief. But the question remains, what in the world were they thinking by sending out such a confusing message?


And there lingers a suspicion that perhaps the Administration really prefers a Roth type approach to health care spending. That would be a big mistake. Health care is different than retirement or higher education, which involve putting aside money for 20 or more years before touching the principle. In that circumstance, the tax advantage of the build-up is important. But health care is consumed annually. Very often there will be only modest rollover and minimal build-up, so the LSA approach offers hardly any advantage over simply paying cash for a service with after-tax dollars ? as everyone is free to do today. Also, MSAs have to compete with employer-sponsored health insurance, which enjoys huge tax advantages ? freedom from both payroll and income taxes. Few people would trade a tax-free insurance plan for after-tax direct payment. That is precisely why we have come to be so dependent on employer benefits.


The budget also contains provisions for refundable tax credits for the uninsured, an above-the-line deduction for LTC insurance premiums, a $500 carry-over of unused FSA funds, an additional option to allow $500 of unused cafeteria plan funds to be deposited into a retirement account or an MSA, and, of course, a $400 billion program to reform Medicare and make prescription drug coverage available.


SOURCE: The best write-up I?ve seen on the Lifetime Savings Accounts is by Al Crenshaw in Sunday?s business section of the Washington Post. Go to:

http://www.washingtonpost.com/wp-dyn/articles/A8847-2003Jan31.html

A summary of the President?s budget proposal is at:

http://www.treas.gov/press/releases/reports/bluebook2003.pdf




Consumerism Good Even For Poor, Aged & Disabled: NCOA


The usual knee-jerk rap on consumer driven programs such as MSAs and HRAs, is that they might be good for the ?healthy and wealthy? but what about the sick and the poor? How well will they manage their funds? The definitive answer now comes from, of all places, the National Council on Aging (NCOA), with support from the Robert Wood Johnson Foundation. They have issued a report called ?Myths and Realities of Consumer-Directed Services for Older Persons? that should put that issue to rest ? forever.


The report is a description of a number of experimental programs that put money in the hands of the poorest and sickest population possible ? elderly disabled people on Medicaid. The programs were funded in part by RWJ and include the ?Cash and Counseling? programs in Arkansas, New Jersey and Florida, the Independent Choices programs that were used in 13 different locations, and the Self Determination Initiative that was aimed at people with mental retardation and developmental disabilities. The report says these projects included, ?randomized-controlled trial(s) of what happens when consumers are given supplemental income to spend as they need instead of a set of services prescribed by a case manager.? The report says the common thread of these projects, ?is that individuals have the primary authority to make choices that work best for them regardless of the nature or extent of their disabilities or the source of payment for services.?


The report is loaded with anecdotes of real life people who disprove a number of myths. One such myth is ?Consumer directed services are not appropriate for elderly persons with disabilities or for individuals with cognitive impairments.? On the contrary, says the report, in reality, ?Studies have shown that many elderly individuals with disabilities and persons with cognitive impairments can express daily preferences for care and can benefit from consumer-directed programs.? Another myth is, ?younger persons wish to direct their own services. Older adults are not interested in consumer direction.? The reality is, ?many older persons, just like younger adults, are interested in consumer direction and most of them have clear preferences about personal care, daily activities, and where they want to live.?


The patients involved in these demonstrations are not selectively chosen to get good results. They include: a 74 year old widow with diabetes and glaucoma who saved enough money on personal care services to buy a new pair of dentures; an 89 year old woman who had been in nursing homes four times; a family with an elderly father with severe Alzheimers. Very often the people use surrogates, often family members, to be their advocates, but the surrogate is a person of their own choosing who knows and cares about the patient involved.


The paper concludes, ?Consumer direction in services for older persons with disabilities is like a train that is leaving the station.? It adds, ?This shifting emphasis from government-controlled to market-oriented services is part of a trend that is evident in the economies and social welfare programs of virtually every nation in the world over the past twenty years.? And concludes, ?Enabling, empowering and encouraging consumers to self-direct has great potential for improving the quality of life for consumers and can help foster more cost-effective and compassionate systems of care.?

SOURCE: Thanks to Dr. Steve Barchet for bringing this paper to my attention. It can be found in either PDF or HTML format at: http://www.consumerdirection.org/reso.htm



Consumer Driven Plans Gather Steam


The magazine HRFocus carries an article in its February issue headlined, ?Consumer-Driven Health Care Plans Continue to Gather Steam.? The article points out that the guidance from the IRS on HRAs has made the approach more attractive to employers who are struggling with rate hikes of 15% and more. The article quotes Segal Company?s Ken Jacobsen as saying ?We?re coming to the end of an era? in which ?all you can eat? health plans predominated. He reports that about 250,000 workers are enrolled in consumer driven plans, up from about 50,000 just a year ago.

SOURCE: The article is in the February, 2003 issue of Hrfocus, published by IOMA. The closest I could get to it on-line is at:

http://www.ioma.com/showfile.php/744



Worker Education Overcomes Skepticism


But the Houston Chronicle says ?workers aren?t dealing well with rising health insurance costs.? It cites labor trouble at General Electric and Hershey Foods as examples. These cases make employers ?somewhat leery of passing on more of those costs to employees,? and some are working to explain the issues and give workers a choice between keeping rich benefits and paying more, or reducing the benefits offered. A spokesman for one firm said with this kind of involvement, ?There?s much less a sense of entitlement, and much more of a sense that I have a role in this.? The article also cites Dallas-based CompuCare Systems that is offering an HRA program. Thirty percent of its 3,000 employees opted for the HRA, overcoming some initial skepticism by company executives.

SOURCE: The article is by Darrin Schlegel and headlined, ?Strategies Evolving to Tame Plan Cost.? It ran in the Sunday, January 26, 2003 edition. There is a charge for archives: http://www.chron.com/content/archive/index.mpl



Higher Co-Pays Are a Good Thing


An article in the St. Petersburg Times also cites the General Electric walkout, but conclude the ?perfunctory nature of the walkout suggests (employees) are either resigned to paying higher health care costs or they understand that higher co-pays are a good thing.? Reporter Sarah Fritz says, ?the latest thinking among health care economists? is that ?only consumer-driven plans can retain soaring health care costs.? She cites Princeton Economist Uwe Reinhardt as saying, ?most American workers fail to realize that the money their employer is spending on health coverage is their money ? money they could otherwise be receiving in their paychecks.? This article estimates about 1.5 million people are covered by consumer driven plans today, and ?an increasing number of companies are expected to embrace this approach over the next few years.?

SOURCE: http://pqasb.pqarchiver.com/sptimes/index.html?ts=1044364290



More Information Leads to Lower Costs


Joe Manning writes in the Milwaukee Journal Sentinel that, ?as more employees shoulder more of (the) burden, the health care industry faces a sea change? in which the public makes choices based on quality and price?? That means more information. Part of that information may lead consumers away from big hospitals to lower cost free-standing facilities, where services like MRIs can cost half of what they cost in a big medical center. The old-line hospitals may be hard pressed to pay ?the debt loads from new building projects,? and have to cut back on charity care and trauma care.

SOURCE: http://www.jsonline.com/bym/News/jan03/113577.asp



46% of Large Employers Interested in Consumer Driven Plans — Hewitt


A new survey by Hewitt finds 46% of the large employers surveyed, ?are interested in offering a consumer driven plan with an HRA to employees as either a replacement plan or an option to supplement traditional plans.? It also finds that companies are expecting a 15% rate increase in 2003, but can only absorb an 8% increase, leaving a 7% gap that workers will have to fill. Employers are also interested in implementing ?custom design plans, which allow employees to customize their benefit options and levels for physician, hospital, and pharmacy benefits?? If such a plan would lower costs by 10%, 72% of companies would be interested, while 37% are interested even if costs stayed the same. There is also a high level of interest in multi-tier hospital coverage, which also require employees to make more decisions in seeking health care services. Over 80% of the employers surveyed are ?somewhat or extremely comfortable with employees taking more responsibility for evaluating and selecting their own health plans, coverage levels, providers, and health care services.?

SOURCE: Copies of the survey, ?Health Care Expectations: Future Strategy and Direction,? are available from Hewitt at

infodesk@hewitt.com or by calling 847-295-5000.



VENDOR CORNER


CareGain reports that a beta test of its products with three employers last year resulted in an average saving of 26 percent in health care costs. CareGain offers four different benefits packages, with MyCarePortal as the centerpiece cost control and decision support tool. Contact Russell LaMontagne at russel@corinthgroup.com, or 212-255-5340, for more information.


West Virginia based Vested Health has received new venture capital funding ?to expand operations and infrastructure.? It describes itself as ?the region?s leading provider of consumer driven health plans, serving the middle market of 10-2,000 employees. For more information, contact CEO Mike Baker at mbaker@vestedhealth.com or 866-347-3640.


Medfield, Massachusetts based Benemax claims a 35% growth in 2002. It describes itself as ?a benefit management company that bucked the managed care trend? as early as 1985. It claims ?employers can save as much as 25% in premiums over managed care plans without compromising routine or emergency care for employees.? For more information, contact Lisa Jacobson at ljacobson@kogspr.com, or 617-497-0193.


SHARE THIS ARTICLE

About the author

IN THIS ISSUE:


? Medical Savings Account Expansion in President?s Budget

? Consumerism Good Even For Poor, Aged & Disabled: NCOA

? Consumer Driven Plans Gather Steam

? Worker Education Overcomes Skepticism

? Higher Co-Pays Are a Good Thing

? More Information Leads to Lower Costs

? 46% of Large Employers Interested in Consumer Driven Plans ? Hewitt

? Vendors? Corner


Medical Savings Account Expansion in President?s Budget


We had quite a scare over the weekend. The media reported on Saturday a Treasury proposal to create new ?lifetime savings accounts? that could be set up to pay for things like education and health care. These would be modeled after Roth IRAs, in which the contribution is after-tax, build-up is tax free, and withdrawals are tax free. Several papers including the Washington Post said, ?existing medical savings accounts and education accounts would not be eliminated, but savers would be encouraged to convert them into lifetime savings accounts.?


YIKES! Does ?existing accounts? mean those that are already in place? Does that imply that no new accounts could be set up? Is this the end of MSAs? Doesn?t the Administration realize that it is the tax treatment of the MSA contribution that is important, not the build-up?


We were getting geared up for battle, but then on Monday, the President?s budget proposal was released, containing a major expansion of MSAs, as we had been expecting. The budget calls for most of the key provisions we?ve all been discussing for years now ? lifting the caps on enrollment and employer size, lowering allowable deductibles to $1,000 for individuals and $2,000 for families, allowing contributions by both employer and employee and up to 100% of the deductible, and making the program permanent. Plus, it allows for up to $100 per person in preventive services to be covered by the insurance plan.


WHEW!! That?s a relief. But the question remains, what in the world were they thinking by sending out such a confusing message?


And there lingers a suspicion that perhaps the Administration really prefers a Roth type approach to health care spending. That would be a big mistake. Health care is different than retirement or higher education, which involve putting aside money for 20 or more years before touching the principle. In that circumstance, the tax advantage of the build-up is important. But health care is consumed annually. Very often there will be only modest rollover and minimal build-up, so the LSA approach offers hardly any advantage over simply paying cash for a service with after-tax dollars ? as everyone is free to do today. Also, MSAs have to compete with employer-sponsored health insurance, which enjoys huge tax advantages ? freedom from both payroll and income taxes. Few people would trade a tax-free insurance plan for after-tax direct payment. That is precisely why we have come to be so dependent on employer benefits.


The budget also contains provisions for refundable tax credits for the uninsured, an above-the-line deduction for LTC insurance premiums, a $500 carry-over of unused FSA funds, an additional option to allow $500 of unused cafeteria plan funds to be deposited into a retirement account or an MSA, and, of course, a $400 billion program to reform Medicare and make prescription drug coverage available.


SOURCE: The best write-up I?ve seen on the Lifetime Savings Accounts is by Al Crenshaw in Sunday?s business section of the Washington Post. Go to:

http://www.washingtonpost.com/wp-dyn/articles/A8847-2003Jan31.html

A summary of the President?s budget proposal is at:

http://www.treas.gov/press/releases/reports/bluebook2003.pdf




Consumerism Good Even For Poor, Aged & Disabled: NCOA


The usual knee-jerk rap on consumer driven programs such as MSAs and HRAs, is that they might be good for the ?healthy and wealthy? but what about the sick and the poor? How well will they manage their funds? The definitive answer now comes from, of all places, the National Council on Aging (NCOA), with support from the Robert Wood Johnson Foundation. They have issued a report called ?Myths and Realities of Consumer-Directed Services for Older Persons? that should put that issue to rest ? forever.


The report is a description of a number of experimental programs that put money in the hands of the poorest and sickest population possible ? elderly disabled people on Medicaid. The programs were funded in part by RWJ and include the ?Cash and Counseling? programs in Arkansas, New Jersey and Florida, the Independent Choices programs that were used in 13 different locations, and the Self Determination Initiative that was aimed at people with mental retardation and developmental disabilities. The report says these projects included, ?randomized-controlled trial(s) of what happens when consumers are given supplemental income to spend as they need instead of a set of services prescribed by a case manager.? The report says the common thread of these projects, ?is that individuals have the primary authority to make choices that work best for them regardless of the nature or extent of their disabilities or the source of payment for services.?


The report is loaded with anecdotes of real life people who disprove a number of myths. One such myth is ?Consumer directed services are not appropriate for elderly persons with disabilities or for individuals with cognitive impairments.? On the contrary, says the report, in reality, ?Studies have shown that many elderly individuals with disabilities and persons with cognitive impairments can express daily preferences for care and can benefit from consumer-directed programs.? Another myth is, ?younger persons wish to direct their own services. Older adults are not interested in consumer direction.? The reality is, ?many older persons, just like younger adults, are interested in consumer direction and most of them have clear preferences about personal care, daily activities, and where they want to live.?


The patients involved in these demonstrations are not selectively chosen to get good results. They include: a 74 year old widow with diabetes and glaucoma who saved enough money on personal care services to buy a new pair of dentures; an 89 year old woman who had been in nursing homes four times; a family with an elderly father with severe Alzheimers. Very often the people use surrogates, often family members, to be their advocates, but the surrogate is a person of their own choosing who knows and cares about the patient involved.


The paper concludes, ?Consumer direction in services for older persons with disabilities is like a train that is leaving the station.? It adds, ?This shifting emphasis from government-controlled to market-oriented services is part of a trend that is evident in the economies and social welfare programs of virtually every nation in the world over the past twenty years.? And concludes, ?Enabling, empowering and encouraging consumers to self-direct has great potential for improving the quality of life for consumers and can help foster more cost-effective and compassionate systems of care.?

SOURCE: Thanks to Dr. Steve Barchet for bringing this paper to my attention. It can be found in either PDF or HTML format at: http://www.consumerdirection.org/reso.htm



Consumer Driven Plans Gather Steam


The magazine HRFocus carries an article in its February issue headlined, ?Consumer-Driven Health Care Plans Continue to Gather Steam.? The article points out that the guidance from the IRS on HRAs has made the approach more attractive to employers who are struggling with rate hikes of 15% and more. The article quotes Segal Company?s Ken Jacobsen as saying ?We?re coming to the end of an era? in which ?all you can eat? health plans predominated. He reports that about 250,000 workers are enrolled in consumer driven plans, up from about 50,000 just a year ago.

SOURCE: The article is in the February, 2003 issue of Hrfocus, published by IOMA. The closest I could get to it on-line is at:

http://www.ioma.com/showfile.php/744



Worker Education Overcomes Skepticism


But the Houston Chronicle says ?workers aren?t dealing well with rising health insurance costs.? It cites labor trouble at General Electric and Hershey Foods as examples. These cases make employers ?somewhat leery of passing on more of those costs to employees,? and some are working to explain the issues and give workers a choice between keeping rich benefits and paying more, or reducing the benefits offered. A spokesman for one firm said with this kind of involvement, ?There?s much less a sense of entitlement, and much more of a sense that I have a role in this.? The article also cites Dallas-based CompuCare Systems that is offering an HRA program. Thirty percent of its 3,000 employees opted for the HRA, overcoming some initial skepticism by company executives.

SOURCE: The article is by Darrin Schlegel and headlined, ?Strategies Evolving to Tame Plan Cost.? It ran in the Sunday, January 26, 2003 edition. There is a charge for archives: http://www.chron.com/content/archive/index.mpl



Higher Co-Pays Are a Good Thing


An article in the St. Petersburg Times also cites the General Electric walkout, but conclude the ?perfunctory nature of the walkout suggests (employees) are either resigned to paying higher health care costs or they understand that higher co-pays are a good thing.? Reporter Sarah Fritz says, ?the latest thinking among health care economists? is that ?only consumer-driven plans can retain soaring health care costs.? She cites Princeton Economist Uwe Reinhardt as saying, ?most American workers fail to realize that the money their employer is spending on health coverage is their money ? money they could otherwise be receiving in their paychecks.? This article estimates about 1.5 million people are covered by consumer driven plans today, and ?an increasing number of companies are expected to embrace this approach over the next few years.?

SOURCE: http://pqasb.pqarchiver.com/sptimes/index.html?ts=1044364290



More Information Leads to Lower Costs


Joe Manning writes in the Milwaukee Journal Sentinel that, ?as more employees shoulder more of (the) burden, the health care industry faces a sea change? in which the public makes choices based on quality and price?? That means more information. Part of that information may lead consumers away from big hospitals to lower cost free-standing facilities, where services like MRIs can cost half of what they cost in a big medical center. The old-line hospitals may be hard pressed to pay ?the debt loads from new building projects,? and have to cut back on charity care and trauma care.

SOURCE: http://www.jsonline.com/bym/News/jan03/113577.asp



46% of Large Employers Interested in Consumer Driven Plans — Hewitt


A new survey by Hewitt finds 46% of the large employers surveyed, ?are interested in offering a consumer driven plan with an HRA to employees as either a replacement plan or an option to supplement traditional plans.? It also finds that companies are expecting a 15% rate increase in 2003, but can only absorb an 8% increase, leaving a 7% gap that workers will have to fill. Employers are also interested in implementing ?custom design plans, which allow employees to customize their benefit options and levels for physician, hospital, and pharmacy benefits?? If such a plan would lower costs by 10%, 72% of companies would be interested, while 37% are interested even if costs stayed the same. There is also a high level of interest in multi-tier hospital coverage, which also require employees to make more decisions in seeking health care services. Over 80% of the employers surveyed are ?somewhat or extremely comfortable with employees taking more responsibility for evaluating and selecting their own health plans, coverage levels, providers, and health care services.?

SOURCE: Copies of the survey, ?Health Care Expectations: Future Strategy and Direction,? are available from Hewitt at

infodesk@hewitt.com or by calling 847-295-5000.



VENDOR CORNER


CareGain reports that a beta test of its products with three employers last year resulted in an average saving of 26 percent in health care costs. CareGain offers four different benefits packages, with MyCarePortal as the centerpiece cost control and decision support tool. Contact Russell LaMontagne at russel@corinthgroup.com, or 212-255-5340, for more information.


West Virginia based Vested Health has received new venture capital funding ?to expand operations and infrastructure.? It describes itself as ?the region?s leading provider of consumer driven health plans, serving the middle market of 10-2,000 employees. For more information, contact CEO Mike Baker at mbaker@vestedhealth.com or 866-347-3640.


Medfield, Massachusetts based Benemax claims a 35% growth in 2002. It describes itself as ?a benefit management company that bucked the managed care trend? as early as 1985. It claims ?employers can save as much as 25% in premiums over managed care plans without compromising routine or emergency care for employees.? For more information, contact Lisa Jacobson at ljacobson@kogspr.com, or 617-497-0193.


SHARE THIS ARTICLE

About the author