Good Guidance

If anyone needed further evidence that the Bush administration really wants Health Savings Accounts to work, they found it in new regulations issued this week by the Treasury Department and IRS.

Many companies, especially large ones, have been waiting for additional guidance before deciding whether to offer HSAs as an employee benefit in 2005, saying they needed the guidance by the end of March or the window would be closed to negotiate contracts for next year.

Greg Scandlen provides more detail on the new regulations in his newsletter, but here?s a summary:

? Preventive care: In order to open a tax-preferred Health Savings Account, the holder must have high-deductible health insurance coverage that begins after an individual has spent at least $1,000, or $2,000 for a family, in a year. But Congress didn?t want people to forgo preventive services and worried that they might if they had to pay for them out of their HSA. So the HSA legislation said that preventive care could be covered by insurance and doesn?t have to come out of the savings account.

But Congress left the definition of preventive care up to the regulators. Treasury?s task was a little like the tale of the Three Bears: Officials didn?t want to make it too broad or it would defeat the purpose of HSAs by running most services through insurance. And they didn?t want to make it too narrow for fear they would choke off interest in the new accounts.

Like Goldilocks, Treasury seems to have hit it just right, giving employers and plans flexibility but also clarifying what traditional preventive services include — annual physicals, immunizations, and screening services plus routine prenatal and well-child care, and tobacco cessation and weight-loss programs.

? Interaction with prescription drug benefits. Many employers wanted prescription drug benefits to be included as a preventive service. But the IRS said that people can?t have a separate plan for prescription drug coverage along with an HSA because the drug coverage would violate the provisions of a high-deductible health plan.

But the IRS offered a safe harbor, saying that it would allow the dual coverage until 2006 for people who have both an HSA and a plan that covers prescription drugs.

? Transition relief. Some people who want to set up HSAs are finding it hard to locate a trustee or custodian to manage their accounts because the banking and financial services industries are still trying to figure out how and whether to participate.

So the IRS said that people can save their medical receipts and qualify for an HSA this year as long as they find a trustee to handle their account by April 15 of 2005.

It is amazing how such a simple idea as HSAs can breed so many questions and such complexity. But congratulations to the IRS for providing the flexibility to help account holders through the transition to this new era in consumer-directed health care. And thanks to Tara Persico of our office who attended the briefing at Treasury for us, since both Greg Scandlen and I were speaking at the Consumer Directed Health Care Conference and Expo in Las Vegas.

Minute Clinic: And we had further proof this week from Diane Lysen and other good friends from the Minnesota Association of Health Underwriters that the world of health care delivery is becoming more consumer focused. They reported on a new company that is thriving in Minneapolis called the Minute Clinic.

A dozen Minute Clinics are housed in Target and Cub Food stores in the city and provide routine medical services for fixed fees. The clinics open early, stay open late, and operate on weekends. Patients are generally in and out in 15 minutes.

The best part is that prices are posted. Treatments for things like strep throat, ear infections, and poison ivy cost $41. Screenings for cholesterol, blood pressure, or pregnancy cost $20-$40. And vaccinations cost $25-$50. Attention HSA owners: This place is for you!

Grace-Marie Turner

Health Policy Matters will take next week off for Easter and return on April 16.


? Hewitt study shows majority of employers likely to offer new health savings accounts

? The questions candidates should answer about?Americans without health insurance

? How federalism could spur bipartisan action on the uninsured

? Medicare: A ticking time bomb for tax increases

? Doctors flee Illinois


Source: Hewitt Associates, 3/31/2004

More than 60 percent of large employers say they are likely to offer Health Savings Accounts to their employees, according to a new survey of nearly 270 companies conducted by Hewitt Associates, an HR outsourcing and consulting firm. But Hewitt found that only one-third of the companies have the required design structure in place now to offer the new accounts, particularly high-deductible health insurance that must accompany the savings accounts. Companies will need to make ?significant health plan design changes? and add high-deductible health plans to their current offerings, Hewitt observed in a news release. The survey also found that 67 percent of companies intend to provide their employees with education about HSAs and instructions on how to use them.

Full text:


Source: American Academy of Actuaries, 03/31/2004

Several broad proposals for extending health insurance coverage have been offered this election year as the issue of the uninsured once again takes center stage. This timely guide published by the American Academy of Actuaries helps ?identify the myriad of issues that should be considered when designing and evaluating proposals to expand health insurance coverage.? The report focuses on identifying the target population; the costs to individuals, employers, and states; the benefit packages; and the impact on regulation, the health insurance market, and overall health costs. According to the report, ?Addressing these and other issues should help minimize any unintended consequences of the proposals put forward and increase the chances for success.?

Full text:


Authors: Henry J. Aaron and Stuart M. Butler

Source: Health Affairs Web Exclusive, 03/31/2004

?Federally supported state experimentation? is the best way to expand health insurance coverage, write Henry Aaron of the Brookings Institution and Stuart Butler of The Heritage Foundation. ?States should be allowed to try widely differing solutions with federal financial support under legislated guidelines, including specific protections and measurable goals,? write the authors. They also encourage Congress to create a ?policy toolbox? of federal initiatives, including expansions of existing policies, which would be available to states ? la carte to apply within their borders. The authors conclude, ?By actually testing competing approaches to reach common goals, rather than endlessly debating them, the United States if far more likely to find the solution to the perplexing and seemingly intractable problem of uninsurance.?

Full text:


Author: Daniel J. Mitchell

Source: The Heritage Foundation, 03/31/2004

The new prescription drug benefit ?will likely be the death knell of further tax relief and fundamental tax reform,? writes Daniel Mitchell of The Heritage Foundation. Escalating growth in entitlement spending will lead to ?enormous pressure for higher taxes,? endangering President Bush?s 2001 and 2003 tax cuts. The drug benefit will also result in more federal spending and bigger deficits, threatening fundamental tax reform in the future. ?A bigger Medicare system ? particularly one insulated from market-based reforms ? will make it more difficult to replace the Internal Revenue Code with a pro-growth flat tax,? Mitchell concludes.

Full text:


Author: Steve Stanek

Source: Health Care News, 4/1/2004

The April edition of Health Care News contains several articles detailing the difficulties states are facing in their efforts to address the medical malpractice crisis. According to the Illinois State Medical Society, from 1997 through 2002, the average total jury verdict in Illinois went up 61 percent. ?As the number of companies willing to sell medical malpractice insurance in Illinois shrinks and insurance premiums skyrocket, doctors are moving out of the state or quitting medicine entirely,? writes Steve Stanek. Stanek notes that more than 30 malpractice insurers went bankrupt or stopped doing business in Illinois over the past five years and several cities no longer have specialists such as neurosurgeons.

Full text:

The Wall Street Journal reported yesterday on a new study that found medical-malpractice jury awards stayed level for the last three years that data has been available. ?Although median malpractice jury awards more than doubled from 1996 to 2000, these awards have stayed relatively steady since then, according to the study,? reports the Journal.

Full text (requires subscription):,,SB108077741436170888,00.html



How Leading Health Plans Are Reshaping Health Care

American Enterprise Institute Health Policy Discussion

Tuesday, April 6, 2004, Noon – 2:00 p.m.

Washington, D.C.

For additional details and registration information, go to:,eventID.770,filter./event_detail.asp.

How Can Vaccine Shortages Be Prevented?

American Enterprise Institute Conference

Thursday, April 15, 2004, 11:00 a.m. ? 2:00 p.m.

Washington, DC

For additional details and registration information, go to:,eventID.787,filter./event_detail.asp

Health Care System Crisis: How Can We Proceed with Reform

American Enterprise Institute Health Policy Discussion

Friday, April 16, 2004, 9:00 ? 10:30 a.m.

For additional details and registration information, go to:,eventID.771,filter./event_detail.asp

Health Care In Maryland: Diagnoses And Possible Remedies

Maryland Public Policy Institute Forum

Thursday, April 8, 2004, 12:00 p.m. -1:30 p.m.

Annapolis, Maryland

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing commentary on health policy developments, summaries of timely and informative studies and articles on free-market health reform, and notices of upcoming events. It features research and writings by participants in the Health Policy Consensus Group. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about this newsletter and our organization, please visit our website at

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Elizabeth Lamirand

Editor, Health Policy Matters