The age of managed care ended and the era of consumer-driven health care began on Wednesday, June 26, 2002.
That was the day the IRS ruled that companies all over America now can liberate their employees from the shackles of bureaucratic control over their health coverage and create new health plans with incentives for employees to be partners in decisions about their health spending.
Remember how Sen. Ted Kennedy tied Medical Savings Accounts into knots in the 1996 legislation, allowing only 750,000 of the policies to be sold (too few for a real market to emerge) and strictly limiting their terms? Well, this new ruling will allow millions of employers to offer a new form of Medical Savings Accounts to tens of millions of workers. And workers and their employers, not Sen. Kennedy, will decide the terms.
This is a huge victory. In a release announcing the ruling, Treasury Secretary Paul O’Neill said: “With this new guidance, we clear the way for employers to adopt health plans with patient-directed features so that employees have more choice and greater control over their health care coverage.”
Here’s how it would work: Some workers will choose to stay with their PPO or HMO, but others will opt instead for the new accounts (which the IRS calls “Health Reimbursement Arrangements”).
The company would put part of the money it had been spending on premiums for an employee into an account that the employee can use for routine medical bills and use the rest to purchase a catastrophic policy to cover major medical bills.
The key part of the IRS ruling is to allow employees to roll over from one year to the next any amount in the account that they have saved. And they can continue to access the money even after they leave the company or retire. It’s theirs! Good-bye use-it-or-lose-it.
This dramatically changes the incentives in health care. Finally, consumers will see the money that they are spending on health care as real money – with dollars that have the same value as the ones they spend on groceries, clothes, and housing payments. And the money is theirs to keep if they spend wisely.
This is the revolution we all have been waiting for, and this IRS ruling – not an act of Congress – was the key. This is true jujitsu: The IRS, the tax exclusion for employment-based health insurance, and ERISA suddenly are our friends. Imagine that!
Kudos to Jack Rowe and his team at Aetna who led the charge in requesting this ruling. A number of major companies are ready to offer this new product in their health insurance mix but were waiting for the IRS to rule on whether or not the rollover was legal.
There are a lot of nuances in how these new policies will be shaped, involving incentives for preventive care and networks of doctors that agree to lower rates in return for the direct payment. But blessedly, companies, and not Washington, will be in charge of making those decisions.
Fortune magazine reported recently on Humana’s experience in offering this new health product to its own employees and how they helped curb Humana’s internal health-insurance expense. “Expected to go up 19% this year, it may rise as little as 3.7%.”
A new era indeed is dawning. Here’s the link to the Treasury news release and IRS documents for more details: http://www.ustreas.gov/press/releases/po3204.htm.