FREDERICK, Md. — The recently passed Medicare bill contains some very important provisions to empower people who are not on Medicare, including a new way of paying for healthcare that can apply to all Americans.
The new Health Savings Accounts (HSA) that take effect on January 1, 2004 will give all 250 million non-elderly Americans access to a Medical Savings Account – one that is far more attractive than the Archer MSAs enacted in 1996.
The HSAs are the latest chapter in an ongoing movement to transform healthcare from a system in which third-party payers control all the money and make all the decisions to one in which individual consumers can control their own funds and use their money to pay for the services they value the most.
To get an HSA all you will need is an insurance plan that has a deductible of at least $1,000 for individuals – or $2,000 for family coverage. Your employer might provide the insurance or you can buy it yourself.
Once you have such a plan, you and your employer will be able to contribute the full amount of your deductible every year, up to a limit in 2004 of $2,600 for individuals and $5,150 for families. So, if you have a $1,500 deductible, your employer might contribute $750 and you could contribute the remaining $750.
The funds remain tax-free as long as you own the account and pay for healthcare services from it. The funds can be invested and earn interest, which is also tax-free. However, if you use the money for anything else, you’ll have to pay the tax and a 10 percent penalty on the funds you withdraw.
It will be your money and portable – so if you change jobs or have a period of unemployment, you will still have that money to spend. You may spend it to continue your coverage while you are unemployed, or to pay for premiums once you have retired.
This will have profound implications for our healthcare system.
First, the HSA will be very popular. Almost anyone with an individual insurance policy will find it attractive. They currently get no tax break on their coverage at all.
The premium payment for an HSA plan will still not have a tax advantage, but the HSA deposit will be 100 percent deductible, even for those who do not itemize their income taxes. Individuals will minimize their premiums and maximize their HSA contributions.
Employers, too, will be attracted to these plans. They can keep their costs neutral and deposit into the account only what they save in premiums by raising the deductible. Employees will be able to add their own funds to the account, so out-of-pocket expenses are paid on a tax-free basis.
Once large numbers of Americans have HSA funds, they will start shopping around for the best use of the money. They are likely to choose physicians who prefer cash payment instead of putting up with the cost and hassle of insurance companies.
There are already a growing number of physicians who are dropping all insurance contracts and operating on a cash-only basis. They can charge a fraction of what other doctors charge because they no longer have to spend hours each week filling out costly federally mandated paperwork.
Patients get more “bang for their bucks” because one dollar in cash payment buys one dollar in healthcare services. Contrast that with sending the same money to an insurance company.
The company takes 20 percent off the top for their administrative fees, and then about half the payment to the doctor is used up in administrative costs ssociated with billing and accounting. So only about 40 cents of every dllar you pay out in premium comes back to you in the form of direct patient care.
It is not unusual for a physician who operates on a cash basis to charge only $25 or so for an office visit – not much more than the co-payment for most insurance plans. This is the kind of efficiency America is hungry for in healthcare.
There should also be a big affect on the uninsured. Currently, people who lose their jobs also lose their health insurance coverage – just when they can least afford it. Now people will be able to build-up funds in their HSA to save for a rainy day, such as when they are between jobs and need help keeping up their insurance coverage.
The result will be greater efficiency, lower costs, and fewer uninsured. Not bad for a day’s work. Health Savings Accounts, indeed, are a prime reason the new Medicare bill stands a good chance of revitalizing America’s currently crumbling healthcare system.