IN THIS ISSUE:
? Onward to 2004!
? Ways and Means Clarifications
? EBIA’s HSA Analysis
? Alston & Bird’s HSA Analysis
? HSAs and HRAs – Can They Work Together?
? Back Lash from the Left
Onward to 2004!
Please consider the Galen Institute in your year-end planning. Not only is your contribution tax-deductible, but it will help us get the word out about Health Savings Accounts (HSAs) and other pro-consumer developments in the health financing world in 2004. We will also be promoting ideas such as –
? Securing tax credits for people who don’t have coverage on the job
? Defining another round of Medicare reforms to include removing the bans on balance billing and private contracting
? Supporting physicians who set up cash-only practices
? Building a grass-roots network of activists who can present these new ideas within their own communities
? Educating legislators about the need to repeal onerous state regulations on insurers and physicians
? Encouraging state efforts to reform Medicaid and state employee benefits
? Assisting international efforts toward market based consumerism in health care.
It’s a full plate and we need your help to charge up the batteries for the new year. Please go to: http://www.galen.org/join.asp to find out how to support the Galen Institute.
Ways and Means Clarifications
The world has changed. Suddenly Health Savings Accounts (HSAs) are literally the talk of the town. Everyone wants to know exactly what is required and how they can be implemented. Ways and Means staff wanted to clarify a few points from last week’s newsletter. Specifically –
? I wrote last week that the maximum contributions are $2,250 and $4,500. That isn’t quite right. These numbers are based in 1997 when Archer Medical Savings Accounts (MSAs) went into effect, and have been adjusted upwards in the intervening years. In 2004, the maximum contributions will be $2,600 for individuals and $5,150 for families.
? I said HSA funds may not be used to pay insurance premiums except for long-term care, COBRA continuation, and coverage while receiving unemployment benefits. HSA funds may also be used to pay for retiree health insurance premiums other than Medigap. This includes Medicare premiums.
? I neglected to mention that Medicare MSAs have been reauthorized and appear to be permanent. (see Title II, section 233).
? Finally, implementing regulations will be issued by the Department of Treasury and the Internal Revenue Service. These are the same agencies that issued the guidance on HRAs, so we can expect outside comments to be welcomed and the rules to be sensible.
EBIA’s HSA Analysis
In the past week, more guidance has been issued from knowledgeable sources. Perhaps the best is from the Employee Benefits Institute of America (EBIA) that issues a weekly round-up of case law, regulations, and legislation relating to employer benefits issues. The EBIA analysis emphasizes that HSAs may be more attractive than health Flexible Spending Accounts (FSAs) in many situations. Certainly the fact that HSAs do not suffer from the “use-it-or-lose-it” provision of FSAs is favorable, but EBIA also expects the HSAs will be free of the “independent claims adjudication” requirement of FSAs.
SOURCE: http://www.ebia.com/weekly/index.jsp. You may sign up to get the weekly or search for past articles. The one in question was issued 11/26/03.
The law firm of Alston & Bird also issued an Advisory on HSAs this week. The Alston & Bird analysis is particularly interested in the HSA inclusion in cafeteria plans. It says, “HSAs (unlike Archer MSAs) can be funded with employee pre-tax salary reduction.” It wonders if there is a problem with the non-medical use of such money and whether “third party claims review is in order.” It also questions how ERISA rules will apply to the HSA and “What, if any, annual reporting will be required for an HSA?”
I have received a lot of questions about whether and how Health Reimbursement Arrangements (HRAs) and HSAs can co-exist. My reading of the legislation is that they can – provided the HRA money is not used to cover expenses below the minimum deductibles of the HSA coverage. The $1,000/$2,000 deductibles are sacrosanct and may be filled only by HSA funds or direct out-of-pocket spending. Once that deductible hurdle is met, there appears to be no reason an HRA would not be considered part of the high-deductible health plan. So, a worker might have a $1,000 deductible with 50/50 coinsurance up to the OOP maximum of $5,000. I see no reason that a worker couldn’t have an HSA to cover the deductible, plus an HRA to cover the coinsurance.
It didn’t take long for the left wing to realize the impact of the HSA provision. Don McCanne, president of Physicians for a National Health Program (PNHP), quoted extensively from my last newsletter under the title “Stop the HSA Tsunami!!” He ended his missive by saying (in all caps) “CONTACT YOUR REPRESENTATIVES AND SENATORS IMMEDIATELY AND DEMAND THE URGENT REPEAL OF TITLE XII OF THE MEDICARE ACT!” (Title XII is the HSA portion of the bill).
Sure enough, like a jack-in-the-box, Senator Tom Daschle (D-SD) immediately popped up with a proposal to repeal the HSA. This might be worrisome if the arguments from PNHP had any merit. They don’t. They are just window dressing for their real concern, which is that HSAs and patient empowerment will be the death of their long-cherished hopes for a nationalized health insurance scheme.
Below I paraphrase their arguments and my rebuttals:
PNHP: HSAs fragment the insurance pool.
CCM: There is no “insurance pool” in the United States. There are tens of thousands of insurance pools, none of which subsidizes the others. Each individual pool pays only the costs of its own enrollees. HSAs do not change that.
PNHP: HSAs will appeal only to the “Healthy and Wealthy.”
CCM: I addressed this charge in a letter to the “Washington Post” this week (see below). There is not a scintilla of support for this assertion, either in theory or in practice. We have seen no selection problems with MSAs or with HRAs in multiple choice settings, and small wonder – the opportunity to pay less in premiums and save money for the future is far more attractive to lower-income people than it is to “the wealthy,” and high-utilizers are the very people who have rejected managed care because they want more control over their choice of doctor and treatments.
PNHP: HSAs will result in traditional coverage becoming unaffordable.
CCM: This is often parroted, but it is never explained what is meant by “traditional coverage.” If they mean major medical indemnity plans, they barely exist anymore. The blame can hardly be put on HSAs (or MSAs), but on managed care. I doubt if PNHP means HMOs when it speaks of “traditional coverage,” since PNHP seems to despise HMOs. And in McCanne’s letter, he doesn’t seem to think very highly of PPOs either. If anything, HSAs will offer an alternative that is much closer to “traditional coverage” than anything else on the market.
PNHP: PPOs have already raised deductibles and cost-sharing, so there won’t be much premium savings in switching to a high-deductible plan.
CCM: That may be true in some cases. But the HSA will provide people with a tax-favored way of paying for the out-of-pocket costs they are already incurring on an after-tax basis. This is a benefit for anyone who currently pays taxes. There will also be a dynamic effect as costs become more visible to consumers, and they begin to force the industry to develop more attractive pricing.
PNHP: The individual market discriminates against people with pre-existing conditions.
CCM: Again, that may be true, but it is irrelevant to the merits of HSAs. In fact, it would be desirable if high-risk pools also developed HSA products for their enrollees.
PNHP: The HSA administration adds another layer of costs in a system that is already wasteful.
CCM: HSA administration should be as easy and cheap as a checking account at the local bank or a bank card. Certainly this is well below the administrative cost involved in moving the same money through an insurance mechanism, with the 40% – 15% overhead cost incurred by insurance companies. More importantly, the administrative cost for physicians will be close to zero as they simply present a bill to be paid at the time of service.
PNHP: Once someone is eligible for Medicare, they can withdraw HSA funds with no penalty, like an IRA.
CCM: Well, yes, that is true. But this is a good thing, not a bad thing. People will be able to use their HSA funds to pay for their retiree benefits. And it can help supplement a retiree’s income when they are no longer able to work. HSA money is also available to help pay for long-term care needs, something no other plan is doing anything about.
Other arguments often raised but not included in the McCanne letter are these:
“HSAs may help control costs at the low-end, but they do nothing about high-end expenses where the real problem is.”
CCM: That isn’t entirely true, but the point is valid. HSAs will likely create economizing habits that will not disappear once someone breaks through the deductible. But it is true that additional mechanisms are needed to address the high-end costs.
“Other tax-favored savings plans (IRAs, Roth IRAs, 401Ks) provide a tax advantage at one end or the other, but HSAs are tax-free both when the money is put in and when it is withdrawn.”
CCM: But HSAs are not a substitute for retirement accounts, they are a substitute for a portion of health insurance coverage. Most health insurance is also tax free when the premiums are paid, and also when the benefits are received.
SOURCES: For my letter to the “Post,” go to:
For information on Senator Daschle’s ruminations, go to: