Bridging the Divide on Health Savings Accounts to Deliver Higher Value Health Care
Proponents of market-driven reform of U.S. health care agree that the worst solution to the problem of rapidly rising medical expenditures is government-imposed cost controls. They question the capacity of the federal government to manage something as complex as resource allocation in health care without unintended negative consequences. They propose instead to bring greater discipline to the health sector through market-based reforms and through innovation and cost-cutting driven by the private sector.
While there is agreement among pro-market advocates on the need for a functioning marketplace in the health sector, there is not complete unanimity on precisely what that would look like in practice.
Some stress the role of the consumer above all else -- the demand side of the market equation. They argue that the key missing ingredient in health care is cost and value-conscious decision-making by those actually using medical services.
Others, while not discounting the role of the consumer, put more emphasis on the supply side of the market -- the networks of hospitals, physician groups, outpatient clinics, labs and others who provide medical services to patients. They argue that while consumers can play an important role in making more discerning decisions about the use of services, there is a limit to what they can do on their own because of the complexity of medical care, especially in the most expensive cases. These supply-side reformers believe a more important part of the solution is better management of care delivery -- using data and sound business techniques to tame and bring under some level of control the often chaotic, fragmented, and inefficient care delivery system.
In a sense, the differing emphases of the two pro-market camps reflect a difference in perspective on who is in the best position to make difficult resource allocation decisions. Some believe consumers, if given control over the funds that are used to pay for care, can drive the medical marketplace to become more efficient over time by the choices they make, just as consumers in other sectors of the economy push suppliers to become more innovative and cost effective. Others believe that the delivery of medical services to patients is too complex a process for most consumers to navigate on a service-by-service basis. For instance, for someone with cancer, it is difficult to assess the quality differences among potential oncologists. These supply-side reformers argue that the solution is for consumers to delegate to an expert organization -- an insurer, or an integrated delivery system -- the responsibility for organizing a high-quality, evidence based network of service providers. When working as intended, a consumer enrolled in a well-run integrated care system doesn’t have to figure out how to navigate the care delivery process -- the managed care organization does it for him. Managed care organizations have an incentive to implement effective reforms when they are forced to operate on a fixed budget per patient or insurance enrollee -- a capitated rate. They can improve their bottom lines when they find ways to lower costs while keeping their enrollees healthy, and happy.
Both perspectives are valid, of course, and they need not be in conflict. What is needed at this point is a concerted effort to allow consumer-driven health care and better management of care delivery by providers to work in tandem to drive higher value health care.
An important starting point should be deregulation of the use of resources in Health Savings Accounts (HSAs). HSAs are the most prominent effort to place consumers at the center of important decision-making in the health sector. Consumers (and their employers) can make tax-preferred contributions to their HSAs, which can then be used to pay for the costs of needed medical care not covered by insurance payments. For consumers with high deductibles (often several thousand dollars), HSAs become an important financing source for paying for costs before insurance coverage kicks in.
HSA enrollees have an incentive to conserve the resources in their HSAs because it is their money. The more judicious they are in the use of their HSA funds, the larger their accounts will grow over time (they can make penalty free withdrawals for non-medical purposes at age 65 or older).
But an unspoken presumption of HSAs is that the account holders will use their funds to pay for care on a fee-for-service basis. Indeed, that is a requirement of current law and IRS regulations: HSA funds can only be withdrawn to pay for qualified medical expenses, which is to say they must be used to pay for a specific service or product purchased by the HSA account holder. But, in the best-managed care plans, care is not paid for on a piecemeal basis. Rather, the plan gets paid a fixed fee of some sort and then provides care to the enrollee according to medical need and the terms of their contract.
Despite the HSA bias toward unmanaged fee-for-service medicine, there are many examples in the marketplace today of HMOs sold in tandem with an HSA. Kaiser Permanente, for instance, enrolls many patients in its HSA-HMO plan. But these managed care offerings are adjusted to fit within the confines of today’s HSA rules, which means they look and feel more like loose network plans than tightly integrated managed care products.
To begin to harness more fully the power of both consumerism and managed care in controlling costs, the rules for HSAs should be modified substantially to allow HSA holders to use their balances to purchase care from integrated systems in more creative ways than on a fee-for-service basis. For instance, HSA holders should be allowed to pay a fixed monthly fee to integrated plans to secure access to a wide variety of services, including access to electronic records and the ability to connect with their providers remotely. Moreover, HSA holders should be allowed to purchase options contracts allowing them to access an integrated plan’s network and care protocols in the event they incur large medical expenses, such as in the course of cancer treatment. Giving consumers more leeway over the use of their HSA resources will allow them to exert more pressure on those supplying medical services to them, and thus also allow them to get services provided to them in ways that they prefer and at prices they find acceptable.
To many state insurance regulators, these kinds of arrangements will look suspiciously like premium payments. But if an HSA holder is already enrolled in an high-deductible insurance product, there is no reason to prevent them from using their HSA balances to secure the best possible arrangement for securing both primary and preventative care in an integrated setting and for accessing the best management possible in the case they need more expensive care.
Loosening the rules for the use of HSA accounts with managed care and other private plans could make room for creative arrangements, and it could foster greater price and quality competition among integrated care offering. One can imagine such plans competing with each other to attract HSA enrollees by offering access to a wide range of services on differing terms, depending on the preferences of the consumers. Using primary and preventative care could then be tied to seamless access to a well-managed system of care for those needing more intensive services. These products could be offered separate and apart from the high-deductible insurance plan that would finance, or partially finance, coverage above the deductible amount.
For decades, there have been separate efforts underway to promote a wider role for consumers in health care and better management of the care delivery process. What’s needed now is the ability of consumers to use their own resources to reward the best privately run plans with their business. That is happening in various ways today, but the process would speed up substantially if consumers and those supplying the services to them were freed up to pursue ever new creative ways of getting better services at less cost.
James C. Capretta is a resident fellow at the American Enterprise Institute.