HSAs & Consumer Driven Healthcare Will Fail…(unless)

Milton Friedman, a Nobel Prize winning economist, has propagated the concept that that no one spends someone else’s money as carefully as they spend their own. This is the key concept that proponents for health savings accounts (HSAs) and consumer driven healthcare (CDH) use to argue their case for potentially the biggest overhaul of the healthcare industry since HMOs were launched during the Nixon Administration.

Consumer driven healthcare supporters assert that people with high-deductible insurance policies coupled with savings accounts will be more careful consumers of healthcare and ultimately drive down healthcare spending. Opponents argue that CDH is really just the latest form of cost shifting from employers to employees and that rather than spending more responsibly, consumers in these types of plans will be more inclined to avoid necessary care. Who is right?

Many national studies suggest, and my own experience as a practicing general surgeon concurs, that there is a lot of opportunity to reduce healthcare spending and have equal, if not better, outcomes. All it takes is one look at the typical physician’s office medicine cupboard, packed with free samples of expensive, name brand drugs, many of which have lower cost, equally effective alternatives, to know that there is a lot of fat in the system. Moreover, our healthcare system is often improperly and over-used. The American Institute for Preventive Medicine estimates that more than 55 percent of all visits to the emergency room and 25 percent of all visits to office-based physicians are unnecessary!

This abuse of the system is one of the major contributing factors that are causing healthcare costs to rise at three to four times the normal rate of inflation. No wonder most Americans are, at first, intimidated by the thought of CDH, taking responsibility for their spending and use of the system. Faced with the proposition of navigating the system alone they ask, “Where is my HMO when I need it?”

Yet, as we approach nearly 20 percent of the nation’s GDP spent on healthcare, it is clear that things must change or we will face a collapse of the current system. The CDH solution empowers people to make more cost-conscious decisions because it effectively changes employer-based healthcare from a defined benefits system to a defined contribution system. Employers can still offer employees protection from very costly, major medical events with high-deductible insurance while funding a CDH account with defined contribution dollars that can be used toward minor medical expenses.

The federal government allows the CDH accounts to be funded with pre-tax dollars and employees are instructed to use this money for first dollar, “under-the-deductible” expenses, as well as for a myriad of other healthcare spending included over-the-counter medications, alternative medicine, and other things that may not be typically covered by the employer’s plan and hence, not applied toward the deductible.

Here is the interesting part—the employer then tells the employee to “go and spend wisely,” often times without any specific education, tools, or support that is necessary to make better choices.

News Flash! Very few Americans have attended medical school and they simply do not know enough or have the ability to make better choices. Most folks don’t know the difference between an otoscope and a colononoscope, which is concerning since one enters through your ear and the other through your rear! What needs to be done?

In the early 1980’s, employers began making a monumental shift in employee retirement benefits as they began offering defined contribution 401K plans rather than defined benefit pension plans. Today approximately 50 million American families have 401K accounts and most have a cursory understanding of their contribution requirements, portfolio composition, and how they perform transactions. Much of this knowledge was transferred to consumers from a new industry of financial advisors that grew aggressively following the emergence of 401Ks and IRAs. Financial advisors helped regular people better understand how to manage their own investments.

Managing your healthcare dollars, including choosing the right provider, the right care, at the right time, for the right price is much more complicated, and potentially much more important, than managing your retirement accounts. Where is the budding industry of healthcare financial advisors, trained to help people better make these critical decisions? It is largely non-existent, except for a few cases.

When consumer driven healthcare accounts, such as health savings accounts (HSAs), hit the market, many financial service companies were eager to make a play for the predicted billions of dollars that will be invested in these accounts. Many rushed to the market with incomplete products. Banks, eager to share in the interest spread made off of the HSA deposits, offer account administration only, but few have services aside from normal banking offerings. Bottom line: few banks have the stomach or the expertise to dive headlong into providing true healthcare financial services.

Health plans that partnered with banks also rushed their products to market, eager to gain market share. Health plans are well positioned to price high-deductible plans, contract with hospitals and physicians, and to sell their plans through brokers. However, they typically do a poor job of offering consumers help and assistance that will help them make better decisions about saving and spending their healthcare dollars.

Healthcare financial service companies specialize in bridging the gap between insurance companies and banking institutions. Without the help of healthcare financial services, CDH will fail. Consumers will all too often fall into one of two categories; the Healthcare Spender and Healthcare Avoider.

The Healthcare Spender blows through their healthcare account almost immediately. This group goes to the emergency room and to their primary care provider when it is unnecessary, just to be on the safe side. Perhaps they have a chronic illness and are prescribed expensive medications, or maybe they choose to spend their healthcare dollars on retail services instead of leveraging health plan discounts. Because they lack the information about when care is necessary and how to find generic or alternative medications, they overspend.

The Healthcare Avoider avoids care because they are concerned about spending any money from their healthcare account. They will postpone necessary trips to medical providers because they fear the bill. This will, inevitably, backfire due to the “ounce of prevention is worth a pound of cure” truism. Illness and injuries are much more difficult and expensive to treat the longer they are left unattended.

As a practicing physician and the CEO of a CDH solutions provider, I have seen these two scenarios all too often. To steer clear of either of these results, consumers must be given access to healthcare financial services that can empower them to recognize when to get care and what type of care to get. Consumers with access to healthcare financial services can steer clear of the fate of the Spender and Avoider, becoming empowered Healthcare Consumers.

These empowered Healthcare Consumers learn to spend and save appropriately. They treat purchasing healthcare like shopping for a car, with a lot of research about cost and quality before any decision is made. I’ve met many of these types of consumers in my various roles, and even those in the most challenging of positions have learned how to succeed in the system.

For example, at first glance, Holly would not have appeared to be a good candidate for CDH. As a diabetic, her healthcare costs were already high. Assuming responsibility beyond co-pays was intimidating. Luckily for Holly, her HSA plan included a suite of healthcare financial services. Researching with these tools and on her own, Holly found a generic glucose monitor and test strips. This reduced her cost from $10 a test strip to 50 cents. She learned to use generic medications, watch for coupons, and ask her doctor questions about alternative treatments. Through research and smart shopping, Holly reduced her overall average costs from $155 a month to $75 a month. At the end of the year, after factoring in premium changes and tax-savings, Holly had found she had ended up saving a substantial amount of money by switching to an HSA from her old plan.

Fortunately for proponents of CDH and the consumers who have these plans, the market is beginning to expand to include healthcare financial services, creating more consumers like Holly. It is important for employers and individuals looking for these plans to carefully evaluate a variety of solutions. While most, if not all, CDH vendors charge some type of fee to maintain a healthcare account, the level of service attached to that fee varies wildly. Doing the research to find a company that offers comprehensive education and support can make the difference between a successful or failed experience.

Watson Wyatt confirmed the benefits of education and support in their 2006 National Business Group on Health 11th Annual Survey to Large Employers.” The best performing employers in their survey were able to manage their healthcare costs and contain them at an increase that was four times lower than that of the poor performers. According to the survey, “Best-performing companies are 24 percent more likely to provide or plan to provide programs to help employees manage their own health… Best performers also do a better job of providing resources that both promote access to health care and encourage employees to make more informed decisions and use health services appropriately.”

Employers and individuals looking for a CDH plan should research the vendors based on following criteria:

1. They must be high tech and high touch. While technological solutions provide ways to sort and deliver mass quantities of information, a high touch component is necessary to help consumers understand the output of the technical component. A CDH solution should include high-tech online medical encyclopedias and cost estimators as well as high-touch 24-client services and nurse lines.
2. They must always be available. One of the earliest messages I learned as surgical intern is that people get sick in the middle of the night. Technology must be reliable and support round-the-clock (24/7/365) in order to meet the needs of the consumer.
3. They must provide easily accessible and digestible health and cost management information. This includes a medical library, nurse line, self-diagnostic tools, Rx generic and substitution information, and price and quality comparison information.
4. They need to give consumers the ability to manage their medical claims and healthcare account balances in one place--an online personal CDH desktop. In other words, the health insurance component and the healthcare account component of their plans must be integrated to provide seamless use.

By achieving these criteria, a supported member with the motivation to save their money will become a savvy Healthcare Consumer instead of a Healthcare Spender or Healthcare Avoider.

Consumer driven healthcare will fail unless consumers are educated, empowered, and supported with the knowledge they need to make good decisions. Similar to 401Ks and IRAs, CDH and HSAs require a higher, not a lower level of service, than what was provided in the old world. Without the mission critical healthcare financial services, CDH will not create careful consumers that decrease spending, but may be, as the critics claim, just another cost shift.

Stephen Neeleman, MD, is a board certified surgeon, practicing in American Fork Utah. Dr. Neeleman is the CEO and a cofounder of HealthEquity a Consumer Driven Healthcare Solutions provider dedicated to empowering the consumer. Dr. Neeleman founded HealthEquity with a vision to help more people obtain health insurance by re-introducing consumerism into health care. Dr. Neeleman serves on the Council for Affordable Health Insurance HSA Working Group and on the National Health Care Reform Coalition. He is co-author of The Complete HSA Guidebook.