ANALYSIS: Health savings accounts lucrative for insurers, costly for consumers

Introduction

In its ongoing attempt to weaken a key provision of the health care reform law—the one that requires insurers to spend at least 80 percent of premiums on medical care—the insurance industry is predicting dire consequences for people enrolled in health savings accounts (HSAs) if lawmakers don’t act soon.

America’s Health Insurance Plans (AHIP), the insurance lobbying group, warned in a recent report that the rapid growth of HSAs will be hurt unless Congress exempts them from the 80 percent requirement – or abolishes the threshold altogether.

HSAs are available only to people enrolled in high-deductible plans. They are also exceedingly profitable for insurers.

AHIP said it is “reaching out to policymakers on both sides of the aisle about ways to mitigate the potential unintended consequences of provisions in the new health care reform law that could disrupt or limit the availability of coverage through HSA plans.”

Having spent nearly 20 years in the health insurance industry, I knew it was just a matter of time before AHIP would mount a big campaign to ensure a bright future for HSA plans.

One of the reasons I left my job in the insurance industry was because I could not in good faith continue to promote HSA plans as the best thing since sliced bread, as I was expected to do. I knew from my own research that these plans were not good options for most Americans. I came to realize that ever-increasing numbers of people who were enrolling in them were actually joining the ranks of the underinsured because they had to spend far more out of their own pockets for care than they ever had before.

AHIP crowed in its report that more than 11.4 million Americans are now covered by HSA plans, an increase of 14 percent since just last year. “HSA plans continue to be a vital source of affordable coverage for millions of families and employees across the country,” AHIP president Karen Ignagni said.

Really?

What Ignagni did not say was that only the wealthiest Americans can afford to sock any money away in their HSAs and to use more of their own resources to pay for care.

She also didn’t acknowledge that the real reason for the rapid growth of HSAs is that her industry is well on its way to eliminating all health plans that don’t feature high deductibles. Insurers don’t want anything to stand in their way.

Insurers spend less on care for people enrolled in HSAs, which is why they are so profitable. The requirement to spend at least 80 percent of premiums on medical care would put a crimp in those profits. Hence, the real reason for the AHIP report.

The U.S. Government Accountability Office was among the first to sound the alarm about the shortcomings of HSAs, soon after insurers started offering them.

The GAO noted in an August 2006 report, based on a survey it conducted and other research, that just slightly more than half of all HSA-eligible plan enrollees contributed any money at all to their HSAs. Not only that, but a third of all employers offering HSA plans did not contribute anything to them either. Of the employers that did, the average contribution was $1,064 in 2004.

Not much has changed since then.

Last year, according to the Employee Benefits Research Institute (EBRI), the average balance in an HSA was just $1,355—almost 5 percent less than in 2009—and very little of that money was contributed by employees.

The problem is that the majority of people enrolled in these plans, often against their will, simply do not have the disposable income to contribute any significant amounts of money to their HSAs.

As I noted earlier this week, the median household income in this country is actually 5 percent lower today than it was in 1999, after adjusting for inflation. Most of that decline occurred during the George W. Bush administration, which joined the health insurance industry in persuading Congress to pass legislation making HSAs more attractive by converting them to tax shelters.

That tax exemption has turned out to be a terrific new way for wealthy Americans to avoid sending money to the IRS. The problem, of course, is that the tax shelter is of virtually no value to people who don’t have the money to put into an HSA.

People who are enrolled in these plans are the first to tell you that. Most participants in the GAO survey said they would not recommend HSAs to anyone who might not have the funds to meet the high deductibles. Not only that, they said they would not recommend them to anyone on maintenance medication, to anyone who has a chronic condition, and to anyone with children.

That hasn’t changed. The benefits consulting firm Towers Perrin found in a 2007 survey that employees enrolled in HSAs were “significantly less satisfied with many elements of their health benefit plan compared to those enrolled in traditional health benefit plans.”

Satisfaction with these plans has not gotten any better. According to a 2009 EBRI survey, individuals who were in high-deductible plans “were found to be less likely than those in traditional plans both to recommend their health plan to a friend or co-worker, and to stay with their current plan, if they had the opportunity to switch plans.”

That last part is especially telling. The majority of people enrolled in HSAs said they wished they could get out of them, but couldn’t.

Only 38 percent of respondents in the EBRI survey said they would stay in their high-deductible plan if they had the option of switching back to a more traditional plan.

As the Rand Corporation noted in a 2009 study, “Several analyses suggest that consumers with few health care needs will see savings if they switch from a standard plan to an HDHP (high-deductible health plan), whereas those with chronic diseases and moderate health care needs will likely face higher out-of-pocket costs for health care.”

A Commonwealth Fund survey in 2005 showed that 54 percent of individuals in health plans with a deductible greater than $1,000 reported difficulty paying medical bills compared with 39 percent of individuals with deductibles under $500 and 24 percent of individuals in plans with no deductibles.

The situation is especially bad for low-income people enrolled in high-deductible plans.

Dr. Jeff Kullgren, a Robert Wood Johnson Foundation Clinical Scholar at the University of Pennsylvania, wrote just last November in the Archives of Internal Medicine that, based on research he conducted of people enrolled in high-deductible plans, “lower-income families (in such plans) were significantly more likely than higher-income families to delay or forego health care services because of cost.”

Unfortunately, HSAs and other types of high-deductible plans are becoming the only choice that people have or can afford. That’s why AHIP was able to tell policymakers how fast these plans have been growing. It is not because people have been clamoring to join them.

Insurers are eager to send HMOs, PPOs and every other low-deductible plan to the ash-heap of health care history because they are not as profitable as high-deductible plans.

HSAs and similar high deductible plans are a central part of the industry’s strategy to shift more and more of the cost of care from them to us. To get the job done, they are encouraging employers to go “full-replacement.” That’s the insurance industry’s euphemistic term for eliminating all benefit plans except those with high deductibles.

The trend is well under way. The benefits-consulting firm Mercer found in a recent survey of employers that a fifth of them planned to move all of their employees out of their current plans and into high deductible plans this year.

If AHIP gets its way, not only will it be able to gut an important provision of the health care reform law, it will put all of us in a forced march into these plans, and, at the same time, into the swelling ranks of the underinsured.