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Time for a divorce?

In Texas, it's illegal to shoot a buffalo from the second floor of a hotel. In Louisiana, it's against the law to gargle in public places. And in the United States, you can't set up or contribute to a health savings account unless you also have a high deductible health plan. Crazy, huh?

Most laws, whether we agree with them or not, originally make sense in the beginning. But sometimes a good law can outlive its usefulness and actually become a constraint. That's exactly what's happened with HSAs.

HDHPs and HSAs used to be a perfect fit. A child of the consumer directed health care movement, the high deductible health plan was created to give members more financial responsibility for their health care. The up-front copays were removed from traditional PPO plans, and in their place consumers were given HSAs to help pay for routine expenses with tax-free dollars. In 2004, when these tax-advantaged plans first hit the market, this wasn't a bad idea--people were addicted to copays, and drastic measures were needed to help them kick the habit. But several things have changed in the last five years, and it seems the romance is dead.

The biggest change, of course, is that premiums have increased substantially To help offset these costs, members with traditional plans have been forced to absorb more out-of-pocket risk in the form of higher copays, bigger deductibles, and increased coinsurance amounts. What hasn't changed is that all of these expenses must still be paid with after-tax dollars. That's because a plan that includes up-front copayments for doctor visits and prescriptions is not eligible for a HSA.

On the other hand, an individual who chooses to forego the copays in favor of a "high deductible health plan" gets to pay all of his eligible medical expenses--not only doctor visits and prescription drugs, but also bigger costs like ER and hospital claims, and even non-medical expenses like dental and vision--with tax-free dollars.

Why? Don't people with copay plans still have deductibles to meet, coinsurance to pay, and dentists to visit? Shouldn't they, too, be able to enjoy the tax benefits of an HSA?

"But that doesn't encourage consumerism!"--I can hear the objections now. That is true--sort of. While a copay plan is not a consumer-directed product, a HSA certainly is--it encourages people to save for future medical expenses, and through the planning process they'll think about how they're spending their health care dollars. And while members who do have copays may not know the true cost of care, they do know how much it costs them. For someone with a chronic medical condition, that can be quite a lot.

Another argument for allowing HSAs to be paired with any type of health plan is that someone with copays should, theoretically, be able to build their account balance faster. With a higher balance, people need less and less insurance. So, over time, they should naturally migrate to a high deductible health plan--we don't need to force them.

And decoupling the HSA from the HDHP would have the added benefit of allowing insurance companies to get creative with their plan designs. Some people, for instance, might want a true major medical plan with no coverage or credit for routine medical expenses. Others may prefer a plan with higher deductibles and out-of-pocket limits than the law currently allows. And some carriers may want to introduce coinsurance--only plans with no copays and no deductibles. What if members simply paid 10 percent of the first $20,000 in claims and 5 percent of the next $80,000? They'd have a maximum exposure of $6,000 but would be encouraged to shop around for high-dollar procedures that may differ significantly in price from one facility to another. These are the types of claims that can have a real impact on the plan premium.

As our elected officials struggle to reform health care in America, they run the risk of adding to the costs and adding to the confusion. The public is confused and frustrated, and, whether deserved or not, there's a huge backlash against insurance companies. So why not end the confusion?

The HSA is the only financial instrument that's tied to a totally different product within a totally different industry. Now more than ever it makes sense to decouple the HSA from the incubator that's causing the confusion--the health plan--and let individuals use HSA money for its original intention: to pay for eligible medical expenses and save for future health care costs.

Eric Johnson can be reached at 817-366-7536 or
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Title Annotation:ON SeCOND THOUGHT
Author:Johnson, Eric
Publication:Benefits Selling
Date:Nov 1, 2009
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