Are Health Savings Accounts Good Medicine? By Roland Jones Wall Street reporter

Instant Quote Learn More About HSAs Maximize Your HSA HSA Teleseminar

Approach may cut costs by giving patients more say in their care

Dr. William J. West, Jr., an obstetrician/gynecologist in Reading, Pa., says he used to be a part of the nation’s mushrooming health-care problem.

Like other physicians of his generation, West was in the habit of practicing so-called defensive medicine -- using a lot of extra tests and treatments to safeguard against possible malpractice liabilities.  He also would prescribe treatments for his patients without knowing if they could afford them, or if a cheaper alternative was available.

“I wasn’t trained to think about health-care costs when I was a medical student,” says West, 44, who graduated from medical school in 1986.  “I was not taught to think about how much a treatment will cost a patient, or whether it is the best course of treatment from a cost perspective, and as things are set up now in the health-care system I’m not required to know anything about it.”

These days, thanks to the advent of the health savings account, West says he’s working to become a part of the solution to the nation’s health-care woes.  As co-founder of First HSA, a nationwide health savings account administration company, West is involved in dispensing advice on how to save and invest to pay for often costly drugs and procedures.  But not everyone is convinced health savings accounts, or HSAs, are good medicine.

Championed by Bush

HSAs were created by the Medicare reform legislation signed by President Bush in 2003.  Put simply, an HSA is another way to pay for health-care costs.  Instead of relying on health insurance coverage alone, an individual buys a high-deductible insurance policy to cover major health-care needs, and then sets aside money each year in a tax-free personal account, the HSA, to pay for smaller health expenditures.

Account balances can be used for a wide variety of medical expenses, and money not used one year can be carried over to the next, as well as from job to job.  Like an individual retirement account, or IRA, at retirement the funds can be used for any purpose.

The Bush administration has proposed expanding HSAs to deal with a health-care industry burdened by uncontrolled spending, the rising cost of health-care premiums and prescription drugs, and the swelling ranks of the uninsured.

Physician advocates say HSAs have enabled them to forge a new partnership with patients, minimizing their health-care costs and fostering a productive dialogue about treatments.

“When I deal with a patient who has a health savings account, we make decisions about treatments together and we discuss costs,” West says.  “This is likely to mean doctors practice less defensive medicine, because if you have discussed a treatment with a patient they have agreed to it, it’s harder for them to sue you over it.”

Dr. James G. Knight, a urologist in San Diego who is also president of the San Diego Medical Society, says dealing with patients using HSAs has transformed the patient-doctor relationship.  He is more solicitous when people are spending their own money, he says, and so he is more honest and discriminating about when tests and treatments are needed.

Sicker Patients -- and Higher Costs?

But not everyone is sold on HSAs.

Critics include health-care experts like Howard Berliner, a health policy professor at the New School University in New York City, who questions whether HSAs might lead to sicker patients and higher health costs.

Berliner says forcing individuals to make payment choices about their health coverage will mean many poorer individuals put off a trip to the doctor, or skimp on important surgeries or check-ups to avoid depleting the funds in their accounts.

“They get a double benefit because they get to write off as a business cost both the cost of the health insurance premium and the amount they contribute to their HSA each year,” Laing says, adding that businesses also benefit, as they can write off the cost of providing catastrophic health insurance for their employees, which already costs less than regular health insurance.

Increase in HSAs Expected

To date, only a limited number of companies have adopted HSA plans, but many more are expected to do so this year.

A recent survey by Mercer Human Resource Consulting of nearly 1,000 employers shows almost three-quarters expect to offer HSAs by 2006.

Advocates see HSAs as the wave of the future, turning Americans into value-conscious shoppers in the health-care marketplace.  But such a radical shift in attitude toward health-care consumption will be challenging, notes Laing, and will require good information sources for patients to make smart choices.

West says his company data show medical savings accounts, the precursor to HSAs, led to a 35 percent decrease in the use of medical services.  Still, he isn’t worried that HSAs could deter health-care consumers from using vital medical services.

“A doctor talks to a patient about the cost of a procedure and tells them they really should get it done," he says.  "And in my experience when you have that conversation they tend to go and get it done.”