Health Savings Account Blog

Q. Does the 'Father of the Health Savings Account' title mean you came up with the idea and how did it begin to catch on as a health coverage option for employers?

A. No, I don`t claim that. ... I learned of the idea from another economist, Jesse Hickson, who (became) the chief economist of the American Medical Association. What I did that was unusual and unique, I started writing about (HSAs) and got some other economists with the NCPA to start thinking about what could be done with this idea.

So we developed it and we promoted it. I was the guy that brought the idea to Steve Forbes, who then tried it out on his own employees at Forbes Magazine. And then I presented the idea to employees of the Golden Rule Health Insurance company; they were the first insurance company to do it.

First, they tried it out on their own employees and when they liked the results, they stated marketing the plan.

Q. In your own observations, what business sectors seem most receptive to the HSA?

A. It`s been very popular among individuals and small businesses. But now the new trend is for some large companies to do this; Wendy`s has done it, Whole Foods has done it. These are companies that have put all of their employees in these plans.

Q. What sectors seem more resistant to HSAs?

A. The big companies, they`re like big battleships. For them to change their health plans takes several years. But what we are told from the surveys is that the majority of employers are really giving this serious thought.

Q. But in the two years or so since HSAs were authorized, the uptake has been only about three million, which is arguably modest. Why do you think they haven`t caught on faster?

A. That is very fast, it`s faster than (adoption of IRAs). In fact, it`s faster than any financial product so far. It may be slow relative to people`s expectations, but ... if you look back at the history of the (uptake) of IRAs and 401(k)s, the HSA product has been faster than those other products. From where I`m sitting, I am not no interested in the number of people (adopting HSAs); what has interested me is the sea change of opinion, because that tells you where the market is going.

And I remember the dark days of the early 1990s, when everybody was on the other side, and all of the business groups, the large trade associations for the insurers, they were all against this idea. And only a few people in Congress had any interest in it at all. And what I have seen is a complete and total sea change. So now the (U.S.) Chamber of Commerce, the various business organizations are all behind this. So we have won the war of ideas.

Q. What do you think changed the tide?

A. I think two things changed it. One, we tried everything else; especially, we tried managed care. We can argue about whether managed care could in principle work or not work, but it turns out that the politicians weren`t going to allow it to work. They were threatening to pass no 'drive-through (outpatient) deliveries'(laws), no 'drive-through mastectomies; (laws). They did pass 'no drive-through deliveries;' no 'drive-through mastectomies' was going to be next. At the federal and sate level, they were not going to allow the companies to do a lot of things that would have curtailed cost.

So what the insurance companies realized and what the employers realized was there was a (limit) to what they were going to be able to accomplish with bureaucratic rules.

Q. Cost-sharing is a cornerstone of the HSA, but a Commonwealth Fund study out this month showed that tax subsidies associated with HSAs would reduce cost-sharing for those who spend the most and for those who spend their least on healthcare, yet increase cost-sharing for the majority of people who fall into the mid-range of spending. So that the roughly 8 percent who account for about 50 percent of healthcare spending would see no change or a decline in cost-sharing. How do you respond?

A. In any one year, what (the survey) describes is correct, but people who are in the middle (of healthcare spending) are not going to stay in the middle; they`re on their way to becoming better or they`re on their way to getting worse, they don`t tend to stay right in the middle. And so, over a number of years, it turns out that there are very few people whose out-of-pocket costs really go up with a conventional (HSA) plan.

Q. The study authors also said that cost-sharing would have to be raised substantially for the high spenders, but that might make healthcare unaffordable for those who need it most. Any comment?

A. The Commonwealth Fund has never liked this idea; they`ve been very slow to look at it. It sounds like they`ve discovered something that people in the business have known for years. (With HSAs), over, say five years, hardly anybody has an increase in out-of-pocket spending. So I think they are just wrong. You have to ask, over a period of years, what is the effect of this, and studies from South Africa (show that) hardly anybody loses in the long run. The(Rand Corporation studies) also show that over time, as people go through their healthy and sick stages, that almost everybody comes out ahead.

Q. How can HSAs be made more flexible?

A. Instead of employers putting the same number of dollars in everybody`s account, they should be able to put more in the accounts of people that they know have higher costs and less in the accounts of those with lower costs. All employers know that employees have different health costs and they pay more for the premiums of some than others, so why shouldn`t they also be able to put different amounts in the (HSAs)? The Bush administration has supported this idea in principle and there are some bills over on (Capitol) Hill that would allow employers to do this.

I would like to see these accounts used creatively to solve the problems of the chronically ill, and to do that, you have to have special contributions depending on the (health) condition and its expected costs, and right now, we`re not doing that.

Q. But won`t such condition-specific accounts create a lot of paperwork for the employer and discourage their use?

A. That`s up to the employer and I don`t think they`ll bother with it unless there`s some returns. But I will tell you that we`ve already started doing this in Medicaid and for disabled patients under Medicaid. About half the states now have private programs called 'Cash and Counsel' which lets disabled Medicaid recipients manage their own healthcare dollars and make their own decisions.

So if a Medicaid beneficiary doesn`t like the person whose bringing the meals by, he can fire that person and hire somebody who does a better job. So it literally lets them control their own expenses. And the satisfaction rates on these programs have been extremely high, like close to 100 percent. So of all the strange places to try this out, it`s in Medicaid, and it`s gone really well.

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com