Sunday, October 29, 2006

Considered an HSA? You will.

Picture a home insurance sales brochure offering a rundown on various coverage options. One option is described this way:

You may benefit from this plan if:
- It's hard to remember the last time your home burned down.

... and yet, this is the pitch my health insurance company, Empire Blue Cross, is using to sell its Medical Savings Plan option (better known as a "health savings account," or HSA), which the brochure cheerfully touts as a good plan if "it's hard to remember the last time you went to the doctor."

I grew up in a family that always had good health insurance. My mom had cancer. I've always considered health insurance an absolute essential, just below "housing" on my list of "things you don't go without if there is any possible option." I am willing to pay pretty much any sane amount to stay insured. I consider myself the most conservative shopper possible for health insurance.

And yet, it looks like I'm about to wade into the big experiment known as HSAs -- ie, the preferred health-care option endorsed by Bush and rammed through Congress by fiscal conservatives as part of the recent Medicare bill. I am fairly boggled by this turn of events; I'd previously seen a few articles on HSAs (most notably in the Washington Post, which had a good feature on their risks and mixed benefits) and taken little notice, writing them off as something not applicable to me. Ha ha ha. If the health-care plan options for this year handed to me by my (large-ish) company are any indication, HSAs are going be applicable to everyone, pretty soon.

When you see HSAs mentioned in the media, the quick summary tends to be "minimal insurance in exchange for lower monthly carrying costs, with consumers responsible for higher deductibles and a bigger share of the costs of medical services they consume." The administration hails this as a way to address the crisis of skyrocketing health-care costs: if consumers bear more responsibility for saving for and paying the direct costs of their medical care, they'll become savvier consumers, the argument goes.

The big, oft-mentioned fallacy in this argument is that the health-care system isn't designed for a la carte shopping. Even if you're fortunate enough to be able to plan an expenditure in advance (hardly an option when you're in crisis and racing to the nearest hospital), providers are rarely set up to offer quotes. Good luck trying to find out in advance what a surgery will cost, what with all the many procedures and charges that get wrapped into the final bill. And then there's the biggest stumbling block: Insurers negotiate discount rates. The uninsured don't have access to those lower rates. One standing appointment David has costs us $80, after our insurer's negotiated discount. It would be $150 without the insurer rate. Same thing with a medication we have a standing prescription for. The "rack" rate is around $80; our insurer pays $10. This is a very consumer-unfriendly playing field.

But when I looked at the particular HSA plan being offered by my company, the reality turned out to be very different than what I'd expected. This isn't a "bare-bones coverage in return for higher consumer risk" plan. It's a tax dodge for the well-off, and (I suspect) a step toward softening resistance toward a fully "pay your own way" approach to medical services, akin to what happened when 401k supplanted pensions. The stomach-curdling, politically frustrating aspect of this, for me: Under this calculus, I'm well-off. This is a tax dodge that probably helps me -- and if the tax dodge weren't enough to get me to switch, my insurer (hi, Blue Cross) is breaking out the carrots and sticks to make the HSA plan more attractive than their other options.

The way HSAs work is that you pay a much lower monthly rate in exchange for carrying a high deductible (my HSA plan would cost $37 a month, less than half my HMO option and a third of my company's PPO plan cost). But the plan also features a savings component, where you contribute monthly payments to a tax-free account which you can use to cover medical expenses. The savings account seems to be akin to an FSA (Flexible Spending Account), with one huge difference. At the end of the year, you lose anything left in your FSA. Anything left in your HSA rolls over. Tax free. Indefinitely. If you change jobs, it goes with you, like a 401k. Once you save a certain amount in your HSA, you can even invest the money in mutual funds. Gains on those? Also tax free. The nominal theory is that people can use their HSAs to bank for the eventual medical costs they'll incur later in life. As with a 401k, if you start early, you can build a hefty balance over the years.

As Congressman Pete Stark wrote in a recent editorial, this isn't health policy, it's tax policy. HSAs allow those who can afford to fund them to the max to reduce their taxable income and take advantage of tax-free investment gains. Like 401ks, you can even withdraw from them for expenses other than the intended ones (ie, non-health-related expenses) if you pay a penalty fee.

Here's where things get really strange and scary. Tax benefits be damned; I still wouldn't glance twice at an HSA if it meant I bore a bigger risk if I became catastrophically ill. Perhaps my Blue Cross plan is unusual, but under the terms of my company's plan (I'm setting up a meeting with an HR rep to try to confirm I'm not going to trip on hidden fine print), I don't.

The articles I've found about HSAs tend to focus on the up-front deductible when emphasizing how HSAs can end up costing you more. To me, the far more important number is on the back end: the annual out-of-pocket max. What's the most I might be out, if very bad things happened?

My HSA has a PPO on the back end: Once I hit my deductible ($1,200 -- until I've spent that, my plan plays virtually nothing for medical care), it switches to essentially become a Blue Cross PPO plan. After I've hit the deductible, my plan picks up about 80% of in-network costs and 60% of out-of-network fees -- up to a $2,200 annual out-of-pocket max (which includes the deductible). If I hit the max, 100% of everything above it is covered. (Out-of-network charges have a separate, higher max, but there's still a cap.) As with Blue Cross's HMO and PPO plans, the HSA option has no lifetime max on what the plan will pay.

So, theoretically, I might pay more out-of-pocket under an HSA. If I incur $1,000 in covered medical expenses in a year, I pay. My insurer saves $1,000. But if I incur $100,000 of expenses, they still pay about $97,000 of them.

Why is this scary? Because HSAs are being touted as a Great Thing for Insurers, saving them from paying for all those services consumers frivolously run up and won't if they have higher deductibles and have to pay for them. Now, I have pretty much no expertise on the medical system and its Byzantine economics. But I'm very dubious that those are the costs crippling the system. It's the $20,000 hospital bill David & I ran up earlier this year, padded to the rafters with god knows what indecipherable charges, that makes health care terrifyingly expensive and inefficient -- not the $150 I drop every few years going to my allergist for a check-in.

But if I sign up for this HSA, I'm virtually opting out of funding my company's traditional health-care plans -- the whole idea of which is that risk gets spread around the group. I pay $1,000 in premiums, I don't get sick, my $1,000 defrays the cost of my colleague's cancer treatment. Under this HSA, the revenue my insurer gets from me drops drastically. I'll pay them less than half what I was paying under the HMO plan. My money goes into my HSA account, for me. I keep it. This strikes me as a terrible long-term health care strategy. "Personal responsibility" is dangerous enough when it comes to retirement planning. Are we going to say people should be wholly responsible for saving enough to cover their own, potentially catastrophic, health care costs as well?

Right now, under the terms of my Blue Cross 2007 HSA plan, I'm not responsible for catastrophic expenses. The PPO plan safeguard after I hit my deductible, and the out-of-pocket cap it includes, ensures that. But my insurer is suspiciously eager to get people into HSAs. One nasty shock when I changed jobs was discovering how unfriendly my new plan choices are, compared to the Cigna PPO my old job offered. (I've ranted before about the ways Blue Cross makes the PPO option very unattractive, to push people toward the HMO plan.) Blue Cross is doing even more this year to make its PPO option an unfriendly one. There are an assortment of little kickers, but here's the one that really gets me: If I go out of network for my annual physical, Blue Cross's PPO pays nothing until I hit my annual deductible ($750, for the PPO plan), after which it pays 60%. If I have the HSA plan and go out of network for my annual physical, it doesn't charge against the deductible ("to help ensure that you and your family get this important care") -- they'll pay 60% right off the bat. My out-of-network physical is one of the only expenses I can predict I'll incur next year. This is a decent incentive for me.

The plan also seems to work out in my favor even with the deductible. Premiums for my company's PPO plan would cost me $1,512 for 2007. Premiums for the HSA plan would cost me $444. My company contributes $250 if I elect an HSA; if I fully fund it up to my deductible, the total cost to me is $1,394. Less than I'd pay for the PPO -- and the coverage becomes the same, once I've gone through my deductible.

This feels to me like the thin end of the wedge. Like the early, massive payments offered to get homeowners to sell out to developers, so the developers can later force the last holdouts out with eminent domain and whatnot -- or the Wal-Mart effect in retail, where low prices offered to individuals camouflage the destruction wreaked on our collective economy. Right now, the Blue Cross HSA plan offers big incentives and little downsides. But in a few years? If HSAs catch on and they can get a critical mass switched over? Will the deductibles creep up? Will the out-of-pocket maxes rise and eventually vanish? Because, of course, everyone should be using those HSAs and saving for their healthcare costs, just like everyone knows you should save for retirement and it's your own fault if you were too short-sighted to fund your 401k ...

Ug. I hate feeling trapped. For the services I need, the HSA is the by far the smartest choice for me. But I feel like opting for it will make me one of those setting in motion a huge step backward in fixing our health-care mess.