Health accounts are bad medicine

Former Senate Majority Leader Tom Daschle’s decision Tuesday to withdraw as nominee for secretary of Health and Human Services was a setback for President Obama’s goal of reforming the U.S. healthcare system.

What could that mean for you? Three words: health savings account.

As healthcare costs for employers continue to soar, and as hopes fade for quick relief from Washington, a growing number of businesses are expected to stop offering costly insurance benefits and push workers instead into tax-free health savings accounts.

Proponents of the accounts, which operate like 401(k)s for medical expenses, say they give people more control over their healthcare spending. They also say people become savvier medical consumers when they’re more aware of the costs of treatments and procedures.

Critics of health savings accounts counter that the plans favor the healthy and wealthy, and can increase medical costs for everyone else by requiring people to take out high-deductible insurance policies that kick in only after thousands of dollars in healthcare expenses have been rung up.

“Most people can’t even afford to put money into the account,� said Jerry Flanagan, health policy director for Consumer Watchdog in Santa Monica. “All the money goes into premiums and deductibles.�

Health savings accounts were introduced five years ago as an alternative to traditional employer-based health coverage. Although they were championed by former President Bush as a way for Americans to exercise more control over healthcare spending, most employers have been wary of embracing them.

According to a recent report from the Government Accountability Office, only about 2% of the more than 200 million Americans with private insurance have opted for health savings accounts.

But market researcher Diamond Management & Technology Consultants predicted in a report last month that as many as 10 million Americans would be enrolled in health savings accounts by next year, or about twice the number in 2007.

Larger employers remain wary of saddling workers with high-deductible insurance plans, Diamond found, but smaller businesses are increasingly turning to health savings accounts as a way to ease runaway healthcare costs.

“Small employers want to do the right thing,� said Karen Pollitz, a research professor at Georgetown University’s Health Policy Institute. “They want to provide healthcare. But each year they have less money.�

Health savings accounts, she said, “give employers an opportunity to shift more healthcare costs onto employees.�

However, this also leaves employees increasingly at the mercy of insurance companies offering “HSA-compatible� policies.

Sherman Oaks lawyer Ellen Kornblum, 51, thought she was getting her healthcare expenses under control when she opened a health savings account a couple of years ago.

Although she was wary of the $3,500 deductible that came with the eligible policy offered by her insurer, Anthem Blue Cross, Kornblum was pleased that her annual premiums had been reduced to $2,544.

As of March 1, however, Anthem plans to raise rates for thousands of policyholders statewide. In Kornblum’s case, that will mean a whopping 25% increase to $3,192 in premiums.

“I’m OK with a plan that has a low premium and a high deductible,� she told me. “I don’t like a plan that has a high premium and a high deductible.� Kornblum said she might now switch back to a pricier policy with a lower deductible.

Jerry Slowey, an Anthem spokesman, said the company’s higher premiums reflected rising healthcare costs across the board.

“The increasing need for medical services, the use of new, expensive prescription drugs and advanced technologies are driving up the cost of healthcare,� he said. “We understand and share the concerns of our members over rising healthcare costs and higher premiums.�

That’s nice. But Pollitz at Georgetown University said insurers such as Anthem were just playing the odds.

“They sell you the policy on the assumption that you won’t make any claims right away,� she said. “But over time they know you will make claims. That’s why insurers don’t want you sticking around too long with lower premiums.�

That’s one of the fundamental flaws of health savings accounts -- the notion that affordable insurance plans will be available to meet healthcare needs.

Federal law requires account holders to be responsible for at least the first $1,100 in annual costs ($2,200 for family policies). In reality, many eligible policies come with deductibles three times that amount.

Another issue is that health savings account holders, as with 401(k) holders, may be tempted to invest their money in mutual funds offering the best potential for capital gains. That sounds fine in theory.

In reality, would you want your healthcare nest egg to take the same beating your retirement fund took over the last year? What if, God forbid, you actually needed it?

Just as most employers found pension plans to be unsustainable and have turned instead to 401(k)s to meet workers’ retirement needs, so too will they increasingly move away from group insurance policies and adopt health savings accounts.

And, as with 401(k)s, they’ll soften the blow by contributing to employees’ accounts, at least for a while.

“There’s a seductive notion that some healthcare is better than none,� Pollitz said. “But that’s not really the case. You wouldn’t say that part of an air bag is better than none. You need complete protection.�

When you take into account Medicare, Medicaid, veterans assistance and similar programs, it turns out that more than half of all Americans are already receiving health coverage from the government.

Want to help working families and cash-strapped businesses? Extend Medicare to everyone, with employers and workers covering the tab with tax money, rather than premiums, deductibles and co-pays.

It may not be a perfect solution, but it’s a lot better than most of the alternatives out there. Whoever’s next in line behind Daschle should make it a priority.

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David Lazarus’ column runs Wednesdays and Sundays. Send your tips or feedback to [email protected].