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News of the Day ... In Perspective

1/01/2007

Consumer-directed health plans taking off; get boost from Congress

According to a recent Mercer survey of 3,000 U.S. employers, consumer-directed health plans tripled in 2006. Compared with a managed-care plan such as a PPO or HMO, they reduce the annual cost per employee by about $1,000.

While small businesses were first to take an interest, larger businesses are beginning to take notice also. The Houston Independent School District has offered two consumer-directed options for the past three years, with excellent results. The annual health benefit cost per employee rose by only $270 rather than the expected $1,500, from $5,500 to $5,770 (Brett Brune, Houston Chronicle 12/18/06).

A provision rushed through Congress just before adjournment makes the funding of health savings accounts much more practical. Employers will be allowed to roll over balances from a Health Reimbursement Account (HRA) and/or Flexible Spending Account (FSA) into the H S A of employees who are switching. The allowable H S A contribution has been raised and will be indexed to inflation. Previously, it was limited to the amount of the deductible, but in 2007 can be up to $2,850 for singles or $5,650 for a family. See www.ustreas.gov/press/releases/hp209.htm.

Democrats generally opposed the provision, but it was pushed through by outgoing House Ways and Means Committee Chairman Bill Thomas (R-CA). When economist John Goodman, founder of the National Center on Policy Analysis began pushing for the idea of tax-favored medical savings accounts 16 years ago, only about five Congressmen would listen to him.

Goodman thought that nothing but market forces could tame rising medical costs.

A recent Rand Corp. study showed that employers report saving 10 percent on health benefits costs, and plan participants appeared to trim spending between 2 percent and 15 percent. Some worry that people are skimping on necessary as well as unnecessary care.

But Goodman says: “Someone is going to have to choose between health care and other uses of money. If you want someone else to make those choices for you, you can join an HMO. But if you want to make those choices for yourself, these accounts give you the financial ability to make them” (Christopher Lee, Washington Post 12/28/06).

While HSAs are growing, customers are bailing out of HMOs in record numbers. Patients complain about restricted choice. And the promised cost savings have not occurred. The average HMO premium cost per person paid out by major companies is projected to jump to $8,151 in 2007, a 64 percent increase from $4,979 in 2002 (Bruce Japsen, Chicago Tribune, posted by sunherald.com 11/22/06).

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