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Health Plans That Can Repair the Affordable Care Act

High-deductible plans and health savings accounts are the answer, authors say

With the end of the Obama administration on the horizon, Republican presidential candidates — and members of Congress — are proposing ways to replace or repair the Patient Protection and Affordable Care Act (PPACA), according to the Wall Street Journal.

For now, Americans are experiencing the law’s natural consequences: rising health-insurance premiums and limitations on individuals’ choice of physicians and hospitals, say writers Scott Atlas and John Cogan. Further consolidation in the insurance industry and among providers will likely drive health-care costs even higher. To reverse these trends, any replacement for the PPACA should include two essential elements: high-deductible insurance coverage and health-savings accounts.

Well-designed high-deductible insurance — in which the individual pays a few thousand dollars for most health-care services before the plan kicks in to cover claims — restores the fundamental purpose of health insurance: to reduce the financial risk of large and unanticipated medical expenses, Atlas and Cogan say. Health-savings accounts (HSAs) allow individuals to set aside money tax-free for out-of-pocket expenses, including routine care. These accounts are owned by individuals and are not dependent on their place of employment.

When consumers pay directly for their care, as they would from HSAs, they have an incentive to choose wisely, and to demand that the prices charged by providers become visible. A recent report from the National Bureau of Economic Research confirmed previous research by the Journal writers (and others) showing that high-deductible plans significantly reduce health spending without later increases in emergency-room visits or hospitalizations. When these high-deductible plans were paired with HSAs, health-care spending reductions averaged at least 15% annually.

High-deductible plans and HSAs continue to grow despite the restrictions in the PPACA, the writers note. Last year, according to Devenir Research, the number of HSAs increased by 29% and reached a record high of 14.5 million as of mid-2015. Nearly one-third of all employers (31%) now offer some type of HSA, up from 4% in 2005. HSA assets increased by 34% over one year and, as of June 30, averaged $14,654 per account. By increasingly choosing HSAs, American consumers are approving their value, Atlas and Cogan point out.

Consumer-empowering shifts toward high-deductible coverage and HSAs are crucial to making health care more affordable while maintaining health-care excellence and innovation, the Journal article says. According to a study in Health Affairs, annual health expenditures would fall by an estimated $57 billion if only half of those Americans with employer-sponsored insurance enrolled in consumer-directed plans with deductibles as low as $1,000. Additional evidence from studies of MRI and outpatient surgery show that introducing price visibility and defined contribution benefits — where the employer provides an amount of money and the employee chooses how to use it — induces patients to shop.

Atlas and Cogan offer examples of how to increase the number of people who would choose to buy HSAs in combination with high-deductible plans. For example, the maximum allowable annual contribution could be raised from $3,350 to at least equal an individual’s maximum annual IRA contribution ($5,500 if they are under age 50; $6,500 if they are age 50 or older). In addition, the health-care services and products that can be purchased with HSAs could be expanded to include scientifically therapeutic over-the-counter medications. Money remaining in HSA accounts should be allowed to roll over to surviving family members.

Expanded health-savings accounts and high-deductible plans alone are not necessarily a panacea for the country’s health-care system, but they are critically important and necessary steps, Atlas and Cogan say.

Source: Wall Street Journal; September 1, 2015

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