President Trump promised to repeal and replace ObamaCare with something better. Democrats, and three Republicans, have prevented that achievement thus far. But there is much to celebrate, nevertheless.
The Individual Mandate has been eliminated, attached to the Tax Reform bill that passed in 2017. No longer must Americans purchase a health insurance policy or pay a tax penalty. They once again have the freedom to purchase insurance or not.
The Trump administration has also permitted more low-cost “limited duration” insurance plans, extending their eligibility up to 365 days and making them renewable. This has allowed more Americans to afford health insurance.
The Labor Department recently announced new rules to govern Association Health Plans (AHPs), which will allow small businesses to enjoy the same benefits of lower premiums and economies of scale as large businesses have always enjoyed. (ObamaCare Relief for Small Business)
Dr. Scott W. Atlas, senior fellow at Stanford University’s Hoover Institute, says the next step should be to expand and improve Health Savings Accounts (HSAs). HSAs allow people to set aside money tax-free to pay for health expenses. But they also serve an important function in lowering healthcare costs. They put consumers directly in charge of their healthcare purchases, which drives competition, which lowers prices for everyone.
The problem in healthcare is that most consumers never actually see the price of what they’re purchasing. Most healthcare bills are paid by third-party payers such as your healthcare insurance company, Medicare, or Medicaid. Patients are mostly aware of just the co-pays and deductibles they pay directly. This separates consumers from the real costs and lowers incentives for them to save money. Healthcare providers, doctors and hospitals, don’t have to compete on prices.
But HSAs change all that. They give patients the incentive to save money (their money), by finding the best price for their health care purchases. This creates competition, fosters transparency in prices, and increases quality while lowering expenses.
Atlas says outpatient nonemergency care forms the bulk of healthcare expenditures and therefore is amenable to price-conscious purchasing. Almost 60% of all health expenditures for privately insured adults under 65 and almost 40% of the elderly’s expenses are for outpatient care, according to a 2012 report from the IMS Institute for Healthcare Informatics. Prices rapidly decrease when patients pay out-of-pocket for procedures like Lasik corrective vision surgery and MRI or CT scanning. Data from MRI and outpatient surgery confirm that prices fall almost 20% when patients are motivated to shop around.
How effective are HSAs at lowering expenses?
Spending reductions averaged 15% annually, according to a 2015 National Bureau of Economic research paper, when workers were given high-deductible plans. When HSAs were added to the high-deductible plans, savings increased to up to 30%. These reductions occurred without harming patients’ health.
By the end of 2017, there were at least 22 million HSAs in the U.S., up 11% year-over-year. These accounts benefit middle-income families as well as high-income families. Median household income for HSA holders is $57,060, and two-thirds earn less than $75,000 per year.
Currently these HSAs are tied to specific insurance deductibles, which limits their usefulness. To maximize consumer power on prices, Atlas recommends Congress remove restrictions on full HSA participation by seniors on Medicare. Motivating seniors, the biggest users of healthcare, to seek value is crucial to driving prices lower.
Personally, I have had an HSA account for years, but was saddened to learn that I could no longer add to the account when I turned Medicare eligible. This is a counterproductive restriction that makes no sense if we want to lower healthcare costs.
The keys to lowering costs are competition and consumer incentives to compare prices to find the best value for their healthcare dollar. HSAs are a great way to achieve both.