Health of a Nation

AHPs and HSAs

On the campaign trail, President Bush emphasized several potential reforms that he believes could lower premiums and improve access to care. For one, Bush has pushed for the expansion of association health plans (AHPs). AHPs would let business trade groups offer health insurance plans to their members. The association plans would be exempt from state insurance regulations, which can add costs to small employers' premiums; many large employers are already exempt from these state regulations. In theory, by banding together in AHPs, small employers could negotiate with insurers for better rates. Congressional staffers expect an AHP bill to pass Congress this year, since Bush is expected to push for it.

Bush has also focused on health savings accounts, or HSAs. In one presidential debate, he said, "Health-care costs are on the rise because the consumers are not involved in the decision-making process. It's one of the reasons I'm a strong believer in health savings accounts." HSAs combine a high-deductible health plan with a savings account so employees can save the money allotted if they don't spend it on care. They first became officially available in 2004. By giving consumers the ability to judge the costs and benefits of their health coverage, and to save the unspent money (HSAs can be taken with workers from job to job), HSAs may prompt consumers to use care more wisely, thereby cutting costs.

In a March 2004 study by Mercer Human Resource Consulting, nearly 75 percent of employers said they are very or somewhat likely to offer their employees a high-deductible health plan with an HSA by 2006. Employees may not welcome the news. According to a study by Washington, DC, benefit consulting firm Watson Wyatt Worldwide released in January, less than one third of workers who have health insurance know what HSAs are. Once respondents were given an explanation of the plans, 57 percent said they did not want to pay higher deductibles.

Bush plans to expand HSA utilization, partly by offering tax credits to small companies that contribute to employees' HSAs. He has also proposed extending tax credits for low-income health-care purchasers and has suggested capping the amount employers buying traditional insurance can spend tax-free--a means of encouraging them to shift to HSAs.

The Net Effect

Will these ideas actually slow spiraling costs? Opinion remains sharply divided. "Though they were reluctant at first, nearly every insurance company in the United States now has a health savings account project on the market," says Greg Scandlen, an expert on HSAs at the Galen Institute, a health policy research group based in Alexandria, Virginia. "As the market grows, you'll see competition among the insurers, and it will start to build momentum. As more companies use HSAs, you'll begin to see savings."

Some experts and entrepreneurs, however, think HSAs still have major flaws. Raymond Arth, president of Avon Lake, Ohio-based Phoenix Products, a faucet manufacturer that sells to mobile homes and RVs, believes the U.S. medical system is not yet set up to allow consumers this kind of choice. "If you're shopping for a major purchase, say an automobile, you have access to reliable data needed to make an informed choice," says Arth, 53. "If you need to have a [medical procedure], the [doctor] can't quote a price, you can't check his or her 'performance ratings,' and there is no meaningful information about the outcomes produced by the facility where the procedure will be done."

Others think the savings accounts won't help lower-income workers. "HSAs are for the healthiest and wealthiest without chronic problems," says Joel Marks, executive director of the American Small Business Alliance, based in Washington, DC. He fears sicker employees would not choose plans where they had to pay such a high deductible. Small companies with sicker employees might then find their premiums rising.

Some evidence supports Marks' claims. In a 2004 Kaiser Family Foundation study, more than three-quarters of respondents had an unfavorable opinion of high-deductible health plans, and many feared such plans would leave them vulnerable to high medical bills. And a July 2004 study by the Center for Studying Health System Change, a Washington, DC, nonpartisan policy research organization, found employers worried about how they could possibly provide enough health-care education to employees to help them make educated choices under an HSA.

AHPs have even less support in the health policy community. "AHPs are something I always shake my head in wonderment at because they don't seem to have a lot going for them," says Paul Ginsburg, president of the Center for Studying Health System Change.

Gail Wilensky, a senior fellow and health policy expert at Project HOPE, an international education foundation based in Millwood, Virginia, says AHPs don't offer the kind of purchasing power some expect because many small firms grouped together are a greater risk than one large company. "I don't think you'll find that 1,000 small groups can operate like one big company," Wilensky says.

"Large employers have centralized payroll and data systems that make enrollment and disenrollment [in insurance plans] simple," agrees Scandlen. "An association of small employers has none of these advantages."

What's more, says Wilensky, in previous state-by-state attempts at AHPs, "there have been instability problems--the groups lose or gain members who jump ship out of the AHP when they get a better individual policy." Worse, since AHPs would be run through local business groups, they could be vulnerable to fraud, already a major problem in the insurance industry.

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This article was originally published in the March 2005 print edition of Entrepreneur with the headline: Health of a Nation.

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