Health Savings Accounts: A physician's perspective

By William J. West Jr., MD

On Dec. 8, 2003, President Bush signed into law the Medicare Rx. Drug Bill. The bill includes language to expand Medical Savings Accounts, now called Health Savings Accounts, or HSAs. Made available on Jan. 1, 2004, these accounts will dramatically change how health care and health care insurance are delivered in the United States.

HSAs are available to everyone. They are a combination of a high deductible health plan (HDHP) with a tax-preferred account to pay for qualified health care expenses. They allow 100 percent contribution to the deductible (up to a maximum of $2,650 for individuals and $5,250 for families in 2005). They allow both employer and employee to contribute to the account, allow first-dollar coverage for preventative health care services, are permanent law and even allow additional contributions for persons 55 or older.

The greatest advantage of an HSA is that unused funds roll over from year to year and can be used to pay for qualified health care expenses, tax-free. At retirement, the funds can be withdrawn as income (tax-deferred) or continue to be used for qualified expenses (tax-free).

Many experts predict that HSAs will become as common as 401(k) plans in the very near future. Experts argue that HSAs have the ability to control the rapidly increasing costs of health care. I believe HSAs will control costs far greater than any other type of health care plan.

Here is why: The rising costs of health care in the United States can be attributed to technology, prescription drugs, defensive medicine and utilization. I will give you my insight into how HSAs will impact each of these issues.

Technology

Many patients who have HMO plans come to a physician's office for treatment of a headache. Many also want an MRI (costing between $750 to $1,000) to rule out a brain tumor.

Patients with HSAs take Tylenol for the headache. If that doesn't work, they take Excedrin Migrain. If that doesn't work, they call the doctor and find out what else is available. Only after they have exhausted other more effective and less costly options do they go for an MRI.

This example provides the potential for huge costs savings. Remember, just because something is the latest technology doesn't necessarily mean it works better or is more cost-effective than what is already available.

Prescription drugs

Zofran is a new anti-nausea medication. I ordered it for a pregnant patient. Her spouse called me later that day, upset that he couldn't afford the prescription because he didn't have a drug plan. Little did I know that the medication costs about $20 per tablet. (Zofran is to be taken every four to six hours). The original prescription cost almost $600 for 30 tablets (a week's supply). I called in a prescription for another medication that has a generic version; the same number of tablets cost $10. The other medication worked fine for the patient.

Co-pay plans and formularies do not decrease pharmaceutical costs because of the disconnect between the patient, the provider and the true cost of the medications. HSAs reconnect the patient and provider with the true cost of health care services, including prescription medications.

In addition, pharmaceutical companies are going to have to justify why one drug costs $20 per tablet and the other costs 30 cents per tablet, and physicians are going to need to know what medications cost.

Defensive medicine

When a patient goes to a physician, the physician has been trained to order tests. Trial lawyers are often critical of physicians for what they didn't order or what they forgot to check for when an outcome is less than optimal. This leads to unnecessary testing and, often, duplication of tests.

Patients with HSAs take an active role in getting testing because they pay for the tests. They ask their doctors if they really need the tests and what they will cost. They also ask why the tests they had performed last week need to be repeated. Patients who take an active roll in the health care decision process decrease the likelihood of lawsuits. The changes in defensive medicine will probably provide the greatest savings to our health system in the long run.

Utilization

Health savings accounts and their predecessor, Archer MSAs, have shown a 35 percent decrease in utilization when compared to a copay HMO / PPO plan. Many patients now take their children to the pediatrician after only a few hours of having a fever. The standard of care is for children to wait 48 hours prior to seeing the doctor. There is no disincentive to go to the doctor when you have a low copay. Also, when your premiums for health insurance are almost a $1,000 per month, many patients go unnecessarily to "get their money's worth."

HSAs are now available for everyone and will have the greatest positive impact on our health care system.

William J. West Jr., MD, is president of First HSA, Inc. To learn more about HSAs, visit www.1hsa.com or contact First HAS, Inc., toll-free at (888) 769-8696.

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