Consumer-directed health plans could reduce number of uninsured, new study shows
What: Health Savings Accounts alone could generate nearly 7 million new accounts
Who: Stephen Parente, finance, Carlson School of Management
Contact: Dawn Skelly, Carlson School of Management, (612) 624-8770
Carlson School professor's study shows consumer-directed health plans could reduce number of uninsured
MINNEAPOLIS / ST. PAUL ( 11/11/2005 ) -- A new study of employer-based consumer-directed health plans indicates that consumer interest, which has been slow to take hold, will only grow with both tax and quality-of-care incentives. The study was led by Stephen Parente, professor of finance at the Carlson School of Management, University of Minnesota. The study is published in the November/December 2005 issue of Health Affairs.
“Health Savings Accounts: Early Estimates of National Take-Up” predicts that the 2003 Medicare Prescription Drug, Improvement, and Modernization Act’s (MMA’s) approval of tax-advantaged health savings accounts (HSAs) could result in approximately 3.2 million contracts. Those contracts would be among people ages 19-64 who are not students, enrolled in public health insurance plans, or eligible for group coverage as a dependent.
Consumer-directed health plans are high-deductible insurance plans coupled with a tax-advantaged account that can be used to pay for medical expenses. In short, enrollees who spend all of their HSAs in a given year then spend their own money until they meet the deductible requirement. Such plans typically were offered to employees of large, self-insured companies. MMA gave consumer-directed plans a boost by approving tax-advantaged HSAs for certain high-deductible health insurance plans.
Overall, the study says that HSAs won’t be popular among employees who are eligible for an employer's health insurance because the amount of the employer’s premium subsidy reduces the model’s attractiveness.
Consumer-directed health plans are a great topic of interest among policy makers, employers and buyers. “The plans are seen as a potential way to contain costs, expand coverage and improve quality,” said John K. Iglehart, founding editor of Health Affairs . “The question is: How many people will participate in these plans, and will they deliver as advertised?"
Parente and colleagues conducted various simulations of how several potential tax subsidies for HSAs would affect consumer take-up. They estimated that the Bush administration’s refundable tax-credit proposals could double HSA adoption from 3.2 million to almost 7 million. It could also reduce the number of uninsured people by 2.9 million at an annual cost of $8.1 billion. A second scenario of a low-income buy-in subsidy would reduce the number of uninsured people by 16.5 percent (or 4.5 million people) at a cost of $12.2 billion annually, or an average of $2,718 per person. There are currently more than 45 million uninsured Americans.
A third scenario, which offers two types of free individual HSAs, could nearly eliminate uninsurance, but at a much higher per capita cost. However, the free HSA could erode the market for employer-sponsored health insurance, with reductions of almost 5.7 million covered employees for the less generous HSA and 31.6 million for the more generous design.
For the full text of Parente's findings, click here: Parente HSA report. For other healthcare industry research and curriculum, visit the Carlson School of Management's Medical Industry Leadership Institute at www.csom.umn.edu/mili.
Health Affairs , published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.
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