Musings of a Philadelphia Physician who has served the community for six decades

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Health Savings Accounts, Regular, and Lifetime
We explain the distinction between Health Savings Accounts, Flexible Spending Accounts, and Lifetime Health Savings Accounts. Sometimes abbreviated as HSA, FSA, and L-HSA. Congress should make it easier to switch between them. All three are superior to "pay as you go", health insurance now in common use, only slightly modified by Obamacare. It's like term life insurance compared to whole-life. (

FIFTH: Having Invested, How Do You Reimburse the Providers of Care?

In its early configuration, Health Savings Accounts were envisioned as only paying for outpatient services, so why wouldn't it suffice to pay such claims with a debit card? Inpatient services, where market mechanisms are not practical for a helpless bed patient to negotiate, might be paid by using DRG values and approaches -- payment by diagnosis rather than individual services. It still remains a mystery why this approach isn't taken, since the savings would seem to be considerable as compared with the cumbersome claims form approach. How long it takes for a hospital or a drugstore to be paid by claims forms is not public knowledge, but it seems to take at least six weeks for a report to go to the patient that the claim has been acknowledged. For inpatients, the delay is usually twice as long, and may be six months. Whatever is the cause for this delay is unclear, and it may somehow be linked to whatever it is that insurance companies do with a claim form. If an auto dealer will accept a credit card, why a hospital can't do the same is unclear, indeed.

Health Savings Accounts for outpatient services are their own business, and how the high-deductible insurance linked to them handled claims was its business. Nobody asked why service benefits companies did things the way they did them, and it is still regarded as sort of a company secret. Right now, the focus of public attention is on the 10% administrative cost of health insurance, and eventually how they conduct their business enters the discussion slowly. It really is a little hard to see why it costs so much to have someone pay your medical bills, and to outsiders the whole approach seems bizarre. Since a debit card charges 1-2% for what it does, it really does not matter how either type of business does its work, what matters is demanding to know what value is created by the extra 8-9%, which amounts to quite a lot in aggregate. The same applies to DRG, except that the cost shifting between inpatient and outpatient has reached epic proportions. Today as I write this, I am told that a visit to a teaching hospital outpatient area for myself is billed for over two thousand dollars, when as a physician I would suppose it might be less than a hundred dollars. But then, don't worry about it, you personally owe nothing at all. Is the public supposed to sit still for this sort of thing? Business ethics be hanged, I deserve to know what's going on, a lot better than I am being told. And even I understand better than most of the public that the general gist of it is to transfer costs between inpatients and outpatients, while attempting to maintain the illusion of equal approaches.

On this level, we continue to ask why the claims form is used, or at least used so often, why the administrative cost is so high, why the service is so slow, and what we could suggest as a better way of doing things. When those questions settle down, the insurance company is entitled to return to its normal stance, that it is none of my business.

Meanwhile, perhaps public agitation on this level will stir up some competition, who will at least improve matters by making itself more clear.

--------------------------------------------------------------------------- Financing healthcare has four defined parts. You can get the money by contributing it to a Health Savings Account. You can accumulate more money by tax-free investment income added to what's in the fund. You can pay big expenses (mainly hospital inpatient costs) with a high-deductible insurance policy. And finally, if you don't have enough money, the government can subsidize you. The object of this hierarchy of choices is to pay for as much of it as you can, from investment income, which is a source of income no one had before. If that's not enough (usually because you got very sick much younger than average), you make it up by personal supplement, and if you exhaust even personal money, you get a government subsidy. If you are lucky, and live to a ripe old age with money to spare, you can spend it on the extended thirty-year vacation at the end of life. This last point is important, since without it there is no incentive to spend it carefully. For emphasis, let's repeat: for book keeping purposes, all Revenue collection is into the Health Saving Account , independent of disbursements or insurance for health care payments.

That's the basic plan, but there is a huge Medicare deficit, built up over years of failing to pay for it, and some may have to be spent on reducing that debt. We may have more financial crashes or other miscalculations, and premiums may have to be increased to pay for all this. Because no one can predict the future, there will have to be a judicial body to oversee how all of this is working out, and recommend mid-course corrections to Congress. The object of all this is to provide a fund to each individual which covers lifetime health costs, so that subsidies are minimized, giving preference to subsidizing your own health costs but at a different time of life, perhaps under different financial circumstances. That's the easy part, since the management of the pooled funds has a single mandate: make as much investment income as you possibly can, with as little investment expense as you can manage. If private investment funds do better than you do, be prepared to explain it to the judicial body which is made up of outstanding investors and is empowered to replace the management for poor performance. Meanwhile, the President is empowered to replace the judicial body itself for poor performance of the fund, in consultation with the Senate. As long as the investment pool does as well as the average fund of its size, it should minimize the need to supplement revenue from individuals as well as subsidies, offset by reduction of debt. And that is its main function.

While the revenues of this pooled lifetime fund are hard to predict, the managers need only assure that it is enough to pay legitimate costs, by informing Congress of the need to raise or lower subsidies. Failing to balance the books subsequently means only one thing: subscriber contributions must be raised or lowered. However, raising contributions should require the consent of Congress.

---------------------------------- Disbursements. Revenues may be hard to predict, but future health costs sixty or eighty years in advance, are impossible to predict. Certain principles seem fairly clear. Whether to include the premium for the high-deductible health insurance, should be an open option, allowed but not required. Individual marital, employment and other circumstances are too varied to justify a general rule. Whether to include patent remedies and unorthodox treatments, combined with the universal instinct to game the system, pretty much mandate the creation of a permanent oversight body to adjudicate such issues. It should be semi-independent of the government, which has the greatest temptation of all to shade its decisions with budget considerations. The managers of the revenue side should aim for at least 10% overfunding, and during the early transition phase may have to create a special transition (borrowing) fund, with plans to phase it out as the funds grow internally. A special re-insurance fund is also a suitable alternative. Ten years should be the limit to such transition funds, but the exact timing should be estimated at the onset, and readjusted once after five years of operation. To do its job it will require a data collection and monitoring system. In most of these areas it would resemble the Federal Reserve, able to regulate, but bound by the mandates of Congress. An additional ,judicial body for the disbursements should be created, to create a pathway for appeals. determine the worth of new additions to claims, to render an opinion on whether obsolete claims costs are diminishing appropriately, and to make industry comparisons about expenses. Its composition should provide representation to major cost components of the claims, and Congress should hold hearings about nominations to the judicial body. Representatives of various industry groups should be allowed access to both the meetings of the board, and related subcommittees, but suitable conflict of interest rules should be devised. The judicial body should be provided with data on demand, and pay close attention to trends, up or down. Industry groups should be free to introduce data of its own, and in the event of protest, an appeal to a Congressional oversight committee.

It is the intention that funds in the Health Savings Accounts may be used to pay outpatient costs and catastrophic health reinsurance premiums, while hospital inpatient costs should be reimbursed by DRG methods out of the catastrophic health reinsurance. However, flexibility at the beginning of the program may well be required. Overall, however, subscribers should be encouraged to protect the build-up of their Health Savings Accounts by paying small costs out of pocket even if funds exist in the funds. When funds are utilized, the nature of the claims must be subject to limitation as to true medical need, until the funds grow comfortably above lifetime requirements. Debit cards are encouraged for HSA use, with usage matching a list of allowable claims; other electronic payment methods may appear in the future, and the managers are encouraged to permit reasonable flexibility in their adoption or experimentation. Subscribers should be provided with yearly reports, including a comparison with the experience of peer groups. Since the health coverage is intended to be lifetime, the records should be lifetime. The accounts may not be overdrawn, but private credit is permitted within industry-standard boundaries. In short, a myriad of details require some sort of address, and careful thought should be given to concentrating accounting, investing, technological, congressional and medical decisions into review by the appropriate sort of experts.

------------------------ Additional required legislation 1. Once data is available, the Secretary shall negotiate an agreement to reduce or eliminate Medicare payroll deductions and/or Medicare premiums in consideration that a) adequate funds are available in the individual HSA to pay for average Medicare claims costs in the last year of life, providing that contributions continue to grow at a sustainable rate b) that access to the funds for other purposes is then frozen awaiting appropriate balances to be achieved or c) that the age of the subscriber and the size of the fund assure a safe margin. d) Appropriate arrangements for certain age groups can be made to divert payroll deductions to be applied for this purpose, particularly during the transition period. e.)At the time of the individual's death, the HSA will reimburse Medicare for the average cost of the subscriber peer group's last year of life costs, plus any advances made in order to fund this arrangement. f) If more money is available than needed for e), the Secretary shall provide the option to increase or decrease the funds transfers to include more years of average claims costs than the last year of life (the accordion principle). This provision is primarily intended to cover the possibility of major changes in health costs, such as a cure for cancer, or epidemics of new diseases. It might also cover the slow build-up or decline in average costs over a period of time, requiring a major adjustment to keep the arrangement working as intended. This whole arrangement is built upon the assumption of a roughly continuing ratio between terminal care costs and earlier presumptions about them. It must adjust if the ratio changes.

2. Transparency and Price Controls. A satisfactory mechanism must be provided for any patient to learn, at least three months in advance, the price of any item or procedure for which a fixed price can be determined, and to which the provider is then held liable, regardless of whether insurance is involved or not. After six months of operating under this rule, a survey shall be conducted, after which the Secretary has the discretion to publish price comparisons between providers in the region. Further, providers are required to devise a match between outpatient costs (subject to competitive pricing) and DRG component costs, resulting (within 10%) in outpatient costs which are no lower or higher than the calculated inpatient costs, and comparable inpatient DRG ingredient costs which are no more than 10% higher than the competitive regional costs for the same item. Because of extra overhead costs resulting from night, weekend and holiday operation, a hospital-wide overhead adjustment should be made, compared with regional levels, and made public. This overhead allowance may be made for inpatient and emergency care, but not for outpatient care. Furthermore, all indirect overhead costs shall be subject to independent audit, frequently, routinely, and in both detailed and aggregate form made public.


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