Future Legislation Could Take “Healthcare 401(k)s” Mainstream
Ever since health savings accounts (HSA) became law in 2003, the vast majority of excess balances have accumulated in low interest-bearing deposit accounts. Such accounts are usually offered through banks. Banks pursuing a strategic vision to grow their HSA platforms to accumulate deposits have reaped a windfall. The deposits are ideal for banks because they can lend against them and make a juicy profit. Unfortunately for HSA savers, the low interest rate environment has resulted in paltry returns for most HSA holders. Healthcare 401(k) is a term most have not heard. Not yet at least.
In recent months, policymakers have incorporated legislation that would double the maximum annual HSA contribution. In part, this is to address the growing national retirement savings shortfall. Indeed, a doubling of the HSA maximum contribution would mean investors would start to appreciate the triple tax-exempt HSA status. Healthcare 401(k)s will become the newest buzz word if such legislation becomes law. Integrating HSAs into your personal retirement plan may soon become mainstream best practice. This link provides a nice overview of the potential HSA rule changes: http://bit.ly/2vYUqCk
As an example, employees may contribute to their 401(k) plan up to their employer match and then fund an HSA as a Healthcare 401(k). Given current retired couples need to budget more than $270,000 to fund their future healthcare liabilities there is no reason not to get a head start. As long as you have a tax rate above 0%, HSA advantages cannot and should not be dismissed.
Start Young to Reap the Benefits of Compound Interest
Today’s younger workers should fund HSAs as a Healthcare 401(k) regardless of any changes to the current HSA rules. The chart below plots healthcare spending by age & gender. The data comes from over 20 million claims records we analyzed using the 2014 public use file provided by the state of New Hampshire. NH is by far the most progressive state in the country when it comes to promoting healthcare price transparency (more on this below). In short, as we all know, younger people spend a LOT less on healthcare than older people. Investing HSA contributions for the long-term means young employees in their 20’s can fully fund their future retirement healthcare obligations by the time they retire.
We believe so strongly in this financial wellness opportunity that we recently announced a new partnership with HealthSavings Administrators. You will soon be able to open an investment HSA from our homepage: www.HealthyHive.com.
HSA Reform Alone Is Not Enough
Increasing HSA flexibility in a vacuum would be akin to rearranging the deck chairs on the Titanic. Even today, the notion of knowing how much you will pay for a healthcare service prior to receiving it is simply foreign to consumers. Most doctors cannot tell you how much they are making when they administer an MRI because of the intermediary insurers. Insurers reimburse providers different amounts based on pre-negotiated rates. The most insane part is there is zero relationship between price and quality. Some studies actually suggest a negative correlation between price and quality. A must-see investigative series by Fox8 in New Orleans hits on some of the most obscene aspects of our healthcare system: http://bit.ly/2eR2WQP
Make All-Payer Claims Databases a Federal Mandate
Increasing the contribution limits to HSAs should be one of many pro-consumer steps taken by policymakers. Another important step is to make HSAs available to everyone, not just employees. Congress should also direct the Department of Labor to administer all-payer claims databases (APCD) to ensure self-funded claims data are available for price transparency purposes. Indeed, the March 2016 Supreme Court ruling in Gobeille v. Liberty Mutual Insurance Company essentially rendered current APCDs ineffective: http://bit.ly/2qP1VJ9
Create Direct Primary Care Incentives to Unshackle Physicians from the Money Machine
Other policy efforts should also focus on empowering primary care physicians to adopt a Direct Primary Care (DPC) approach. Under the DPC model patients pay a monthly fee to gain 24/7 access. Part of any legislative healthcare reform should include the ability to pay for DPC access using health savings account funds.
In an interview with John Chamberlain, CEO of Primary Care Direct, he hit on three primary benefits of the DPC model: 1) no insurance or government hoops to jump through, no claims, no copays, no deductibles. 2) clinicians no spending half their day in front of a computer screen dotting I’s and crossing T’s in order to chase the claims so they can get paid an average of $.65 on the dollar, and 3) 70% of patient visits can be accomplished electronically as opposed to in-person (once patients are established).
John is a knowledgeable and passionate leader in the DPC community: http://bit.ly/2w7WTuh
Don’t Expect the Incumbent Healthcare Power Players to Cooperate
The system is broken. Powerful insurance companies and large provider groups (hospitals and their employed physicians) prefer the status quo because they are the only groups benefiting. It will take real reform & disruptive players like Amazon.com. It will require increased agency on behalf of healthcare consumers. In the short run, consumers can become more engaged by taking the time to ask their doctors questions. Understand the benefits of health savings accounts. Ask about access to cost comparison tools. Be willing to embrace Direct Primary Care.
The amount of entrepreneurial activity in healthcare is staggering. Collaboration between consumer-driven start ups is incredibly exciting as well. For example, once we roll out our investment HSA offering we hope to collaborate with innovators building price transparent surgical pricing networks for self-funded employee groups. Such partnerships won’t be made with incumbent stakeholders but rather with new-entrants looking to transform the entire healthcare landscape.