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Changes beginning to emerge in health insurance market

Our October-issue article, "Health Savings Accounts: A Primer" (subscribers' link), notes that consumer-friendly HSAs survived this year's massive health-care overhaul law virtually unscathed. So if your employer is rolling out a Health Savings Account/High-Deductible Health Plan arrangement in 2011, it's likely to be a good deal for you and your fellow workers, while at the same time helping the company hold down insurance costs.

Unfortunately, the news starting to emerge elsewhere on the health insurance front isn't so reassuring. Already some insurance companies have decided — in light of the new law's cost-inducing mandates — to stop issuing child-only policies. And the New York Times reported Friday that the Principal Financial Group, which provides employer-based coverage to more than 800,000 people, has decided to get out of the health insurance business altogether:

Principal's decision closely tracks moves by other insurers that have indicated in recent weeks that they plan to drop out of certain segments of the market.... State regulators say some insurance companies are already threatening to leave particular markets because of the new law....

[In addition,] McDonald's recently asked federal officials for an exemption to rules that would ban the kind of health plans many of its restaurant workers have, because the existing policies sharply limit coverage.... The [company received a] waiver [that] will allow McDonald's and other companies to continue offering such plans, which cap benefits, to their workers. The administration has already issued dozens of such waivers....

More insurers are likely to follow Principal's lead, especially as they try to meet the new rules that require plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers. Many of the big insurers have been lobbying federal officials to forestall or drastically alter those rules.

"It's just going to drive the little guys out," said Robert Laszewski, a health policy consultant in Alexandria, Va. Smaller players like Principal in states like Iowa, Missouri and elsewhere will not be able to compete because they do not have the resources and economies of scale of [the larger] players [in the marketplace].

UnitedHealth Group, one of the nation's largest health insurers, has agreed to take over Principal's health insurance clients.

Update: If you want to find out more about Health Savings Accounts (mentioned in the first paragraph above), listen below to my Monday conversation with host Bob Crittenden on Faith Meeting House, a program produced by Alabama's Faith Radio. (To download an mp3, right click here.)

Health-care overhaul hits HSAs hard

There are few, if any, health insurance products that won't be affected by the recent health-care legislation. At Sound Mind Investing, we are on Health Saving Accounts (HSA) and were recently notified of some changes coming as early as next year:

Qualified Medical Expenses: Starting January 1, 2011 you will no longer be able to pay for over-the-counter medications from your HSA as a qualified medical expense. Until the end of this year, you can reimburse yourself or pay from your HSA the money used to buy over-the counter medications. The new law removes over-the-counter drugs not prescribed by a physician from being paid from an HSA, FSA, or HRA on a tax-free basis.

Non-qualified expense penalty: Under the new law, if you use your HSA funds for nonqualified expenses, you will face a higher penalty. The tax penalty for non-qualified HSA distributions will increase, effective January 1, 2011, from 10% to 20%.

And that's just the beginning. Coming in 2014 will be mandated minimum coverage, preventive-care service changes, and small-employer benefit requirements — all of which will likely bring changes to HSAs, if not altogether eliminate some of the HSA products being sold.

Even more changes are scheduled for 2018.

For details, see Healthcare Reform and HSAs (PDF) from HSA Bank.

Time is running out for Sam and his family

Let me tell you about my friend Sam. I've watched the way he handles his finances for years, and unfortunately, he never seems to learn from his past mistakes. He's never learned to live within his means, and he's now deeply buried in debt.

One of his biggest weaknesses is he has a hard time saying no when he sees a need. He has a good heart and tries to help people, even when there's no way he can afford it. He just keeps spending away, somehow assuming that everything will work out somehow. You probably know people like this, too.

In Gone with the Wind, Scarlett O'Hara captures Sam's basic outlook on his financial situation: "Oh, I can't think about this now! I'll go crazy if I do! I'll think about it tomorrow .... After all, tomorrow is another day!" I fear it's not going to end well.

On top of that, he has a big problem focusing on his work and seeing it to completion. Most of the things he's tried to do, he hasn't done very well. I hate to say it, but his incompetence has led to many disappointments. Here's an example of just one of his more recent failures.

His latest idea is to get into health care in a very big way. He's been working on a plan for many months, and it looks like a decision will be made soon. But there's still a lot of uncertainty about what the whole thing will cost.

Also, it's disconcerting that similar undertakings have been tried before, and the results have not been encouraging. One would think there are lessons to be learned from the failures of others, but Sam isn't buying it.

He's convinced he can make it work where others have fallen short. But given his track record of repeated failure when running big programs like this (not to mention the poor financial condition of that letter delivery business he started), it's really hard to believe this time will be any different.

Unfortunately, Sam's family serves as his biggest enabler. Rather than calling him to account and forcing him to face up to his shortcomings, they too often remain silent. Sam's family needs to get together for an intervention, or his profligate ways will be their ruin. You wonder if they'll wake up in time.

Backlash against AARP; seniors quitting, moving membership

The New York Times reports on "a mini-mutiny at AARP" — the older-Americans advocacy group that has angered many of its members by supporting an overhaul of the U.S. health care system.

Between 50,000 and 60,000 AARP members [out of 40 million] have left the organization since July 1, a spokesman for the group said.

Many of the defectors have destroyed their AARP cards and are switching to a relatively new group called American Seniors Association, which bills itself as the conservative alternative to AARP....

In explaining A.S.A.'s opposition to a health care overhaul, Stuart Barton, the group's president, wrote on Monday that "a government-run plan would limit patient-doctor choice," that "an employer mandate would kill jobs and lower wages," and that a new plan would require higher taxes and Medicare cuts that hurts baby boomers and seniors.

The A.S.A. is appealing directly to disaffected AARP members, urging them to cut or tear up their AARP cards and join A.S.A. at a discount....

Jim Dau, a spokesman for AARP, said in an interview that while AARP took such rebellions seriously, it had endured them before. In 2003, it lost 70,000 to 80,000 members over its support for a Medicare prescription drug program. In 2005, the organization lost 8,000 to 10,000 members for opposing efforts to privatize Social Security....

In SMI's September 2007 issue, we highlighted six organizations for seniors that are alternatives to AARP.

Bipartisan health care reform a possibility?

Why all the wrangling in Congress over health care when there's a common sense approach that could gain support from both parties? See what you think of these seven principles for reform put forward by La. governor Bobby Jindal.

Update: Rep. Paul Ryan explains why he introduced the Patients' Choice Act as an alternative to a government-centric plan. The WSJ explains how it would work and why it's worth serious consideration.

Public vs. private health-care models

At the center of the health care debate is a fundamental disagreement over how American health care should be structured. The current system is structured around having private health insurance companies compete (though Medicare also covers a huge number of people and is a public plan).

The new plans being championed by President Obama and other prominent Democrats would change this, so that the government would largely replace private insurance companies in the primary role of funding health care. This is a contentious statement, as the effort has been carefully cloaked as simply adding a government option to compete with the other private insurers. The implications of this idea is central to the whole debate.

Reading an explanation of the new system from a proponent like Tom Daschle, it's easy to wonder what all the fuss is about. As President Obama said many times during his campaign, "if you like your current coverage, you can keep it." Ah, but for how long?

There are a lot of problems with a public health care system. Previous posts this week have dealt with the rationing a government plan will inevitably have to resort to, not to mention the fact that we're hardly in a position to pay for such a benefit. But these aren't such big problems if a government plan is simply going to be one option among many, right?

The thing is, this is the proverbial camel sticking its nose under the tent. Once government becomes a competitor to the private plans, there's little doubt that it will use its size and ability to set the rules to its advantage, eventually marginalizing (or completely eliminating) the private options. Even the long-time proponents of a government "single payer" health care system occasionally let slip that the current proposal is simply a first step towards that ultimate goal.

(If you doubt that, I encourage you to read this longer explanation of why a public option is likely to eventually become the only option.)

Thankfully, there are alternatives. Detractors of the private system say it has been tried and found wanting. But part of the reason it has been found wanting (which in itself is arguable — if you were to suddenly become gravely ill, would you rather be treated here or anywhere else in the world?) is the fact that government has been so involved in our health care system in so many ways and for so long.

Rather than make this post even longer by detailing all of this governmental involvement, allow me to simply point to this article making the case for several common-sense reforms of the current system, which would unwind some of the worst examples of government interference in the health care market. It's authored by (among others) Tom Coburn. For those not familiar with Coburn, he's known in Washington for two things primarily. First, being a genuine thorn in the side of all the big spenders in both parties, as he has fought earmark and pork spending in legendary fashion over the past decade. And second, he's known for being a practicing physician who has commuted back and forth between Washington and his home in Oklahoma so he could continue to practice medicine while serving in Congress. In other words, he knows a thing or two about the health care issue and he's not instinctively inclined to throw our money at the problem trying to fix it. Sounds like a good person to listen to on this issue.

Given what we know now about Social Security and Medicare's finances, many people would likely wish we could go back to the beginning of these programs and make changes that would make them more sustainable and less back-breaking financially. Folks, that point is exactly the point we're at today with this health care debate. If it gets passed in its present form, it's highly likely we'll be looking at this issue 20 years from now (if not sooner) the way we currently look at these other unsustainable government programs. The time to get educated on the issue and impact the outcome is now.

Health Savings Accounts - the basics

Matthew posted yesterday on SMI's experience with Health Savings Accounts. It's a good read for those who may not have had a lot of direct exposure to these relatively new products.

Because Health Savings Accounts are an important part of many of the health care solutions being proposed as alternatives to the President's plan, it's important that people know exactly what they are. Many people aren't aware of the key differences, thinking "that thing I had 10 years ago at my last job" was either a Health Savings Account or at least was probably pretty much the same thing. Uh uh.

So for those who aren't clear on what exactly a Health Savings Account is and how it works, here is a short, well-constructed primer.

Take a few moments to learn the basics and you'll better understand the upcoming health care debate regarding the virtues (and vices) of a single government-payer system vs. a free-market, competition-based reform of the system.

Health Savings Accounts in action

Sound Mind Investing went to HSAs for our employees in 2006. So with three years under our belts, we can vouch for how they affect spending decisions. Here's how they recently affected mine.

Let me first say that my wife Kim and I have been trying to pay our health care expenses out-of-pocket so that we can use our HSA as another type of retirement vehicle. And since we're more or less keeping our hands off of it, we might as well invest it, right? So every month, the company makes a deposit into our HSA which is held by The Sound Mind Investing Funds and used to purchase shares of SMIFX.

Now this is a great way to plan for retirement, but it's not cheap because remember, we're paying our health care costs out-of-pocket, NOT out of our HSA. So last year, when we had another baby, we had to have the cash to pay for the doctors and hospital visits if we didn't want to use some of our HSA investments in SMIFX.

But there's some good news. Once we meet our deductible, everything over that deductible is paid for by our insurer. So when December rolled around and we had finally met our deductible, I promptly scheduled visits to a chiropractor. I also scheduled a visit to a new allergist as it had been a while since I had been tested for allergies. It's a painful enough procedure without the cost. So at least getting it done for "free" helped soothe the burn a little.

Furthermore, our health plan covers prescriptions after the deductible is met. And wouldn't you know, the allergist prescribed three new medicines. We're on mail-order prescriptions where they send three month's worth at a time. This amounted to $600 worth of medicine that I didn't have to pay for. But I needed to get these prescriptions in before the end of 2008 because come 2009, we're back to paying everything ourselves. This is an HSA in action.

Fast forward to about four weeks ago, I started having heart palpitations. I'm a reasonably healthy guy and was a little concerned. I seem to read a story every year about some super fit athlete who dies unexpectedly from an undiagnosed heart ailment. But here's the thing — if I were going to be tested, it was going to cost me. It came down to peace of mind vs. what will likely be $1,000 worth of EKG's, stress tests, and Holter monitors. I decided it would be prudent to have the testing done regardless. As it turned out, my tests came back with good results. So yes, I'm paying a lot of money for what amounted to assurance. But that's okay. It was my decision. This is an HSA in action.

Fast forward to this morning. I've been battling a cold for a while, so when I was getting my allergy shots yesterday, I made an appointment for this afternoon with my allergist. But when I woke up, I felt a lot better. Cough was more or less gone and my voice was no longer hoarse. So I had a decision: Pay for a doctor visit when I'm potentially on the mends or forgo it and hope for the best? I canceled it first thing. This is an HSA in action.

HSAs are the real deal. There's a tax benefit, a choice benefit, and a cost benefit. They give the consumers the freedom to spend or save or invest based on what's best for his or her life situation. Giving the consumer the ability to decide for themselves how best to manage their health care costs — and pocket the savings — is an HSA in action.

Health care goes to the top of this week's blog coverage

In my role as benevolent dictator of SMI, I have declared this to be "health-care reform" coverage week on the blog. I've added a new category (in the right margin) for health care, and I've asked the team to focus primarily on topics related to health-care reform over the next few days in order to get this new category off to a strong start.

Health-care reform will likely be the biggest topic on the political agenda this summer, and it's very important that we all understand the issues and proposals. The reforms being discussed are far-reaching, and have major implications for your access to quality health care in the future as well as your financial well-being.

The Obama initiative was publicly launched at the White House Forum on Health Reform last March. At that time, the WSJ reported:

Mr. Obama made clear that he wants to help people with insurance today, and emphasized his interest in controlling spiraling health-care costs. He spoke about the need to cover the uninsured, but warned that it would break the bank to expand coverage to millions more Americans if costs are not brought under control....

On Capitol Hill, leaders of the Senate Finance Committee set out an aggressive schedule under which they hope to bring bipartisan legislation to the floor by June. House leaders said they want a floor vote by August, leaving time to reconcile the two chambers' bills before year end. [Full article]

As the debate unfolds, you'll hear terms like "universal health care," "single-payer health care," and "nationalized health care." These mean essentially the same thing. The term "socialized medicine" is also often used, but is controversial in some quarters. The important thing to recognize is that, by any name, such a program will inevitably lead to a lower quality of care. National Review Online gives its take as to why this is the case, with a special warning to the elderly:

With government in charge of health care, the objectification of human lives is inevitable. Governments must make resource-allocation decisions, which means that they must choose between eyesight-saving treatments for your grandmother and corrective orthopedic surgery for the kid next door....

Dr. Emanuel [one of Pres. Obama’s key advisers on medical policy] has embraced a technique for simplifying some of the tough calls: age discrimination.... We all were young once, the argument goes, so denying the elderly and weak in order to care for the young and fit is just.... Age discrimination is not a side effect of politically managed health care; it is a critical and fundamental feature of Britain’s National Health Service and other government-run health systems admired by Obama and his advisers. Under their arithmetic, the rewards of a procedure must be divided by the remaining life expectancy of the patient...

Obama’s other key physician adviser, Dr. David Blumenthal, shares Dr. Emanuel’s rigidly ideological view of health care, and aims to apply that ideology universally by subsidizing and mandating the use of a national “decision support” computer network for doctors, through which physicians will be gently advised by the national health czar in Washington what treatments are advisable on what occasions, and at what cost....

Given its inherently arbitrary character, centralized health-care planning will necessitate a certain amount of cruelty. If your mother and your child both were grievously sick, you might have to make a heart-wrenching resource-allocation decision between the two. Or you might not. Instead of deciding how to slice your medical-spending pie, you might decide to bake a bigger pie, forgoing other spending instead. But [Obama's advisers] seek to foreclose that option and, in fact, to aggravate the problem: A political program of reduced health-care spending means more scarcity, and more hard decisions. And those decisions, in Obama’s vision, will be made by the government, not by consumers of health care....

Free-market thinkers generally emphasize incentives, and those do matter. But information matters, too. Neither you nor your doctor is infallible, but it is extraordinarily unlikely that a remote panel of politically minded men in the nation’s capital are going to make better decisions about your health care than those made by you and your family, with the advice of your doctor, his colleagues — and that great gold mine of information: his competitors. Politicians have neither the incentives nor the information to do so.... [Full article]

The foregoing may turn out to be needlessly alarmist, but we won't know until more details concerning the Obama plan are released next month. Free-market champion Steve Forbes puts forth his ideas on the risks of further government intervention into health care, addresses some "myths" about the successes of Medicare and Medicaid, and offers his suggestions for changes that empower individuals, such as:

What are the alternatives to this health care nightmare? There are many positive, nongovernment things that could instead be done.

• Allow mandate-free insurance policies. True catastrophic health insurance — not the current dollar-for-dollar coverage — is very affordable.


• Permit people to buy health insurance across state lines. Removing such barriers would sharply increase competition.


• Make it easier for small businesses to buy insurance in a pool, whether through trade associations or other kinds of affiliations.


• Equalize the tax treatment of premiums. Companies get a tax deduction for health insurance premiums, as do the self-employed. Why not give that break to employees who choose to buy their own individual policies? They would get a deduction or a refundable tax credit (meaning if they don't have a tax liability they'd get an actual check from Uncle Sam). Many small businesses offer no insurance, or those that do may offer policies some workers find unsatisfactory. These folks should have the ability to easily get their own alternatives.


• Raise limits on contributions to HSAs and on permissible deductibles.

All of these ideas would substantially cut the number of un-insured. For those truly uninsurable, why not give them the medical equivalent of food stamps and subsidize their catastrophic health insurance premiums through private companies?

Free-market dynamics have worked in virtually every other part of the economy, spurring production and innovation and helping us get more for less. Food is even more basic than health care. We don't have a third-party-payer system for food (except for food stamps). Result: Today people spend a smaller portion of their income for food than they did decades ago. And the variety of foods is greater than ever. Free markets can do the same with regard to health care; governments manifestly cannot. [Full article]

According to a recent Rasmussen poll, the American people are hardly crying out for a major game-changer in health care coverage or treatment:

Seventy percent (70%) of Americans with health insurance rate their coverage as good or excellent. Twenty-three percent (23%) say their insurance coverage is fair, and six percent (6%) rate it as poor, according to a new Rasmussen Reports national telephone survey.

Overall, including those without insurance, 62% rate the health care they receive as good or excellent, while eight percent (8%) say it’s poor. For Americans with health insurance, satisfaction is a bit higher: 70% say their health care is good or excellent, while just four percent (4%) view it as poor. These findings are virtually unchanged from a survey in July of last year....

Americans are closely divided on whether it’s a good idea to establish a government health insurance company to compete with private health insurance companies. Forty-three percent (43%) of voters think the quality of health care in America will get worse if a government-run health insurance plan is created to compete with private plans.

But 63% of voters agree with President Obama that “we must make it a priority to give every single American quality affordable health care.” In December, however, 58% of voters were opposed to any kind of government-controlled health plan if it meant they had to change their own insurance coverage. [Full article]

This is clearly an area where, if we're not careful, the government-mandated "cure" will be worse than the disease.

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