1. The New Consumerism in Health Care: Why States Should Care June 29, 2004 State Coverage Initiative "Pressing Forward: Cuts, Coverage and Creativity." Mila Kofman, J.D., Assistant Professor Health Policy Institute, Georgetown University 2233 Wisconsin Avenue, NW, #525, Wash., DC 20007 202-784-4580 direct; 202-687-0880 main mk262@georgetown.edumk262@georgetown.edu * www.healthinsuranceinfo.net

2. HSAs Tax free in/tax free out - $$$ “Above the line” tax deduction: $2600 individual/ $5150 families Account used to pay for: –Annual deductibles –COBRA premium and health insurance while unemployed –Medicare-related expenses 10% penalty if used for other purposes High deductible health plans (HDHP)

3. High Deductible Health Plan HSAs can only be used with HDHP Qualifying: –Minimum annual deductible $1000/individuals, $2000/family –Out of pocket expenses (deductibles, co- payments, and coinsurance) not more than $5000/individuals and $10,000/family

4. Qualifying HDHP Preventive care allowed but not required (pre-deductible) –Annual physicals, immunizations and screening services, routine prenatal and well-child care, tobacco cessation and obesity weight-loss programs Prescription drug coverage (pre-deductible) –transitional rule: rider or separate plan allowed 2004 and 2005

5. Will HSAs help the health care crisis? CRISIS: nearly 44 million Americans uninsured –nearly 20,000 deaths/year (IOM) –at least $65 billion/year to U.S. economy (IOM) millions underinsured –personal bankruptcy - 50% and 80% had health insurance (Warren) double-digit premium increases

6. HSA Proponents argue: Equality with job-based coverage Greater control over health care Cost containment Help uninsured

7. HSA Opponents argue: Reduced access to medical care (through cost shifting to patients) Won’t help uninsured Erode comprehensive coverage Erode job-based coverage Won’t address reasons for high premiums

8. Issues & Implications for States to Consider State budgets -- loss of revenue –Lower revenue from personal income taxes –Lower revenue from premium taxes Risk segmentation issues

9. Policy Issues and Implications Financial security? Personal Bankruptcy (Warren, Harvard University) Healthy communities? Cost shifting: less care/delays in necessary care (RAND 2004) Higher long-term spending Individual consumers - better health care customers? Provider reimbursement – new trend Use of limited $$?

10. Policy issues cont. Tax relief for people with HDHP now Higher income people biggest tax advantage Many unanswered questions Will HSAs be a step forward (in an era of incremental reform)????

11. State Implementation Issues Are HDHP allowed? –Regulatory approval for new policies or state laws prohibiting HDHP –Benefit mandates (pre-deductible) not considered “preventive” and therefore not allowed by IRS for HDHP –HMOs – “reasonable deductibles” State defined programs: high-risk pools, small business programs, state employees

12. HDHP HDHP: –Minimum deductibles ($1000/$2000) –Maximum out of pocket expenses ($5000/$10,000) –NO Prescription drug coverage pre-deductible –Preventive care only pre-deductible

13. Future? more cost shifting? tax breaks to help? adequate health care and coverage for all?