Mila Kofman, J.D., Assistant Professor Health Policy Institute, Georgetown University

1. The New Consumerism in Health Care: Why States Should CareJune 29, 2004State 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.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?