Get educated on the latest in healthcare consumerism and price transparency with hot takes and helpful insights from the experts at MMS Analytics, Inc.

Is a health savings account (HSA) better than a 401(k)? You decide.

I have written about the virtues of HSAs before. But never did it become so clear to me that HSAs can be better than other retirement accounts such as 401(k) and IRA (I had a hunch, though).

HSAs have been around since 2003; yet, in my opinion, the HSA is the most misunderstood, the most underappreciated, and the most underutilized feature in designing health plans. So, before I present why HSAs can be better than conventional retirement accounts, let me present why HSA is the best tool to supercharge your health plan.

This is what I believe about how to rein in healthcare costsbending the healthcare cost curve:

  • – We have been spoiled for a long time with virtually zero-deductible health plans, wherein we didn’t know what a particular medical procedure cost—nor did we care because someone else paid for it.
  • – The only effective way to rein in healthcare costs is to have consumers’ skin in the game—making them financially responsible consumers of healthcare.
  • – To get their skin in the game is to provide the Right Incentives through the Right Plan design.
  • – And, the HSA is a pre-condition for the Right Plan.
  • – With the Right Plan, we need to provide consumers with the Right Tools to enable them to do true comparison shopping for medical procedures.

Everything You Ever Wanted to Know About HSAs

Two definitive articles—and what is notable about them is that they were both written by financial planning experts—tell you everything you want to know about HSAs. Definitive means both are long for completeness. Fair warning: one of these is written by a professor with a Ph.D.

Supplemental Saving In An HSA For Retiree Medical Expenses

Could a Health Savings Account Be Better than an Employer-Matched 401(k)?

Before you read the articles, here are a few selected quotes:

The Health Savings Account (HSA) is unique in the landscape of tax-preferenced investment accounts, as it is the only type that enjoys both the benefit of tax-deductible contributions and tax-free distributions (for medical expenses).”

“In fact, the unique treatment of the HSA has created a wrinkle in the traditional approach of funding retirement accounts: given the inevitability of medical expenses in retirement, arguably the best savings account for retirement (or at least for a portion of retirement expenses) is to use a health savings account for retirement over ‘just’ an IRA alone.”

“…the fact remains that contributing the maximum to an HSA every year has the potential for more beneficial tax treatment than any other type of tax-preferenced account!

I’m as mad as hell and I’m not going to take it anymore!

A friend of mine owns three wellness centers and employs 80 people. Yesterday, she told me that her health insurance broker made his yearly visit with a renewal policy where the premiums keep going up … and up … and up. In the decade she has been in business, premiums have never gone down. And her employees aren’t in any better health. She was ready to scream.

The movie Network flashed across my mind. In case you don’t know the movie, Peter Finch stars as an anchorman who is fed up with the system. Co-stars included Faye Dunaway and Robert Duvall. There’s a famous scene where Finch tells his audience to go to their windows and yell “I’m as Mad as Hell and I’m Not Going to Take it Anymore.” And people all over the country do just that.

If you’re fed up with the rising costs of healthcare, you’re not alone. Employers spend more than $600 billion a year on healthcare, and many have little to show for it except a P&L statement that is bleeding red ink. The line for Healthcare Expense keeps going up … and up … and up.

Until recently, there was nothing you could do about it. Well, now there is.

I say recently, but it’s actually been over a decade since the Health Savings Account was introduced. Some might call a decade a long time, but a recent poll showed that 74% of Americans don’t know what an HSA is. One reason is that insurance companies and brokers don’t want to tell you about them because HSAs need to be paired with High Deductible Health Plans, which have lower premiums than traditional plans. And since premiums are the same as revenue to an insurance company, lower premiums mean that they and their brokers (also known as “salespeople” or “producers”) make less money. They have a built-in incentive to keep these plans hidden, or at the very least, hard to understand.

But smart employers like Kraft Foods, Cummins Engine, and the State of Indiana are catching on. They are taking costs out by redesigning their health plans and changing the behavior of their employees. When people have “skin in the game,” they look more closely at where they are spending their money. There are more tools than ever to help all of us better navigate through the healthcare maze. 

We at MMS have studied the success stories of leading companies that have transformed their healthcare stories, and we’re ready to help you profit from their experience. Go here to read a Wall Street Journal analysis of how you can save on healthcare costs. It’s called Two Essential Tools for Repairing the Obamacare Damage.

P.S. Here’s how one website described the movie Network:  “In this lauded satire, veteran news anchorman Howard Beale (Peter Finch) discovers that he’s being put out to pasture, and he’s none too happy about it. After threatening to shoot himself on live television, instead he launches into an angry televised rant, which turns out to be a huge ratings boost …” To see a video clip of the movie, go here.

Scared of high-deductible health plans (HDHPs)? You shouldn’t be. Here’s why.

For no good reason, HDHP has become a dirty four-letter acronym for healthcare consumers.

The WebMD article, “Why Your Employees Are Afraid of Your High-Deductible Health Plan (HDHP)—And What You Can Do About It”, by Christine Muldoon, Senior Director of Health Plan Market Strategy, may be from 2013, but it’s even more relevant today, as an increasing number of employers are offering HDHPs as their only health insurance option.

High-deductible health plans offer low premiums in exchange for high deductibles, and it’s the high out-of-pocket exposure from HDHPs that makes employees fearful of switching to these plans. However, when paired with a health savings account (HSA), fear can be eliminated and employees and employers can save big on healthcare.

For example, a company with 100 employees could save $120,000 per year in healthcare premiums by choosing an HDHP plan!

Save your employees money on healthcare. Sacrifice nothing.

Employers can keep employee out-of-pocket costs virtually the same as when they offered low-deductible health plans by funding HSA accounts with the money saved on lower premiums by switching their employees to high deductibles. If needed, employers can supplement with health reimbursement arrangements (HRA) to further offset employee out-of-pocket expenses.

Why HDHPs?

  • Drastically reduce premiums for employers.
  • With more skin in the game, employees are incentivized to minimize out-of-pocket expenses and become cost-conscious consumers.
  • Under the ACA, preventive care is covered with no out-of-pocket expense.
  • Long term, utilizing preventive care reduces claims expenditures for employers by avoiding possible complications from an underlying illness.
  • Why HSAs?
  • Both employers and employees can make pre-tax contributions at any time, even monthly.
  • Employees can make tax-free withdrawals from their HSA at any time to pay for virtually any out-of-pocket medical expense.
  • Unlike other medical savings accounts, the unused balance in the employees’ HSA will roll over at the end of the year, so they can keep building their savings!
  • When employees turn 55, they can contribute an extra $1000 per year to their HSA.
  • When employees turn 65, they can make tax-deferred withdrawals, just like a 401(k)—it’s essentially another retirement account!

It’s a win-win!

So, why isn’t everyone choosing HDHPs?

To put it simply, there are two big reasons:

First, insurers don’t want to promote HDHPs because lowering premiums reduces their profit. It’s their dirty little secret. And they’ve done a great job of keeping us fearful of HDHPs for their own monetary gain.

Second, the success of HDHPs largely depends on employees becoming cost-conscious consumers. To minimize out-of-pocket expenses, employees need tools to comparison shop for healthcare procedures.

Until now, you haven’t been able to compare prices for care because they have been a well-kept secret.

Insurance companies and a few other insiders like to keep us in the dark. Why? Because they make more money when we spend more. Reducing claims lowers their profit. By contrast, you want to save money (without sacrificing quality) and they want you to pay more.

Have no fear, MyMedicalShopper is here!

MyMedicalShopper enables true comparison shopping for medical procedures by shining a light on the secretive world of healthcare pricing. It empowers employees to spend their hard-earned dollars more wisely. MyMedicalShopper shows accurate and comprehensive prices charged by providers for more than 10,000 medical procedures.

Need a thyroid test in Portsmouth, New Hampshire? You could spend $28 at one facility or $204 at another facility half a mile away.

MyMedicalShopper also simplifies tracking deductibles and administration of HSA/HRA accounts for employers and employees.

Let’s shine a light on this dirty little secret!

Start saving your business and your employee’s money on healthcare today. Check out MyMedicalShopper for business.

Cost, quality, and your healthcare—a story about relationships

Cost and quality—they’re always related right? Well, usually. Sometimes we buy the cheaper good or service when we’re looking to save money, understanding the trade off is often quality. We might buy a hamburger at a fast food joint for $2 instead of spending $10 at the local pub. The same goes when we’re buying almost anything, whether it’s paper towels, power tools, desk chairs, or running shoes. The philosophy of “you get what you pay for” is ingrained in our culture. In fact, we often look at price as a kind of proxy for quality. When we stand in the aisle at the auto parts store and look at a shelf full of car batteries that all look the same, we naturally conclude that the more expensive battery is the better one. We’re trained as consumers to evaluate goods and services this way. And usually, this form of evaluation leads us to the correct conclusion.

But be careful when applying this same logic to your healthcare. Splurging on a burger now and then won’t likely break your wallet, but healthcare costs are no joke, and aren’t as easy to recover from. Recent studies have shown that there is no relation between cost and quality when it comes to our healthcare. And by becoming aware of this fact sooner, you are likely to save hundreds or thousands of dollars on your medical expenses each year.

Bill Clinton declared to his audience at the Healthcare Information and Management Systems Society in 2013 that, “every single year…the results have been the same. There is no correlation between what people pay and the quality of healthcare they get.” Still, there’s so many of us out there that believe price and quality are inextricably united.

If you’re not totally convinced by the words of Bill Clinton, perhaps you’ll find Peter Hussey’s comprehensive research on the subject more compelling. His team reviewed 61 different studies concerning the relationship between quality and cost in healthcare, then had his findings published in January 2013 by the Annals of Internal Medicine. The researchers found that “the association between cost and quality is small to moderate, regardless of whether the direction is positive or negative.” In layman’s terms, their research showed that there is no distinguishable relationship between the cost and quality in healthcare.

The following graph shows how the number of studies showing a positive relationship is virtually equal to the number of studies finding a negative relationship, and also roughly equal to the studies that showed no relationship at all between cost and quality.

There’s really no other industry like healthcare (a really tricky auto repair might be the next closest thing), where consumers are completely unaware of price before buying something, so it’s hard to even provide a decent example for the sake of comparison. But here’s another way to think about cost versus quality. You can buy a bottle of water at a gas station for $0.99. At a football stadium the same bottle of water sells for $4. Is there any difference in quality? Exactly. The market dictates that consumers will pay more for water at football games.

But what does the market dictate with regard to healthcare costs? Unfortunately, not a whole lot. Since we don’t really have access to any pricing beforehand, there’s really no rhyme or reason behind low or high healthcare costs. Some providers have low prices for tests and procedures, while other providers charge sky-high rates for the exact same care. And this is why Peter Hussey’s findings make a lot of sense.

So if you knew you could get the same quality healthcare at one facility for hundreds or thousands of dollars less than another facility in your area, which one would you choose?

Let’s take control of our physical and financial health by changing our perspective, becoming aware of the hidden truths related to healthcare (like the relationship of cost and quality), and by embracing new price transparency technology. By making these easy changes we can effectively become educated medical consumers, equipped with all the necessary tools to take control of our healthcare.

Don’t really know what a health savings account is? Then you’re way overdue to fire your broker!

In my travels, I ask many community and business leaders if their health insurance plans include a health savings account (HSA). “Yes, I think so” is the most common answer I get, but that is quickly followed by “that’s the thing where we have to predict what our out-of-pocket spending might be for the year and then it is taken out of our paychecks as a pre-tax payroll deduction, right?”. I ask a quick clarifying question: “Do you mean the account where you lose the money if you don’t use it?”. I always get back, “Yes, that’s it!”. No it is not!

 

The level of ignorance for the simplicity, flexibility, and tax-advantaged structure of HSAs created in 2003—now over a decade later—is amazing. How could so many business, industry, and community leaders not have a clue?? Here are some reasons I discovered:

 

  • The use of health savings accounts in health insurance plan design always lowers insurance premiums. In fact, if used as an optimal tool to reduce the cost of healthcare collectively for employers and employees, it can reduce premiums by as much as 60%! Well, as you might guess, the insurance company isn’t too happy if their revenue drops 60% just because you get educated.
  • Until recently, all health insurance companies commissioned their brokers as a percentage of premiums (in the NH large group market, Harvard Pilgrim Health Care still pays brokers this way today). Well, the broker isn’t going to be too happy if their revenue drops 60% just because you get educated.
  • So, you think the state Insurance Department might help educate business, industry, and community leaders since their mission is “…to promote and protect the public good…” Well, the Insurance Department is funded by the insurance companies through the payment tax as a percentage of premiums! The legislature isn’t going to be too happy if they need to explain another tax increase just because you get educated.

 

How could this cascaded stacking of anti-consumer, anti-business, anti-society, misaligned financial incentives survive for so long? It only survives through your ignorance.

 

To get a quick free education on what a health savings account really is, and why you should make sure it’s an integral part of your health insurance plan design, go to: “Don’t have a health savings account? Here’s why you need one.”

Don’t have an HSA? Here’s why you need one.

Since their creation as “tax-advantaged” accounts by Congress in 2003, the prevalence of health savings accounts (HSA) has been growing steadily despite the reality that the health insurance industry doesn’t like them.

Even with the industry floating “Fear, Uncertainty and Doubt” (a.k.a. FUD-factor), consumers are starting to see the light when it comes to high deductibles and HSAs, and it can be easy to understand why.

To learn why the industry wants you to stay uninformed, please read: “Don’t really know what a Health Savings Account is? Then you’re way overdue to fire your broker!”

So what makes HSAs so great?

When you purchase a low-deductible health insurance plan, the carrier charges you more in premium for the first few thousand dollars of coverage than the amount you’d pay if you had paid your medical bills directly.

Here’s an example:

If you have a $0 deductible family plan and you increase the deductible to $2,000, you would get roughly $3,600 back in premium savings to pay a maximum $2,000 in out-of-pocket costs for medical bills. That’s $1,600 of free money! If your family happens to stay healthy all year, you might save $3,600!

Expanding on this simple revelation, it turns out that if you can find a family policy with a $12,900 deductible (the maximum deductible considered HSA compliant in 2015), your premium savings should be about $14,000—equating to savings between $1,100 and $14,000 depending on how healthy your family stays in a given year.

So why wouldn’t you get a policy that guarantees you save money regardless of your health status, but could allow you to save $14,000 each year if you’re lucky?

If you run a business, like me, with a bunch of employees, the savings realized with a health plan design change is far more dramatic. The law of averages tells us that only a small percentage of your employees will have significant health expenses in any given year, and for each of those few families you can expect to save only $1,100. In fact, The US Department of Health and Human Services issued a study recently that shows that the median family, with everyone under the age of 65, consumes under $2,800 of health services per year. So in the most common cases, you will save $11,200 ($14,000 premium savings minus $2,800 median medical bills = $11,200) per family!

In all cases you save by going to the maximum deductible even if every employee had a catastrophic health incident each year!

Based on the information I’ve shared here, and other information relating to individual rates, expected losses, and distribution of health service consumption, your average business of 100 employees can save roughly 37.5% or about $600,000 each year!

So what does this all have to do with HSAs?

A $12,900 family deductible sounds pretty scary to most employees, especially if they recognize that the reimbursement for these costs are all held by the employer. “What happens to me if I have to change employers, or worse, get caught in a RIF and need to go on COBRA?” Potential for leaving an employee with a large out-of-pocket exposure is not a popular idea for responsible employers, let alone rightfully concerned employees. But there is a way to counteract out-of-pocket exposure for your employees.

The solution

Health savings accounts (HSAs). As long as a health insurance plan does not cover the employee for anything in the first $1,300 single/$2,600 family of medical and prescription drug expenses, that employee is eligible to have their employer fund their health savings account for any amount up to $3,350 single/$6,650 family per year. If the employer doesn’t fully fund those amounts, the employee may take a tax deduction for any additional amount they contribute themselves to get to those limits. The HSA is a tax-free savings account, owned by the employee that grows tax-free! The employee can make tax-free withdrawals from their HSA to pay for virtually any out-of-pocket medical expenses. Unused balances in the account grow tax-free into larger savings, and can be invested in similar ways to a 401(k) plan allowing savings to grow rapidly. If a job change occurs, all balances in the HSA are owned by the employees and remain in their accounts. When they reach the age of 65, the employee can make withdrawals in the same way they can in their 401(k), or they can continue to use the money tax-free for health expenses and long-term care insurance.

But wait, there’s more!

Since individuals with high deductibles are responsible for paying more out-of-pocket for medical expenses from their HSAs until a reimbursement arrangement kicks in or deductibles are met, they are more likely to seek preventive care, including annual physicals and cancer screenings (because under the ACA law these costs can’t be subjected to the plan deductible). In general, there’s a new financial incentive for employees to stay healthy so they tend to live healthier lifestyles. In fact, a 2011 study by AHIP (click here to download the PDF of those study findings) revealed that those enrolled in an HSA sought preventive care at higher rates than those enrolled in a traditional Preferred Provider Organization (PPO) plan. Since the industry has reached consensus that preventive care is a major factor in improving our health and lowering costs, chalk this up as another win for HSAs.

Takeaways

In a nutshell, we’re much better off when we increase our deductibles to the highest amounts allowed and then tuck away the premium savings in our HSAs for use when medical procedures are not considered preventive care. We become empowered to reap the rewards that should accompany good health and savvy medical care decisions. When we’re healthy, we save money. When we choose lower-cost providers, we save money. When we do get sick, we have a funded account that completely covers our out-of-pocket expenses, and a health insurance plan that provides great coverage after we exceed our deductibles. We should be designing all of our health plans to reward comparison shopping and healthy behavior.

Mark Galvin’s activities and advocacy around consumer-directed health plans (CDHPs) and health savings accounts (HSAs) have been covered in the Wall Street Journal, People Magazine and a number of other high-profile news outlets.

Not happy about your salary increases (or lack thereof) over the past decade? You might want to blame it on healthcare.

While many factors may be contributing to the lack of salary increases in America, have you considered that one of the biggest culprits might be the rising cost of healthcare? In the past decade alone, health insurance premiums for families have risen 73%, dramatically outpacing increases in family income (read more here about the study by The Commonwealth Fund). At the big picture level, $3.6 trillion (yes, trillion) was spent on healthcare in the U.S. in 2013 (our entire GDP was $16.72 trillion). If you’re having trouble grasping this amount of money, here’s another way to look at this total (hopefully without sending you into shock): the U.S. spends on healthcare the equivalent of Germany’s entire GDP ($3.6 trillion) or over a third of China’s GDP ($9.33 trillion). For a complete list of global GDPs, almost all of which are exceeded by our healthcare spending alone, click here. Now take it in for a moment; it’s a lot to digest.

When healthcare costs account for nearly a quarter of our GDP, it’s difficult not to assign it some responsibility for our stagnant wages.

Increases in business healthcare costs have remained far ahead of increases in wages since the 1970s (check out this Huff Post article for some more startling statistics about our healthcare system). And if employers are busy spending their money on the rising cost of healthcare for their employees, that means they’re probably investing less back into their company for growth and salary increases. It’s just simple math.

And it can have a snowball effect. Less money spent on growth and salary increases means fewer new jobs being created, and less disposable income for American families. When the healthcare system siphons all our wealth, our economy suffers overall.

Employers have tried to control the amount of money they invest into healthcare by switching their employees to high-deductible health plans (HDHPs). These plans expose the insured to higher out-of-pocket costs, but they feature much lower premiums, so they’re more affordable for businesses. Still, healthcare costs continue to rise across the board, severely limiting the potential for salary increases.

You may be thinking at this point, “Isn’t all of this out of my control?” Well, the truth is, while healthcare costs are on the rise, what you pay isn’t out of your control. As price transparency continues to illuminate the healthcare industry (you should read our blog post on this subject), American medical consumers (businesses, families, and individuals alike) can be part of the solution of driving down healthcare costs. Being able to choose your medical care provider based on quality and price empowers you to pay less for great care, which means less money out of your pocket. Since health insurance premiums are based directly on total medical claims, paying less for our care also means that we’ll start seeing reductions in premiums. And that overall reduction in healthcare costs, in turn, could lead to some long-overdue salary increases.

This is why it’s so important for everyone to take an active role in our healthcare. The industry has us in a pretty tough spot right now. But isn’t it empowering to know we have some control of our future?

Steve Forbes Prescribes Price Transparency to Remedy Our Skyrocketing Healthcare Costs

Currently, the patient isn’t the “customer”; so says Steve Forbes, Editor-In-Chief of Forbes Magazine. Transforming patients into customers also means empowering them to shop for lower-cost healthcare like they already do for other purchases.

Sadly, that hasn’t been possible so far—you can’t Google to find the lowest-cost, high-quality provider that’s also nearby for a medical test or procedure.

Video: What If Everything Worked Like Healthcare

What is also sad is that healthcare prices vary wildly among providers for the exact same procedure. To make things worse for the patient, the old rule—you get what you pay for—simply doesn’t apply to healthcare. Research shows there is no correlation between quality and price in the healthcare industry.

Empowering your employees to shop for lower-cost healthcare procedures can lower your organization’s total healthcare costs—and, also help with employees’ out-of-pocket expenses. In fact, Steve Forbes wrote about it in the November 29, 2016 issue of Forbes Magazine:

“– Transparency for prices. Require hospitals and clinics to post their prices for all treatments, medications and services. The disparity in pricing can be astonishing. An enterprising entrepreneur, Mark Galvin, who is also CEO of MyMedicalShopper in New Hampshire, found that the fee charged by hospitals and clinics in the region for a nuclear stress test for heart patients ranged from about $1,450 to $7,000. 

The third-party-payer system and the lack of pricing transparency is why health care doesn’t experience the fast, relentless pressure of lowering costs that’s routinely found in other markets. 

If wide-screen TVs had fallen under the auspices of today’s medical system we’d still be paying $10,000 for them instead of a few hundred bucks.

MyMedicalShopper does just that—it is a healthcare comparison shopping platform. The company makes shopping for medical tests & procedures as easy as a Google search, unleashing billions in savings on healthcare costs.

​What’s more, combining MyMedicalShopper with HSA-compatible health​ plans can be magical!

See Is a health savings account (HSA) better than a 401(k)? You decide.

For mature audiences only

Just when you thought we were done talking about health savings accounts, here we are again talking about HSAs. We’ve outlined HSAs before, but new reports indicate that they may be more of a necessity than simply an added benefit. One thing we’ve spent a lot of time discussing is the use of HSAs as a second retirement account, and now there’s even more evidence supporting why that is such a keen idea.

HealthViews recently issued their “2015 retirement healthcare costs data report,” which was highlighted in this Time article. And with the report came some startling numbers concerning healthcare costs and retirement. Reader discretion: The numbers you are about to see may be disturbing.

If you are going to retire this year, you can expect to pay around $133,295 for healthcare throughout your retirement. That’s the price tag for just one individual! And by 2025, medical retirement costs are expected to jump to nearly $165,500 for an individual! That’s a 20% increase over the next decade!

So what do we get for this high price of healthcare? Medicare parts B and D. This kind of coverage includes preventive care and the cost of prescriptions. This price tag also includes a Medicare supplemental insurance policy, a popular purchase among Medicare recipients who are looking for help paying co-pays and deductibles.

Now for the out-of-pocket costs… Oh, you thought that was covered in the hefty price tag we revealed to you above? We’re afraid not. So what does our grand total come to when we add the estimated out-of-pocket costs for dental, vision, and hearing medical services, in addition to co-pays? Let’s take a look at the graph below to compare individual retirement healthcare costs with and without estimated out-of-pocket expenses.

Graph: MMS Analytics, Inc.

The total is approximately $197,477 for a healthy individual when you add the estimated out-of-pocket medical costs. So that’s an extra $64,000 when the estimated out-of-pocket costs are considered. What may be even more concerning is the increase in retirement healthcare costs over the next decade whether you figured in out-of-pocket costs or not.

So with all this bad news, is there any good news? The good news is that there is one way to counteract healthcare costs in retirement, and it’s by setting up an HSA, which you’re probably eligible for if you have a high-deductible health plan. If you already have a 401(k) then you can think of an HSA as a second retirement account, except it’s completely tax-free for medical expenses.

Many employers contribute to their employees’ HSAs, so you might have some help saving. And in case you’re wondering, here are this year’s maximum HSA contribution levels for individuals and families: