Health Savings Accounts: Putting Patients in Control

How could having a high deductible on your health coverage be good for you?


Sept. 14, 2007 — -- Don't you hate that high deductible on your insurance policy? You have to pay thousands of dollars before insurance covers your care. That's terrible, some say, but is it really? A version of it may be the key to lowering costs and putting you in charge of your health care.

Five years ago, the grocery chain Whole Foods Market switched to a different kind of health insurance, a policy that puts patients more in control.

CEO John Mackey explained the appeal of these policies. "Because it's like, 'At last, I can go to that acupuncturist! At last, I can go to my chiropractor! At last, I can spend the money the way I want to spend it.'"

Whole Foods has an insurance policy with a high deductible. That means an employee like Braden Weirs must pay about $1,000 before his insurance kicks in. If he gets cancer or heart disease, his insurance covers it.

But if he has a sore throat or a sprained ankle, he pays.

To help workers pay, Whole Foods puts money into an account for them. Weirs got $1,500 this year. If he doesn't spend it on medical care this year, he keeps it and the company adds more next year.

"And I have plenty of money left over," Weirs said. "So I can go get my new prescription glasses at the end of the year."

Most companies call these accounts Health Savings or Health Reimbursement Accounts. The company saved money, too. "Our costs went way down," said Mackey.

Still, some employees were angry about the plan. They said they wanted their full coverage back.

"When you go from a system where people are very dependent and now you're telling them, 'Hey, you have to take more responsibility for your own health.' … That was frightening to them," Mackey said. "Because they were going to have to be responsible for themselves, they weren't going to be taken care of any longer."

So, Mackey held a vote among his employees on the plan. "The result was, 77 percent of the team members voted for the health plan that we have today," Mackey said.

Today, some workers have piled up $8,000 in their health accounts.

"And then that's their money," Mackey said. "It builds up over time … and so, that's great because the money is compounding for them."

Weirs said he can save up his money and afford to have a child later on. It's because he controls the money and as it builds up, it can cover all sorts of future out-of-pocket medical expenses.

Mackey said this changed his employees' behavior.

"They start asking how much things cost. Or they get a bill and say, 'Wow, that's expensive.' They begin to ask questions. They may not want to go to the emergency room if they wake up with a hang nail in the middle of the night. They may schedule an appointment now."

They didn't ask what things cost before?

"Why should they?" Mackey said. "Somebody else was paying for it."

When she went to the doctor, Whole Foods employee Mary Ann Buttros never asked, "How much will this cost?"

"Because it didn't matter," Buttros said. "And now it matters to me, because it's my money."

Because it is Buttros' money, some people worry that Health Savings Accounts will discourage people from getting the preventive care that they need or that they'll shortchange their health to economize.

"The premise in those kind of questions … are that people are stupid. They're not smart enough to make these decisions for themselves. It's sort of an elitist attitude," Mackey said. "The individual is the best judge of what's right for the individual."

Apparently, most individuals are making smart choices.

Regina Herzlinger, a Harvard Business School professor and author of "Who Killed Health Care?," said that "people who have these high-deductible health-insurance policies take better care of themselves. … They have more yearly physicals," she said. "Because they're saying, if I keep myself healthy, in the long run, I'm gonna be spending less money."

Whole Foods employee Cheralyn Schmidt used her account when she wanted to get a physical. Because it was her money, she shopped around. She found prices varied by hundreds of dollars.

"If I had regular insurance, I would have never called around and asked for prices," she said. "I would have just walked in, showed my card, said, 'I need a physical,' … and I don't even really know what they would have given me."

The fact that she was paying changed the way she thought about that physical.

"I started thinking, 'Well, what I am getting for this price? For $1,200 what I am getting?'" she said.

Grace-Marie Turner of the Galen Institute, which studies free-market solutions to health-care problems, said doctors don't often know what to say when patients like Schmidt ask them what things cost.

"I mean, that shows you how dysfunctional our health-care system is," Turner said. "That people don't have the vaguest idea how much they're spending on health care, close to the closest $10,000 or $20,000, often, when they go to the hospital. And the sellers don't have any idea what it costs."

Competition forces Whole Foods to pay attention to prices. "We know what [Texas supermarket chain] H-E-B is selling broccoli for right now, so we have to reflect our prices to the competition," Mackey said. But in health care, "No one's trying to think, 'Yeah I'm going to cut 5 percent below that price, so I can increase my business.'"

But some say health care's different. It's too complex. We can't decide that.

"Gosh," Mackey said. "You know, should we allow people to make decisions about whether they have children or not? I mean that's a pretty important responsibility, having children!"

But what about the argument that people don't know anything about things like cancer treatments?

"I don't know anything about cars," Mackey said. "[But] if I go buy a Toyota, or an Audi, or a Lexus, I know I'm going to get a pretty good automobile, because competition ensures that it will be that way."

That is why Americans buy Toyotas instead of Trabants. Of course cars and cancer are different, but where there is competition, information resources like Consumer Reports and Web sites spring up to help consumers make decisions. As the sliver of competition has entered health care, similar resources have appeared, rating doctors and hospitals.

Ingenix, a health-care information and technology company based in Minnesota, has developed software that analyzes data from insurance claims to rate doctors and hospitals on quality and price. The firm has found that doctors that rate higher in quality tend to cost less money. They also catch problems earlier and keep their patients out of the emergency room more often.

Currently, this rating system is only available to customers of insurance companies, but the company plans to make it more widely available through public search engines in the future.

Whole Foods' Mackey said competition could improve American health care, except so far, not enough people shop for that health care.

"The doctor doesn't feel compelled to compete on price," he said. "The doctor doesn't worry that he's going to lose that business to a competitor down the street. So there really isn't any price competition going on."

That's why, he said, despite their big initial savings, Whole Foods' health care costs are creeping up again.

"But if everybody was out there asking doctors what things cost, if doctors were advertising their prices," Mackey said, "we'd begin to see prices dropping."

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