The RAND Health insurance experiment was an experimental study of health care costs, utilization and outcomes in the United States, which assigned people randomly to different kinds of plans and followed their behavior from 1974 to 1982.
The historic Health Insurance Experiment found that patients had little or no control over their health care spending once they began to receive a physician’s care, but a new study shows that this has changed for those enrolled in consumer-directed health plans.
Patients with health coverage that includes a consumer directed plan like a Health Savings Account reduced their costs even after they initiated care.
Overall, the new study found about two thirds of the reduction in total health care costs was from patients initiating care less often and the remaining third was from a reduction in costs after care is initiated. So what is consumer directed health plans and how do they work?
One form of a consumer-directed health plan is a Health Savings Account, which is a taxed deferred savings account coupled with a high deductible health plan. A Health Savings Account has many advantages to the insured policy holder. For example, an individual can put money in a tax deferred savings account to pay for any medical expenses. The IRS has made a list of what is considered a qualified medical expense. Some of these expenses are anything from acupuncture to X-rays. You can find these expenses on www.irs.gov and put in HSA expenses in the search bar. Any unused amount in this account will not be lost at the end of the year. Rather, the unused amounts will rollover to the next year without a penalty. Also, the rules for HSAs allow the money in these accounts to be used for retirement income, subject to regular income tax if the money is withdrawn after age 65. Before 65, there will be an additional 10-percent tax penalty. Participants may even elect to invest in stocks or other financial instruments using funds from this account. The same types of investments permitted for IRAs are allowed for HSAs. And as long as the money is withdrawn to pay medical expenses and not for retirement income, the interest or other earnings in this account are tax and penalty free. There are some certain requirements for establishing a Health Savings Account. You are not allowed to contribute to a health savings account unless you have purchased a high deductible health insurance plan.
The health savings plan must have an individual deductible of at least $1,200 and a $5,950 deductible for families (based on 2011 requirements). If you decide to open a health savings account and do not buy a high deductible health plan you are just looking for IRS issues.
The new study brings a little hope when talking about medical cost. It shows that putting the control in the individual’s hands means less utilization cost to hospitals and doctors.
In theory this should help control the rising cost of health care. It still will take some time to find out if consumer directed health plans are the way to lower medical cost. So far, it seems to have made some difference.
Mike Miele, with MGA Insurance, can be reached at (941) 907-3828.
