HEALTH SAVINGS ACCOUNTS (Hsas) and CONSUMER DRIVEN HEALTH CARE: COST CONTAINMENT OR COST SHIFT?

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HEALTH SAVINGS ACCOUNTS (Hsas) and CONSUMER DRIVEN HEALTH CARE: COST CONTAINMENT OR COST SHIFT? HEALTH SAVINGS ACCOUNTS (HSAs) AND CONSUMER DRIVEN HEALTH CARE: COST CONTAINMENT OR COST SHIFT? HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS SECOND SESSION MAY 14, 2008 Serial No. 110–84 Printed for the use of the Committee on Ways and Means ( U.S. GOVERNMENT PRINTING OFFICE 50–037 WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING COMMITTEE ON WAYS AND MEANS CHARLES B. RANGEL, New York, Chairman FORTNEY PETE STARK, California JIM MCCRERY, Louisiana SANDER M. LEVIN, Michigan WALLY HERGER, California JIM MCDERMOTT, Washington DAVE CAMP, Michigan JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee JERRY WELLER, Illinois XAVIER BECERRA, California KENNY HULSHOF, Missouri LLOYD DOGGETT, Texas RON LEWIS, Kentucky EARL POMEROY, North Dakota KEVIN BRADY, Texas STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York MIKE THOMPSON, California PAUL RYAN, Wisconsin JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia RAHM EMANUEL, Illinois JOHN LINDER, Georgia EARL BLUMENAUER, Oregon DEVIN NUNES, California RON KIND, Wisconsin PAT TIBERI, Ohio BILL PASCRELL, JR., New Jersey JON PORTER, Nevada SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida ALLYSON Y. SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama JANICE MAYS, Chief Counsel and Staff Director JON TRAUB, Minority Staff Director SUBCOMMITTEE ON HEALTH FORTNEY PETE STARK, California, Chairman LLOYD DOGGETT, Texas DAVE CAMP, Michigan MIKE THOMPSON, California SAM JOHNSON, Texas RAHM EMANUEL, Illinois JIM RAMSTAD, Minnesota XAVIER BECERRA, California PHIL ENGLISH, Pennsylvania EARL POMEROY, North Dakota KENNY HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio RON KIND, Wisconsin Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occur- rences are inherent in the current publication process and should diminish as the process is further refined. ii VerDate Nov 24 2008 05:58 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING C O N T E N T S Page Advisory of May 7, 2008, announcing the hearing ............................................... 2 WITNESSES John E. Dicken, Director, Health Care, U.S. Government Accountability Office (GAO) .................................................................................................................... 9 Michael E. Chernew, Ph.D., Professor of Health Care Policy, Harvard Medical School, Boston, Massachusetts ............................................................................ 26 Linda J. Blumberg, Ph.D., Principal Research Associate, The Urban Institute 32 Judy Waxman, Vice President and Director of Health and Reproductive Rights, National Women’s Law Center .............................................................. 39 Wayne Sensor, CEO, Alegent Health, Omaha, Nebraska .................................... 47 SUBMISSIONS FOR THE RECORD America’s Health Insurance Plans (AHIP), statement ......................................... 81 American Benefits Council, statement ................................................................... 87 Consumers for Health Care Choices at the Heartland Institute, statement ...... 93 Consumers Union, statement ................................................................................. 94 Energy Manufacturing Company, Inc., statement ................................................ 96 Henderson Brothers, Inc., statement ..................................................................... 97 Melodee S. Webb, statement ................................................................................... 97 National Business Group on Health, statement ................................................... 99 Ross Schriftman, statement .................................................................................... 103 Terri Buck, statement ............................................................................................. 105 The Council for Affordable Health Insurance (CAHI), statement ....................... 106 iii VerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00003 Fmt 0486 Sfmt 0486 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING VerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00004 Fmt 0486 Sfmt 0486 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING HEALTH SAVINGS ACCOUNTS (HSAs) AND CONSUMER DRIVEN HEALTH CARE: COST CONTAINMENT OR COST SHIFT? WEDNESDAY, MAY 14, 2008 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC. The Subcommittee met, pursuant to notice, at 10:30 a.m., in Room 1100, Longworth House Office Building, Hon. Fortney Pete Stark (Chairman of the Subcommittee), presiding. [The advisory announcing the hearing follows:] (1) VerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON HEALTH FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 May 07, 2008 HL–25 Stark Announces Hearing on Health Savings Accounts (HSAs) and Consumer Driven Health Care: Cost Containment or Cost Shift? House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) an- nounced today that the Subcommittee on Health will hold a hearing on Health Sav- ings Accounts (HSAs) and so-called Consumer Driven Health Care (CDHC) or high- deductible health plans (HDHPs). The hearing will take place at 10:30 a.m. on Wednesday, May 14, 2008, in Room 1100, Longworth House Office Building. In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consider- ation by the Committee and for inclusion in the printed record of the hearing. BACKGROUND: The Medicare Modernization Act of 2003 (MMA) (P.L. 108–173) created new tax- preferred Health Savings Accounts (HSAs) to encourage adoption of high-deductible health plans (HDHPs). These accounts allow individuals and/or their employers to make tax-preferred contributions toward qualified medical expenses, provided they have HDHPs with deductibles of at least $1,100 for individuals and $2,200 for fami- lies for 2008. HSA holders can contribute more to the savings account (up to a speci- fied limit) than would be required to fulfill their annual deductible, and any unused portions of the account accrue tax-free and can be withdrawn tax-free so long as the funds are used only for qualified medical expenses. However, unlike employer-pro- vided Flexible Spending Accounts (FSAs), individuals are not required to prove or otherwise substantiate that their HSA withdrawals are being used for health care purposes. As employers attempt to limit their health costs, some are turning to HDHPs— often called ‘‘consumer driven’’ health care plans—which have high-deductibles, often in exchange for lower premiums. While HDHPs have grown in recent years, only a fraction of those with these plans have active HSAs. These plans shift the cost of health care away from insurers and employers and toward individuals. These plans are predicated on the assumption that consumers will make more rational health care choices if they have a significant financial stake in the cost of their care. Proponents of these plans argue that they will help control overall health spending. But these plans may discourage consumers from seeking treatment and obtaining preventive care, and total health spending could even increase if people defer or delay needed preventive care or initial treatment. These plans result in significant out-of-pocket costs for those with serious medical conditions. A June 2007 Kaiser Family Foundation study found that pregnant women could face high out-of-pocket costs under these plans, particularly when complications arise. Furthermore, an April 2008 GAO study found that the average HSA enrollees had incomes nearly three times the average income of other tax filers and that HSA contributions were almost twice that of withdrawals. Simply stated, these policies are designed to help those who can afford to put money away to do so, but only serve to put health care further out of reach for those with high medical costs and/or modest incomes. VerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 E:\HR\OC\50037.XXX 50037 tjames on DSK5CLS3C1PROD with HEARING 3 In announcing the hearing, Chairman Stark said, ‘‘HSAs and high deductible plans are a flawed policy approach to making health
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