History Corner

Before the 1930s, health insurance of any kind was a rarity in the United States. Most hospitals operated on a cash-on-demand basis, with some receiving money from charities. When funding from charities dried up during the depression, private insurers moved in to fill the gap... and an industry was born.

“If I knew I was going to live this long, I’d have taken better care of myself.”

–Mickey Mantle

PUNDITSPEAK

“HSAs will not single-handedly change the way Americans think about or receive health care. But HSAs are critically important. They may help change the way employers, employees, and providers – indeed, all Americans – view health care.” —Dr. David Gratzer

Dr. David Gratzer is a physician, senior fellow at the Manhattan Institute and author of ‘The Cure: How Capitalism Can Save American Health Care’.

CEO'S DESK

"We found that little correlation exists between higher fees and higher interest rates, emphasizing the need for consumers to do research before they settle on an HSA and probably implying ... that fees have more to do with transaction support and service levels than interest rates." — Chini, CEO, Vimo

For free markets to work well, we need open information and analysis available to consumers. One step in that direction is to make side-by-side comparisons available as we do on our site each day. A second approach is to build on our data and provide consumers some editorial analysis. To that end, we published a research report on the wide disparity between fees that banks charge customers for Health Savings Accounts (HSAs).

We found that little correlation exists between higher fees and higher interest rates, emphasizing the need for consumers to do research before they settle on an HSA and probably implying (although this was not a focus of our study) that fees have more to do with transaction support and service levels than interest rates. As mentioned in our press release, this is the first of many reports we intend to conduct over a period of time, each highlighting a different aspect of the consumer-driven healthcare landscape.

Chini Krishnan
President, Vimo Inc.

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In the News

Reducing Uninsured Seen as Top Health-Care Issue, Poll Finds

Source–The Wall Street Journal, Published October 24, 2006

Americans say reducing the percentage of uninsured in the U.S. is a top priority for government to address over the next two years, a WSJ.com/Harris poll shows. But many lack confidence in either party´s ability to tackle this and other health-care issues. Read more...

Health Insurance Plan Tools Are Easing Healthcare Cost Increases

Source– America's Health Insurance Plans, Published October 3, 2006

Growth in spending for prescription drugs continues to slow as more consumers take advantage of health insurance plans´ cost-containment strategies, a study released by the Center for Studying Health Systems Change found. Read more..

Insurance Spotlight

Health Insurance with a Twist

One of the more interesting health insurance products on the market today is HealthMiles Plus, launched by Richard Branson's Virgin Life Care and Humana Inc. in Texas this September. Similar in concept to frequent flyer programs, HealthMiles Plus is a first-of-its-kind rewards program with incentives designed to motivate people to lead healthier lives and take a preventive approach to health care.

The accessible, interactive and easy-to-use program enables members to set health and fitness goals, track results and earn “Miles” for effort and achievement. Once a participant has earned enough “Miles,” he or she can convert them into spend-able points or gift cards for a variety of retailers.

The insurance portion of HealthMiles Plus, underwritten by Humana, is much like other individual insurance policies. The difference lies in the rewards component, which offers an integrated and complete approach to health and wellness designed to engage consumers and get them to take a more active role in their own health care.

"One of our primary focuses has been on preventive care and the impact that can have on a consumer's health later in life," said Stephen Cindrich, marketing director for Humana Individual Products. "When people lead healthy, active lifestyles, the incidence of chronic diseases, such as heart disease and diabetes, decreases dramatically. This, in turn, decreases the amount of costly interventions required later in life, ultimately leading to reduced overall health care costs."

In Depth

Measuring the Financial Value of Health Savings Accounts (HSAs) Fairly: Second in a Series

by Tom Cochrane, CFA and Vice President of Partnerships, Vimo

A few weeks ago, I introduced the notion of a methodology and technology that effectively compares various forms of health care financing over time. More specifically, the article discussed the merits of Health Savings Accounts (HSAs) and high deductible health plans (HDHPs) as an alternative method of health care funding.

The overall objective involves enhancing awareness and understanding of the potential benefits of HSA-based plans among all parties involved in and affected by the health care finance decision.

Methodology

So what exactly does this new “methodology” entail and why is it of value? To begin with, a straightforward definition of methodology is as follows: an analytical approach that is comprised of a set of principles, procedures and tools.

My objective is to provide readers with a set of principles, procedures and tools that are especially useful in determining whether or not the HSA funding approach makes sense given their particular profile. Next, if the approach makes sense, the methodology guides users in designing an optimal plan.

Principles

Principles suggest a sense of foundation or something fundamental. In light of a health care funding decision, the basic consideration is whether a particular approach or plan is “good” or “bad.”

Good or bad depends on the audience and their respective needs and objectives. Very generally, the plan sponsor (employer) and the participants (employees) comprise the audience in any employer-sponsored health care funding scenario.

From the employer´s perspective, a good healthcare funding decision results in the ability to provide employees with an attractive, competitive health benefit program that doesn’t break the bank.

The employee perspective is similar. They want attractive health plan features that are not excessively expensive in terms of out-of-pocket costs or premium contributions. Simple enough as a matter of principle -just maximize value from the perspectives of the primary stakeholders, the employer and the employees. Not so simple, however, with the advent of HSAs and the requisite HDHP. HDHPs are relatively inexpensive and HSAs have the potential to create significant value for employees over time. These are key considerations that can complicate any comparative analysis.

Procedures

A basic approach for designing an optimal health care financing strategy with a particular emphasis on the HSA funding approach would involve the following procedures:

1. Maximize value for the employer:
• Determine that the health plan under consideration makes sense financially. In other words, confirm that total plan costs are at least comparable to the current program or within a defined budget objective.
• Assess whether total plan costs—including contribution formulas—are sustainable over time.
2. Maximize value for the employee:
• Attempt to project the level of value that will be created for employees over time through the use of HSAs. HSA funds are intended to be spent on qualified health care expenses. However, with a strong emphasis on funding the HSAs, residual balances can result in asset accumulation and the creation of tangible value.
3. Make every effort to balance the seemingly divergent employer and employee perspectives:
• While the employer´s cost control desires may appear to be at odds with the employee´s value creation goals, the reality is that both objectives can be met simultaneously through a proper plan design and contribution strategy.
• The key, and I will emphasize this crucial point throughout, is that both employer and employee must fund the HSAs. Funding is the single most important factor driving value creation with the HSA funding approach, and funding can be achieved within the context of financial responsibility.

Tools

HealthDecisions.org has partnered with Cordova Advisors to provide site visitors with free access to a web-based application that is designed specifically for the analysis of HSA-based plans. The details and results of the following case study were generated through the use of the HSA Simulator™ application. HSA Simulator™ and its underlying model are based on the methodology and procedures described above.

Introduction to a Case Study

The case study will be based on a sample small business (Peter´s Ads) located in southern California. Peter´s Ads is an advertising agency with 11 employees who range in age from 22 to 52.

Peter´s Ads is a very successful firm and the owner––you guessed it, Peter–– places a premium on talented and loyal employees. As a result, the firm has always sponsored a very generous health plan.

The firm´s current health plan is a PPO. This PPO has a $250 deductible for individuals and a $500 deductible for families. The out–of–pocket maximums are $2,000 for individuals and $4,000 for families. Office visit co-pays are $15 and in-network hospital services are covered at 90%.

This is a premium health plan and the costs reflect that. Total annual costs for all 11 employees are $107,832. Peter is an especially generous business owner who covers 100% of health plan costs for both employees and their dependents.

Peter has read some articles on consumer directed health care and HSAs, and he is intrigued by the possibility of enabling his employees to become more engaged health care consumers. As a result, Peter places a request with his insurance broker for more information on HSAs.

Peter wants to learn more about this new health care funding approach and to see how it compares to the current program. While not necessarily interested in immediate cost savings, he is interested in hearing about solutions that may help to control future cost increases. In addition, Peter has recently begun to consider implementing a moderate amount of employee premium contributions, and he would like to understand how different contribution strategies would affect plan costs.

The next article in this series will discuss the HSA-based plan options that are presented to Peter´s Ads. The article will also examine the merits of these options from Peter´s perspective as a business owner and a plan sponsor.

Thomas Cochrane, CFA, is Vice President of Partnerships at Vimo. Tom welcomes comments and feedback, and he can be reached at tom@vimo.com.

The High Costs of Gastric Bypass Surgeries

By Erik Espe

Today, one out of every five adult American men and one out of every four adult American women are obese. Most of them just need to improve diet and exercise. But about 170,000 per year are having gastric bypass surgery to lose weight.

The operation is not inexpensive. The average asking price is $38,700. While some consider the radical weight-loss surgery cosmetic, in reality it can be a crucial procedure for someone whose life is being put at risk from obesity.

Gastric bypass surgeries typically show up in the press when we hear about another celebrity who has had one. Of the stars that have had gastric bypass surgery, the most famous may be singer Carnie Wilson, who was 300 pounds before she had the operation in 1999. She later made an appearance in Playboy to show off her new slimmed-down body, before appearing on TV again in 2006 to discuss a small amount of the weight she managed to regain after having a child.

Lost in some of the celebrity press coverage are the life-or-death issues at stake when someone undergoes the procedure. A gastroenterologist generally recommends the surgery only if a patient suffers from morbid obesity. For someone who has become morbidly obese, it is too late for traditional weight loss techniques such as diet and exercise. Someone suffering from this extreme type of obesity has already developed co-morbidities, which may include sleep apnea (airway obstruction during sleep), hypertension, adult onset diabetes, and atherosclerosis.

But, for something supposedly cosmetic and elective, gastric bypass surgery is an extremely risky undertaking. According to a study by the University of Washington, 1 in 50 people die after undergoing the surgery. Men over the age of 65 were at the greatest risk following surgery.

As the demand for the surgery has expanded, so has litigation over the after-effects, with some attorneys charging that doctors have entered the lucrative gastric bypass surgery market too early. According to some reports, one cause of injuries is inexperienced doctors rushing into the lucrative field to perform the increasingly popular surgery, which typically costs between $25,000 and $30,000.

In addition, someone who has undertaken the operation can suffer from these side effects:
- Nutritional deficiencies
- Dumping syndrome, where stomach contents move too rapidly through the small intestine, causing nausea, diarrhea and other problems after eating
- Gallstones
- Pouch stretching, when the stomach essentially stretches back to its old size
- Acidic contents of the stomach leaking into the abdomen.

In short, gastric bypass surgery is not a procedure that should be taken lightly, either by the patient or by his or her doctor. Before undergoing the procedure, it's of course important to have insurance coverage that will take care of both the costs of the operation itself and the aftermath.

Even with the risk of death, gastric bypass surgery can be necessary operation because obesity is often a death sentence. 300,000 Americans die every year from being overweight.

Erik Espe is a veteran health writer and Chief Editor at Vimo. To contact Erik, write to erik@vimo.com

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