Physicians and Surgeons Examine Consumer-Directed Care

Published August 1, 2004

South Africa and the United States are on different continents and in different hemispheres, but experience with consumer-directed health plans in the former suggests such plans may soon soar in popularity in the latter. South Africa has had great success with Medical Savings Accounts (MSAs), the forerunner to Health Savings Accounts (HSAs).

Stuart Slutzky, senior director/actuarial at Destiny Health Insurance Co. of Oak Brook, Illinois, recently said, “The parent company of Destiny, Discovery Health, started selling consumer-directed health plans in South Africa, the first in 1993. They’ve grown in 11 years to be the largest health insurance company in the country. More than 50 percent of the South African market has moved to consumer-driven health care.”

Slutzky made his remarks at a May 13 town hall meeting in Chicago, sponsored by the Association of American Physicians and Surgeons (AAPS) and The Heartland Institute. Slutzky and Mark Baker, media specialist for Golden Rule Insurance Company in Lawrenceville, Illinois, were the featured speakers. Approximately a dozen Chicago physicians and Antonio Davis-Fairman, who is challenging Rep. Danny Davis (D-Chicago) for a seat in Congress, attended the meeting.

“Ownership Changes Behavior”

Slutzky and Baker both said the high-deductible, low-premium features of their companies’ plans, combined with tax deductibility and tax-deferred growth for HSAs, give people more control over their health care spending and make insurance more affordable. Slutzky said he expects American consumers eventually to embrace such plans as enthusiastically as South African consumers have done.

Slutzky said the South African experience is instructive because the United States and South Africa are virtually the only industrialized countries with private health insurance systems.

“Discovery used the consumer-driven model in South Africa to transform the face of health care in that country,” Slutzky said. “Now, more than 50 percent of insured consumers in South Africa embrace this model. Combined, Destiny Health and Discovery are the largest providers of consumer-driven health care in the world.” The companies have more than 1.5 million members, most of them in South Africa, according to Slutzky.

He said Destiny believes consumers should use their own money to pay for controllable costs, such as routine office visits, and use insurance for high, uncontrollable costs such as medically necessary surgeries, hospitalizations, and medicines for chronic conditions.

To accomplish this, the Destiny Health Plan establishes a Personal Medical Fund (PMF), an account owned by the member and funded through payroll deduction (a portion of the premium), by the employer, the employee, or both. Routine services can be paid from this fund.

PMF balances can be rolled over to subsequent years to offset future insurance contributions/premiums, and the money always belongs to the member to use for future medical expenses.

“This ‘ownership’ changes behavior,” Slutzky said, because consumers see how their health care decisions affect their accounts.

“When people spend their own money, they do a better job,” he said. “They’re more likely to shop around, more likely to ask if a procedure is really necessary or if there is a cheaper generic drug that would work as well as the name-brand prescription.”

HSAs also act as an incentive for people to take care of themselves, he said, which has the long-term effect of lowering medical spending as people do things that improve overall health. Slutzky also noted the consumer-driven plans of Destiny and other insurers provide a degree of flexibility missing from traditional insurance.

“Insurance can be one-size-fit-all,” Slutzky said. “That’s sort of been the problem. We have provided very comprehensive benefits that are very costly. For some people, that might be the right level of protection. But many people need a lower premium or flexibility. They need to know that, should I need greater protection, I can put more money in my savings account or buy additional coverage to cover my chronic illness, because if I don’t buy that added coverage, I’ll use all the money in my savings account.”

Covering Catastrophic Care

“HSAs are a great step to getting people toward consumer-driven health care,” Slutzky said. “But even HSAs have faults. Someone who’s a diabetic with an HSA is going to go through the savings account every year. We need to allow plans to evolve to not just provide people with a high deductible that empowers them, but to also protect that deductible. You should only use your deductible, your savings account, in areas of health care that can be controlled.”

To address this problem, Destiny has created health plans that have first-dollar coverage for chronic illnesses. “If you’re a diabetic, an asthmatic, have hypertension, you don’t have to go through your high deductible,” Slutzky said. “All you do is pay your co-pay and the rest is covered by insurance. Let’s say that same person has something more controllable, such as an ear infection. That’s where the savings account should be used.”

Golden Rule’s Baker said he has “no doubt that every major insurer will be offering these consumer-driven plans.” Golden Rule was a leader in the Medical Savings Account market–MSAs were the precursor to the much more attractive HSAs, which became tax-deductible under federal law January 1–and Baker said three out of four persons who bought MSAs in 2001 had been previously uninsured. “That speaks volumes about the affordability of these plans,” Baker said. He said the experience so far with HSAs has been similar.

“We tell people that whatever rolls over, it’s your money,” Baker said. “Companies can deposit dollars for employees with an HSA. Those monies are not counted as income for the employee. If the employee leaves the company, it goes with the employee. The money can even be used to make COBRA payments to pay for health insurance between jobs.”

Medicare HSAs

Several doctors at the AAPS/Heartland Town Hall Meeting asked about the possibility of HSAs being made available to Medicare patients. According to Dan Perrin, president of the HSA Coalition and publisher of HSA Insider, HSA owners who become eligible for Medicare can continue to spend funds out of their Health Savings Accounts tax-free for health care expenses such as Medicare premiums, deductibles, and other health-related needs not covered by Medicare. The HSA funds also can be used to pay for long-term nursing-home care. However, the HSA account must have been established before the individual reached age 65.

In addition, seniors can withdraw money from their existing HSAs for non-medical purposes, provided they pay their normal income taxes on the money plus a 10 percent penalty imposed by the IRS.

Steve Stanek is an Illinois-based freelance writer and regular contributor to Health Care News. His email address is [email protected].