Manitowoc County Executive Bob Ziegelbauer has discovered how market forces can help lower the county’s health care costs by increasing smart shopping with Health Savings Accounts (HSAs).
“I was elected county executive two years ago,” said Ziegelbauer, who is also a Wisconsin state representative (D-Manitowoc). “The first month we looked at costs. One thing that jumped out was that health insurance costs were doubling every five to six years.
“Either taxes would need to go up dramatically on a regular basis or we’d have to shed employees,” Ziegelbauer said. “Our costs were approaching $20,000 a year for a family plan. There are local governments in our midst who are spending well over $21,000 a year [per employee] for family coverage.”
So in November 2006 Manitowoc County government asked for quotes on HSAs and signed up for such a plan. Costs dropped thousands of dollars per employee, while coverage improved.
$7,400 Savings Per Family
“The quotes gave us better coverage and a $7,400 reduction in the family plan,” Ziegelbauer said. “This allowed us to fully fund the HSAs and give employees more than $4,000 of the savings. And we saved over $2,000 per copy [employee who took the family plan coverage] for taxpayers.”
The more expensive standard plan offered a $500 deductible for the family plan and a $250 deductible for single coverage. Employees paid 8 percent of the plan premium.
Under the HSA plan employees pay no premium and have no co-pays because the HSA covers them.
“There’s a net benefit for employees of over $4,000 a year per family plan,” Ziegelbauer said.
HSA Consumer Incentives
HSAs, a sort of Individual Retirement Account (IRA) for health care, let people set aside tax-free money to pay for medical expenses, both now and in future years. A savings account is paired with a high-deductible health insurance plan. Generally, the higher the deductible, the lower the cost in premiums.
HSAs provide money rewards for better use of medical care, and thus give patients strong reasons to demand higher quality and cost-effective care, because the costs first come out of their HSA. This helps keep prices competitive.
Often routine check-ups and vaccinations have no deductible and no co-pay, to make sure HSA holders don’t try to save money by forgoing preventive checkups and vaccinations.
The employer, the employee, or both may contribute to the HSA account. The HSA funds belong to the individual account owner. An individual not in a group plan can buy his or her own HSA. If the money isn’t spent, it is banked and can be added to for future medical expenses.
Patients with a stake in the costs now ask questions such as, “How much will this procedure cost?” and “Will this test give the doctor useful information?” Patients look for less-costly solutions and ask for them. Consumers help change the medical system by caring about whether they are getting a good deal.
‘Culture Shift’ Among Workers
Ziegelbauer said a “culture shift” has taken place among the county’s government union workers, whose leaders “pilloried” the HSA concept during the 2006 gubernatorial election in Wisconsin, during which public funding of health insurance was a big issue.
First to jump on board was Manitowoc County’s sheriff deputies’ union. About two-thirds of the county’s non-bargaining unit employees also signed up as soon as the HSA plan was offered. The American Federation of State, County, and Municipal Employees (AFSCME) union initially rejected the HSA.
“The AFSCME people ended up deferring an entire year. They missed out on that $4,000 per member in the family plan because they bought into the orthodox stuff coming from union headquarters,” Ziegelbauer said. “They want to kill HSAs because they want single-payer systems.
“The real story here is that the public sector, ironically, is perhaps the most fertile ground for HSAs because we are spending so much already,” Ziegelbauer added.
“In the private sector, where there are bigger deductibles and contributions by employees, there is less immediate impact,” Ziegelbauer said. “The primary point I’ve tried to communicate is this is really about containing the growth of costs. We cannot stand to have employee health costs grow at double to triple the rate of inflation.”
Frank Lasee ([email protected]) is a Republican state representative from Green Bay, Wisconsin. This article was adapted from the March 25, 2008 issue of the “Lasee’s Notes” newsletter.