Health Savings Accounts offer a tool for controlling healthcare costs

Accounts can cover medical expenses, offer tax-free savings

Just about everyone knows that healthcare costs are a serious issue in the United States. General Motors, for instance, figures its healthcare costs add $1,500 U.S. to the price of each car it sells, damaging its competitiveness. And healthcare costs continue to climb at a pace outstripping inflation—about 12 percent per year. The expense of healthcare insurance in the face of these rapidly rising costs is one reason some 45 million Americans lack it.

The reasons for these cost increases are many: High-tech but expensive procedures and drugs; increases in chronic diseases such as diabetes; high prices for prescription drugs; aging peoples’ demands for replacement hips and knees so they can keep playing tennis—the list goes on. Add to it the fact that most people with insurance are relatively insulated from healthcare costs. They see a doctor, have some tests, are told have a colonoscopy or echocardiogram. Rarely do they ask what the bill for all this will be, or whether there’s a cheaper alternative.

A new tool for cutting healthcare costs

Granted, shopping for healthcare isn’t like buying paper towels or even a car. People seeking healthcare typically do so because they’re ill, in pain, and perhaps a little frightened. That’s hardly a formula conducive to a deliberative cost/benefit analysis. But it’s also true that increasing patient awareness of the costs of healthcare might help put some downward pressure on those costs.

One path to this awareness is the Health Savings Account. HSAs, as they’re more commonly known, were introduced in the Medicare Prescription Drug, Improvement, and Modernization Act, signed by President Bush early in 2004. They’re designed to give people greater control over their healthcare spending, while also creating potential tax savings.

Here’s how HSAs work: Participants agree to place at least $1,000 U.S. each year in a tax-deferred savings account (at least $2,000 U.S. for a family) to a maximum of $4,500. From this account they pay for routine medical exams, minor health problems, a possible trip to the ER for some stitches, that sort of thing. Any money left at the end of the year can be rolled over into next year’s account, again without being taxed.

Along with these accounts, HSA participants purchase a high-deductible health-insurance policy. These policies kick in at the $1,000 U.S. mark ($2,000 U.S. for a family), and cover most costs for catastrophic illness or hospital stays. And they cost much less than a policy with a more typical deductible of, say, $100 U.S.

HSAs offer an incentive to cut costs

True, in some cases an HSA account-holder is apt to pay more out of pocket for minor-to-moderate healthcare than someone with a good employer-provided package. But the bigger impact should be to make someone with an HSA more conscious of how their healthcare dollar is spent. They may have the impetus to learn more about treatment options, purchase generic drugs rather than name-brand drugs, and decide on a proven but somewhat old-fashioned test when a newer, more expensive one has not shown big advantages. The reward for doing so is a savings account that could grow substantially and tax-free over the years, perhaps even providing a boost to their retirement savings.

In partnership with Premera Blue Cross, Microsoft has offered its employees an HSA option since January 1, 2006. Microsoft has a generous self-insured healthcare plan, with little-to-no cost-sharing. It’s part of how the company stays competitive when seeking top high-tech employees. Still, says Cecily Hall, Microsoft’s director of U.S, benefits, it’s important that the company encourages employees to take more control of their healthcare spending. Therefore, Microsoft began offering a HSA plan this year. “We want people who use healthcare to feel like ‘purchasers,’ not just patients,” she says. “Also, Health Savings Accounts align well with one of our Microsoft’s cultural attributes, which is accountability.”

For a single person, Microsoft contributes $700 U.S. to an account each year. The employee can contribute additional tax-free dollars for a total of $1,200 U.S. per year. Couples can contribute $1,000 U.S. while Microsoft chips in $1,400 to create an account of $2,400 U.S. per year. Families of three or more can contribute $1,200 U.S. while Microsoft adds another $1,800 U.S. for a total of $3,000 U.S. per year in the HSA. Employees then use the funds in the accounts to cover out-of-pocket medical expenses with Microsoft covering the rest. Any unused funds can be rolled into the next year and ultimately used for retirement medical costs.

Microsoft technology helps make HSAs easier to use

At Microsoft, we’re not only giving our employees a chance to participate in Health Savings Accounts; our technology is also helping partners develop tools to make HSAs easier to use and more widespread for people everywhere. That’s an important step, because we can’t expect people to embrace HSAs if they add another layer of complexity to already hectic lives. A Health Savings Account must be easily managed by its owner, and it must ensure that payments to the appropriate healthcare providers are made correctly in a timely fashion.

Today we're working with some of the leading solution providers in the HSA arena. One partner, QCSI (Quality Care Solutions Inc.), offers a suite of products that build on Microsoft's leading position in areas such as Web services and service-oriented architecture. For instance, QCSI’s myhealthbank suite has a module called Direct that allows healthcare consumers to compare prices, manage their HSAs, and more—all through a Web-based interface offered by insurance carriers in their region.

Another Microsoft partner, MBI Benefits (a division of Metavant), offers an HSA debit card that simplifies payments from HSA accounts, eliminating paperwork and collection problems. Plus a cardholder Web site allows HSA participants to view account balances and manage year-end rollovers. Microsoft .NET Framework plus tools such as Microsoft Windows Server 2003 and Microsoft SQL Server 2000 were used to build the MBI Benefits debit card system.

It’s going to take a lot of work to get a grip on healthcare costs in this country. Health Savings Accounts alone won’t lasso those runaway costs. But they’re a step in a direction we need to take, moving us toward better consumer awareness and personal responsibility for our individual healthcare decisions.

Dr. Bill Crounse, M.D. Dr. Bill Crounse, M.D., is senior director, worldwide health for Microsoft Corporation. Dr. Crounse is responsible for working with industry partners and healthcare organizations to help them benefit from using Microsoft technologies and solutions. Prior to joining Microsoft, Dr. Crounse was vice president and chief medical information officer for Overlake Hospital Medical Center and the Overlake Venture Center in Bellevue, Wash. Also, read Dr. Crounse's Healthcare Web log to get more insights into the latest technologies and trends in the healthcare industry.

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