By John C. Goodman 

Originally posted at Forbes, September 2016

How can we control health care costs and at the same time improve quality and create greater access to care? Answer: Give patients control over more of the health care dollars.

Right now Health Savings Accounts are primarily being used by patients to pay small medical bills below the deductible. But they could and should be used in just about every aspect of medicine, including expensive surgery, chronic illness, custodial care and even emergency room visits.

For example, there is mounting evidence that patients suffering from diabetes, heart disease, cancer and other chronic illnesses can (with training) manage a lot of their own care as well or better than traditional doctor therapy. If they are going to manage their own care, they will do an even better job if they are also managing the money that pays for that care.

In addition, there is no reason why patients could not manage almost all the money used for primary care, including routine doctor visits and most diagnostic tests – spending from an HSA that they own and control. If patients are controlling the money, everything will cost less. They will substitute less expensive phone and email consultations for doctor office visits; they will shop for better options for everything from blood tests to mammograms; and they will opt for walk-in clinics and free standing emergency care instead of hospital emergency rooms, when appropriate.

On the east coast and the west coast, Uber-type doctor visits at nights and on the weekends are an increasingly popular alternative to the emergency room. A doctor house call costs about $!00 and the doctor usually arrives within an hour. Emergency room charges average about five times that much. Give patients control of the money and you will see this service all over the country.

HSAs can also be invaluable in controlling the cost of expensive surgery. For example, WellPoint (Anthem) in California limited the amount it would pay for hip and knee replacements to $30,000 for its CALPER enrollees. Patients could get the procedure done at any hospital, but if the cost was greater than that amount, they had to pay out of their own pockets. This experiment had a dramatic effect – bringing down the cost of surgery across all of California. But the impact would have been even more dramatic if WellPoint had deposited $30,000 in the account of every patient who was a candidate for surgery. That way, if a patient found a hospital whose cost was, say, $28,000 the patient would enjoy a $2,000 “profit.”

Both WellPoint and its enrollees would do better still if they considered traveling for care. Health City Cayman Islands offers high quality hip and knee replacements for one-half to one-third less than what the procedures cost in California. Employers have found employees not very receptive to medical travel. But let the patient have $30,000 in an HSA with the opportunity to save $10,000 or more and the willingness to travel is likely to soar.

To take advantage of the full potential of HSAs, we need three policy changes: (1) HSAs need to be completely flexible, wrapping around any health insurance plan and paying for any services the plan does not pay for; (2) HSAs need to be encouraged by tax relief equal to the tax benefits of paying premiums to insurance companies; and (3) insurers should be able to deposit unrestricted amounts into a patient’s HSA without any tax penalties.

Those last two changes bear emphasis. Tax law should be important only on the front end of an insurance arrangement, not on the back end. In my view, the ideal is to give everyone a uniform tax credit to encourage health insurance of all types – HSA plans, HMOs, etc. But the tax law should have no role to play in the disposition of the funds.  Today, the insurer can spend $100,000 on a knee replacement – all tax free to the patient. But the insurer is not allowed to put $30,000 in an account that is tax free and grows tax free – from which the employee can purchase his own joint replacement. This distortion needs to end.

Here is a summary of some important uses of HSAs that are either not allowed or penalized under current law:

• Preventive care. Patients should be able to manage the dollars that pay for all forms of preventive care. (This is currently not allowed under Obamacare, which mandates third-party coverage with a zero patient expense.)
• Concierge care. Patients should be able to pay monthly fees to concierge doctors who provide primary care services from their HSA (Current policy interprets these payments “premiums” and disallows them.)
• Value Based Purchasing. Employers and insurers should be able to deposit a fixed sum of money in an HSA for any covered procedure, ranging from a blood test to a hip replacement, letting patients gain financially if they secure the service for less money.
• Medical Tourism. Employers and insurers should be able to deposit unrestricted funds for patients who agree to travel for their care, with the patients gaining financially from the lower cost of the surgery.
• Chronic care. Employers and insurers should be able to deposit unrestricted sums in the HSAs of chronic patients, giving them financial control over the management of their care.
• Custodial care. Employers and insurers should be able to deposit funds allowing the disabled to manage their own care, much as is now done in Medicaid’s highly successful Cash and Counseling program.
• Palliative care. Private and public entities should be able to deposit funds so that patients can make their own decisions with respect to nursing home care and end of life care, a practice that is widely followed in Europe.

For more than 50 years, federal tax policy favored third-party insurance (mainly employers and insurance companies) and discriminated against individual self-insurance in the form of a dedicated savings account. The reason: employers have been able to pay insurance premiums with pre-tax dollars, whereas money put into a savings account was required to be after-tax.

This encouraged all of us to cede control of virtually all of our health care dollars to the third-party payer bureaucracies and it is the primary reason why our health care system is so bureaucratic today.

Since 2004, nonelderly Americans have had the right to have an HSA and this experiment has been enormously successful. More than 30 million people have a Health Savings Account or a Health Reimbursement Account and they are the fastest growing products in the health insurance marketplace.

But we are nowhere near taking full advantage of what could and should be done with these accounts.

This article was originally posted at Forbes on September 14, 2016.