North Carolina Law and Policy

Daniels reports that five years ago, a HSA option was added to the conventional plans available to his state’s employees.  In the first year, 4% of employees signed up for it.  This year, over 70% of state workers chose it.  In Indiana’s HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills.  For the 6% of employees who use their entire account balance, the state shares further health care costs up to an out-of-pocket maximum of $8,000, after which the employee is completely protected.

Unused funds in HSAs  total $30 million to date, or about $2,000 per employee.  The funds in an employee’s account are the worker’s personal property.  In addition to creating savings by state employees, the state is also saving.  Daniels reports that Indiana will save at least $20 million in 2010 because of its high HSA enrollment.

Daniels reports that HSAs are creating significant changes in behavior, thereby lowering costs.  In 2009, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care.  They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18.  They were admitted to hospitals less than half as frequently as their colleagues.  State employees with the HSA option incurred only $65 in cost for every $100 incurred by their counterparts with the old coverage.  Though differences in health status between the groups account for part of this disparity, Daniels asserts that consumer decision-making is also a major factor.

Daniels correctly points out that when someone is spending his own money alone for medical care, he is far more likely to ask the questions he would ask if he were purchasing any other good or service – questions about cost.  Daniels summarizes the economics of health care as follows:

          “The Indiana experience confirms what common sense already tells us:  A system built on ‘cost-plus’ reimbursement (i.e., the more a physician does, the more he or she gets paid) coupled with ‘free’ to the purchaser consumption, is a machine perfectly designed to overconsume and overspend.  It will never be controlled by top-down balloon-squeezing by insurance companies or the government.  There will be no meaningful cost control until we are all cost controllers in our own right.”

If the federal government does not want to encourage the expansion of HSAs as a critical tool in curbing escalating health care costs, the states certainly should.  North Carolina is forever cutting back on its health care coverage to state employees while increasing the premiums state employees must pay.  We should follow Indiana’s lead through use of HSAs to decrease costs and increase employee satisfaction. This is a no-brainer.