If you've followed the health care debate, you may have noticed that politicians are not claiming that health insurance premiums will be less expensive in the future. At best, they are hoping that reform bends the health care spending curve. In other words, they hope that reform slows the annual rate of increase in health insurance premiums from two to three times normal inflation to something lower.
If you were the CEO of a large corporation and knew premiums would continue to rise, what actions would you take to prepare for the future? An October 23, 2009 report in the Consumer Driven Market Report, a subscription insurance newsletter, provides some insights.
"The huge Blue Cross Blue Shield of Florida will offer only an HSA product to employees next year in the latest sign that larger employers, government workers and unions will be a major source of total replacement offerings in 2010." Total replacement means that companies eliminate traditional HMO and PPO plans and replaces those plans with an HSA-qualified health plan.
Stop and consider the implications of this quote. Who knows more about insurance than insurance companies? And why are they switching totally to HSA-based plans? The answer is simple. Like all businesses they are looking for ways to control their health care costs while still attracting and retaining the best and brightest employees. They think HSAs are the solution.
The above-mentioned report also noted that General Motors just announced it would only offer HSA-based plans to its salaried employees. That's big news. When GM declared bankruptcy, the American taxpayer -- you and me -- bailed them out. Now we expect GM to be smart about controlling health care costs and they respond by choosing HSA-based plans.
Here's an interesting parallel. Instead of traditional health plans, GM will offer its employees a hybrid health plan that couples an affordable high deductible health plan for large and unexpected medical bills with a tax-efficient health savings account for the routine and expected medical expenses. Similarly, GM will offer the American public new hybrid cars that couple a gasoline engine for highway driving, and electric motor for stop-and-go city driving. Hybrids will play a big role in the future.
HSAs enter early majority phase of growth
According to the "Diffusion of Innovation" curve, when a new innovation enters the market, there are five stages of adoption: innovators (first 2.5 percent of the population), early adopters (13.5 percent), early majority (34 percent), late majority (34 percent) and laggards (the last 16 percent).
Let's see where health savings accounts are on this curve:
- The innovators. These the self-employed individuals and small employers got medical savings accounts (MSAs) between 1996 and 2003.
- Early adopters. In 2004 health savings accounts were made a permanent part of the IRS Code. Early adopters are those who got HSAs between 2004 and 2009. Perhaps the most outspoken advocate of HSAs was John Mackey, CEO of Whole Foods, who changed all his 30,000 employees to account-based health plans. Another early example of total replacement was Mike McCallister, President and CEO of Humana Insurance, who changed all his employees to health savings accounts.
- Early majority. We are now entering the time when large corporations, government, and unions will be leading the charge to HSAs. Health care reform will speed up this process.
If health care reform results in the so-called "public option," individuals and businesses will be able to go to an insurance exchange and choose a government-sponsored plan similar to the Federal Employee's Health Plan or a Medicare plan for people under age 65. At first that sounds great. But the Congressional Budget Office forecasts that premiums for these plans will be more expensive than plans from private insurance companies. Once people understand that these government plans will be expensive, and that HSA-based plans will be affordable, we will breeze through the early majority phase and into the late majority somewhere after 2013.
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