Don’t Be Left Holding The Bag Health Savings Accounts Are Good News For Consumers – But Not For Doctors

There is a new employee health benefit coming to a town near you, called the Health Savings Account (HSA).

Virtually all major health insurance carriers are promoting these. Created by the Medicare Prescription Drug Improvement and Modernization Act of 2003, an HSA is a tax-advantaged custodial account established exclusively for the purpose of paying qualified medical expenses of an individual who is a participant in a high-deductible health plan.

Although HSAs have been around since January 1, 2004, many medical group practices have had limited or no exposure to them. It is critical for doctors to understand how these work because they could be left holding the bag while the patients, government, employers and insurance companies make out.

HSAs are one element of the federal government’s agenda to reduce overall health care spending by making individuals more financially responsible for their own health care. Individuals are being sold on them because contributions are tax deductible and the premiums for insurance are less costly, which is true. The government promotes them because it believes consumer driven health care will shift the financial burden onto individual patients, making them more cautious of how they spend their health care dollars allotted to them, which is very likely. Employers like them because they are less costly than traditional health care plans.

Insurance carriers love them because high deductible plans pass along much of the risk and burden of health care dollars to the individual patient.

Let’s face it, notwithstanding co-pays, even the healthiest of us easily spend $500 to $1,000 annually on health care. Multiply this by the number of these plans in place and you have a lot of cost being transferred from insurance carriers to patients.

So what about the doctor? What’s in it for them? To answer these questions, we need to first understand some basics about HSAs and how they work. To be eligible, an individual must be enrolled in a ‘high deductible health plan’ (HDHP) and must not be a member of any other health plan that is not an HDHP. Also, the individual must not be eligible for Medicare benefits or age 65 and may not be claimed as a dependent on another person’s tax return. Generally, an HDHP is either an insured or self-funded plan that has an annual individual deductible of at least $1,050, with annual out-of-pocket expenses not exceeding $5,250 and/or an annual family deductible of at least $2,100 and annual out-of-pocket expenses not exceeding $10,500.

Out-of-pocket expenses include co-payments, deductibles and other amounts excluding premiums. It is permissible for the HDHP to exclude preventive care, such as annual checkups, from its deductible requirement. It is also permissible for individuals to have separate coverage for specific illnesses, such as cancer insurance, or insurance that pays a fixed amount per day, or coverage specifically for accidents, disability, dental care, vision care or long-term care.

If an individual meets the requirements, he/she can make a tax-deductible HSA contribution for 2006 which is limited to the lesser of (1) the HDHP deductible amount, which must be $1,050 or more for individual coverage and $2,100 or more for family coverage, or (2) $2,650 for single coverage or $5,250 for family coverage. Individuals who are 55 years of age or older in 2006 may contribute and deduct an additional $700. An individual can receive distributions at any time, which if used exclusively for qualified medical expenses, are excluded from gross income for tax purposes. Unused funds in the account may be carried over to future years. Distributions that are not used exclusively to pay for qualified medical expenses may be included in the individual’s gross income for tax purposes and are subject to an additional 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} penalty, with certain penalty exceptions for death, disability or attaining age 65.

The following is a simplified, theoretical scenario of a patient with an HSA and HDHP. The patient has an office visit. It is determined that the patient has not yet met the annual deductible. The patient has a debit card to access the HSA. This is used to pay the up front co-payment, if any. At the end of the patient visit, the patient is presented with a charge slip, which has an office visit fee of $100. The PPO high deductible plan allows $70 for this level office visit. The patient pays the $70 with the debit card and the medical practice submits the charge and payment information to the insurance carrier. Nice, but not a likely scenario.

Unfortunately, office based technology has not yet caught up with these new programs. Most practices don’t have real time capability to check out a patient’s member status and unpaid deductible. Therefore, even though a patient may have an enrollment card, on-site verification is not easy or practical. Some HDHPs don’t have co-payments and don’t allow doctors to be paid on date of service. Rather, they require the practice to bill the carrier and wait to receive the explanation of benefits before billing the patient. This can result in a delay of 30 days or more before sending the patient a bill. This not only impairs the cash flow of the practice, but requires more resources and accompanying costs to collect money owed. In essence, it can be worse than having self-pay patients that you can bill right away and collect some payment up front.

Some of these plans don’t issue debit cards to patients or leave it up to the patient whether or not to use them. Even with these, many practices are not equipped to take advantage of them. Also, there is nothing to prevent patients from tapping these accounts for non-qualified expenses that don’t count towards the annual deductible amount. There’s a 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} penalty, but who’s keeping track? Also, some patients may be hoarding the money in these accounts as a retirement source and may not be so anxious to write a check or make a debit payment to the doctor, understanding that most doctors don’t pursue aggressive collection procedures against patients. All of the above add up to a strained doctor – patient relationship.

The answer to these shortfalls lies in technology, both at the practice and insurance carrier levels. Having real-time claims-processing and verification capability would enable a practice to connect immediately with the insurer and perhaps custodian of the HSA, verify the patient’s eligibility, determine the status of the patient’s deductible, submit and adjudicate the claim and get immediately paid either by the carrier or by a debit to the patient’s account. Unfortunately, all parties are quite a while from that total connectivity stage.

Meanwhile, there are some steps physicians can take to mitigate the negative impact these plans may have on their cash flow:

  • Carefully read and understand the provider agreement.
    Try to negotiate provisions for collecting co-payments and/or deductibles in the office on the day of visit. If you end up owing the patient, it is better to write a refund check than to chase a balance due to you.
  • Request a complete and current schedule of allowable fees to keep on hand to determine patient deductible amounts due.
  • Find out how you can verify patient eligibility and deductible balances on or before the day of visit, by phone, interactive Web site or other direct line service.
  • Determine what benefits, such as preventive visits are excluded from the deductible clause and can be billed to the insurer.
  • If the HDHP issues HSA debit cards, be sure they are compatible with your debit/credit cards terminal and get advanced authorization from patients to debit the HSA account for patient balances owed. Better, try to get “automatic claim forwarding” written into the provider contract. This automatically transfers payment from the HSA to your account as soon as the insurance carrier determines what the patient owes.
  • Establish a patient payment policy specific to these arrangements requiring payment of past balances due in full before scheduling subsequent visits.
  • Educate and train your front office personnel to properly process these arrangements.

According to a recent Medical Group Management Assoc. (MGMA) study, most medical group practices (64{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}) do not have a working knowledge of HSAs. One study estimates there will be more than 8 million HSA accounts by 2010. Most of these will be conversions from traditional fee-for-service plans which means if medical practices can not gear up to efficiently process the billing and collection for these patients they may face higher days in accounts receivable and lagging cash flows.

James B. Calnan, CPA, is the partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., Certified Public Accountants and Business Consultants Holyoke; (413) 536-8510

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