President Elect Donald Trump has said he will replace Obamacare by using Health Savings Accounts (HSA’s). What will these new HSA’s look like and how will they work? While present laws would have to be altered and various scenarios could be used to create the ultimate Health Savings Account, there is a strong likelihood the final version would be a simple plan composed of three parts: a local primary care provider, a savings account and a high deductible insurance policy to cover major expenses.
The HSA would act like a funnel receiving all contributions, including payments from an individual, from an employer, and from those receiving government assistance. The HSA would automatically make a monthly payment to the Primary Care Physician and the catastrophic insurance policy, with the balance being deposited in the savings account.
The first part of the New HSA would pay for a Direct Primary Care Physician. Direct Primary Care is where the patient (or HSA) pays a monthly fee for basic medical services directly to the doctor. Each patient would select a local participating doctor or practice for routine office visits, annual physicals, annual vaccinations, and various tests. There would be no copayment and no deductible for this care, although some additional tests performed in the office might require a small discounted fee.
The second component of the New HSA would be a savings account. The purpose of the savings account is to accumulate money on a pre-tax basis to pay the deductible for surgery or other medical bill not covered by the Direct Primary Care Doctor. The savings account would build up over time and part of those funds could eventually be used for retirement.
The third and most critical part of the HSA is a high deductible Catastrophic Insurance policy. The deductible could start at $6,000 and be raised to $10-15,000 after the savings account builds up.
Why Direct Primary Care
DPC practices are popular because they allow doctors to spend their time with patients, instead of doing clerical or administrative tasks. As a result, physicians earn more income which is especially important at a time when many doctors are retiring or leaving medicine. In addition, these practices typically have lower operating costs, enabling savings to be passed on to the patient with lower fees. Conversely, the Affordable Care Act increased the regulatory burden for family physicians, but now the Direct Primary Care model all but eliminates them.
Doctors are opening Direct Primary Care practices or converting their present practices into Direct Primary Care offices at an astonishing rate. In 2005 there were only 140 practices, by 2014 there were 4,400 according to a report from the Heritage Foundation, and that number continues to increase.
Why Savings Account
The “Savings Account” within the HSA is simple. A portion of the deposit into an account is directed to savings. Those funds are reserved to pay for the insurance policy deductible or copayment. Should a patient require a surgical procedure before the funds have grown to cover the deductible, an automatic loan provision is activated to cover the shortage. The loan is paid off with future deposits.
Why High Deductible Plan with Cost Savings
The HSA is able to do something that Obamacare could not do: reduce medical care costs! It accomplishes that amazing feat in several ways. First, the Direct Primary Care component will lower the number of visits to the Emergency Rooms at hospitals. Since there is no charge to see their local doctor, patients will learn to see the doctor at the first signs of trouble. According to the Medical Expenditure Panel Survey a typical visit to the ER costs $703.
Direct Primary Care practices cover many services in their offices either at greatly reduced costs or via included in the basic monthly fee. (see chart). For example, a DPC practice in Florida charges $4.50 for a urology test compared to the area hospital that charges $231.79.
Another way medical care costs will be lowered is with preventive care. When the doctor knows the patient he or she will be aware of changes in the patient. A suspicious mole, for example, would be noticed early as possible cancer, not only reducing costs but more importantly, saving the patient’s life.
The approximate monthly cost of an HSA for a couple, age 35 in Florida would be: $125 for local doctor, $150 Savings account and $325 for high deductible insurance. At $600 per month with an employer paying half, we can have truly affordable health care. The free market competition allowing a patient to shop for services will likely serve to moderate any pressure to raise fees.
The new Health Savings Account, if properly constructed and administered could easily be phased in for groups and individuals to replace Obamacare. It will provide much improved benefits with a realistic opportunity to control health care costs.
Dan Weber is the President and Founder of the Association of Mature American Citizens (AMAC) with 1.3 million members. He has 35 years’ experience in the health Insurance field.
Read More About AMAC’s B.E.S.T. Plan to replace Obamacare.