There's a new kid on the block named health savings accounts (HSAs). HSAs, coupled with high-deductible health plans (HDHP), are the latest innovation to treat our ailing healthcare system.

HSAs are bank accounts created by Congress in January 2004 as part of the Medicare Prescription Drug, Improvement and Modernization Act. Approximately 1 million people have opened HSAs in the past two years. By 2015, that number is projected to reach 30 million. Many view HSAs as a tool that will make healthcare more affordable by financially motivating consumers to seek services in a more judicious manner.

Unlike the new Medicare drug plan, HSAs are relatively simple to understand. An HSA is a federally tax-exempt account used to pay current and future medical expenses. Both employers and employees can contribute to HSAs on a pre-tax basis. Unlike flexible spending accounts, HSAs allow money not used each year to remain in the account and accumulate until retirement. HSAs belong to individuals and stay with them even when they change jobs.

HSAs work in conjunction with qualified HDHPs. In order to qualify, the plan must conform to the HSA design specified by Congress. Deductibles in these plans are typically in the range of $1,500 to $2,500 for a single person and $5,000 for a family. A consumer uses the money in the HSA to pay for medical expenses until the annual deductible is satisfied.

The goal of HSAs is to slow the rise in healthcare costs by getting consumers more involved in purchasing and paying for their healthcare. Critics of HSAs say that HDHPs, with their lower premiums, shift risk to consumers. Indeed, the first one to two years in an HSA, while money is accumulating in the account, can be risky. If a large medical expense occurs and there isn't enough money in the account to cover the expense, the consumer will have to pay the balance out of pocket until the deductible is satisfied. Once funds in the account exceed the amount of the annual deductible, the consumer is shielded from large medical expenses.

Let's take a look at how HSAs impact the various constituents in the healthcare system:

Employers--Employers are interested in HDHPs because premiums for these plans can run 25 percent to 40 percent below traditional HMO and PPO plans. To make these plans more affordable and attractive to employees, employers use a portion of the premium savings to contribute to employee HSAs.

Consumers--HSAs are more than just a new benefit option. HSAs are an attempt to get consumers financially involved in their healthcare decisions. Up to the deductible amount, consumers are essentially purchasing healthcare services directly from providers and paying with their debit card, which is attached to their HSA. Consumers need to keep copies of receipts and be prepared to submit them to the health plan if the dollars spent in a given year approach the annual deductible.

Initially, there was concern that consumers with HSAs would forego preventative services in order to save money. Early research shows that consumers with HSAs actually are accessing preventative services at a higher rate than people in traditional health plans. And preliminary findings also show positive behavior changes, such as reduced use of emergency room visits among chronically ill HSA consumers.

Physicians--Probably the most positive aspect of HDHPs is that physicians collect fees directly from patients at the time of service. Until the annual deductible is reached, the patient will pay the physician directly for healthcare services out of his or her HSA. Imagine not having to submit claims and wait for reimbursement.

If the patient's HDHP is tied to a PPO network and the physician is part of that network, payment from the HSA will be based on the network's fee schedule. If the patient does not belong to a network or is going out of network, the patient can negotiate the payment amount with the physician.

Physicians Should Open HSAs
Patients who are new to HSAs and HDHPs will undoubtedly have questions. Physicians and their staff members can use this as an opportunity to strengthen their relationships with patients.

The best way to learn about these plans is to purchase one. It's an opportunity to save money on insurance premiums, to maximize tax deductions and to learn firsthand how such plans work. Then, when patients inquire about how HSAs work or what to do, physicians and staff members can assist.

Because HDHPs limit the plan's involvement to a large extent, physicians should regard HSAs as an opportunity to regain control of the healthcare system. Physicians will need to help patients navigate the healthcare system to obtain value for their healthcare dollars.

The California Medical Association, in conjunction with Marsh Affinity Group Services and United Missouri Bank, is offering an HSA program for CMA members. Contact Marsh at 800/842-3761.

We can expect that most major commercial health insurers will offer a qualified HDHP within the next year. Physicians who are skeptical about whether these plan are here to stay should consider that Blue Cross/Blue Shield just announced it will open a bank to manage the HSAs of subscribers.

The Los Angeles Foundation for Medical Care, which is the PPO network affiliated with the Los Angeles County Medical Association, supports innovative healthcare purchasing that brings patients and physicians closer together. LAFMC is seeking to partner with an insurance company that offers a qualified HDHP. The advantage for physicians is that reimbursement will be based on LAFMC's fee schedule, which is 120 percent of Medicare.

HSAs incorporate many of the changes both physicians and patients have been seeking for years. HSAs restore patients' accountability for their own healthcare expenditures, while providing them with a financial incentive against overutilization. There's also a built-in incentive to adopt healthy lifestyle changes. To use these plans effectively, patients must collaborate with their physicians. Thus, the doctor-patient relationship will be augmented.

Over time, it's expected that increased patient accountability will gradually reduce insurance premium costs. Quietly and with little fanfare, HSAs have come on the scene with the power and potential to forever change the healthcare system.

Ann Kuklierus is CEO of the Los Angeles Foundation for Medical Care in Torrance. She can be reached at 310/533-5300 or annk2@earthlink.net.