U.S. GOVERNMENT PUBLISHING OFFICE

30–658 WASHINGTON : 2018

S. HRG. 115–326 

THE POTENTIAL FOR HEALTH CARE SAVINGS 

ACCOUNTS TO ENGAGE PATIENTS AND BEND 

THE HEALTH CARE COST CURVE 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JUNE 7, 2018 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

HOUSE OF REPRESENTATIVES 

ERIK PAULSEN, Minnesota, Chairman 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

KAREN HANDEL, Georgia 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

COLIN BRAINARD, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota .............. 1 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 3 

WITNESSES

Scott W. Atlas, M.D., David and Joan Traitel Senior Fellow, Hoover Institution, Stanford University, Stanford, CA ............................................................. 5 

Mr. J. Kevin McKechnie, Executive Director, HSA Council and Senior Vice 

President, American Bankers Association, Washington, DC ........................... 8 

Ms. Tracy Watts, Senior Partner, Mercer and Board of Directors, American 

Benefits Council, Washington, DC ..................................................................... 10 

Kavita Patel, M.D., M.S., Primary Care Physician, Johns Hopkins Medicine 

and Fellow, Brookings Institution, Washington, DC ........................................ 11 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. Representative 

from Minnesota .................................................................................................... 26 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 27 

Prepared statement of Scott W. Atlas, M.D., David and Joan Traitel Senior 

Fellow, Hoover Institution, Stanford University, Stanford, CA ....................... 29 

Prepared statement of Mr. J. Kevin McKechnie, Executive Director, HSA 

Council and Senior Vice President, American Bankers Association, Washington, DC ............................................................................................................. 42 

Prepared statement of Ms. Tracy Watts, Senior Partner, Mercer and Board 

of Directors, American Benefits Council, Washington, DC .............................. 75 

Prepared statement of Kavita Patel, M.D., M.S., Primary Care Physician, 

Johns Hopkins Medicine and Fellow, Brookings Institution, Washington, 

DC .......................................................................................................................... 100 

Letter dated April 18, 2018, from Representative Maloney to Chairman Paulsen ......................................................................................................................... 107 

Response from Dr. Atlas to Questions for the Record Submitted by Senator 

Sasse ...................................................................................................................... 110

Response from Dr. Atlas to Questions for the Record Submitted by Representative Maloney ....................................................................................................... 117 

Response from Mr. McKechnie to Questions for the Record Submitted by 

Senator Sasse ....................................................................................................... 121 

Response from Mr. Kevin McKechnie to Questions for the Record Submitted 

by Representative Maloney ................................................................................. 125 

Response from Ms. Watts to Questions for the Record Submitted by Senator 

Sasse ...................................................................................................................... 127

Response from Dr. Patel to Questions for the Record Submitted by Senator 

Sasse ...................................................................................................................... 134

Response from Dr. Patel to Questions for the Record Submitted by Representative Maloney ....................................................................................................... 135 

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THE POTENTIAL FOR HEALTH CARE SAVINGS 

ACCOUNTS TO ENGAGE PATIENTS 

AND BEND THE HEALTH CARE COST CURVE 

THURSDAY JUNE 7, 2018 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 3:00 p.m., in Room 216, 

Hart Senate Office Building, the Honorable Erik Paulsen, Chairman, presiding. 

Representatives present: Paulsen, Handel, and Maloney. 

Senators present: Heinrich, Klobuchar, and Hassan. 

Staff present: Ted Boll, Colin Brainard, Kim Corbin, Gabrielle 

Elul, Alaina Flannigan, Connie Foster, Colleen Healy, Alice Lin, 

and Russ Rhine. 

OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM MINNESOTA 

Chairman Paulsen. We will call the hearing to order. Thanks 

everyone for being here. 

All Americans deserve access to affordable patient-centered 

health care. Unfortunately, the fight to achieve this worthy goal 

has become politicized to the point where it is perilous to even acknowledge the shortcomings of our current Byzantine system. 

There are bipartisan solutions to this problem, and today we will 

be discussing one of those. That is why I am excited to convene today’s hearing titled ‘‘The Potential For Health Care Savings Accounts To Engage Patients and Bend the Health Care Cost Curve.’’ 

When does a patient decide that a common cold is not worth the 

expense of a doctor’s visit? Or whether it would be worth saving 

dollars by going to a general practitioner who could easily treat an 

ailment rather than a pricey specialist? 

Patients would have a hard time answering these questions, because the actual cost of care remains obscured until long after services are rendered. Even after patients receive an explanation of 

benefits, the true cost is obscured by what providers charged and 

what the government or insurers decided they would pay for a 

service. 

This lack of transparency has contributed to rising health costs, 

which ultimately leads to more unaffordable insurance and even 

less satisfaction with the health care system. 

Yet in the current environment consumers and providers alike 

are divorced from the true cost of care. As the economist Milton 

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Friedman once said, ‘‘Nobody spends somebody else’s money as 

wisely or as frugally as he spends his own.’’ Americans are excellent comparison shoppers—television, direct mail marketing, billboards, and storefronts all appeal to consumers’ senses of value for 

price when making important choices for themselves and their families. 

An important part of everyday life is making decisions based on 

personal preferences, needs, and of course cost. And it is for this 

reason that competition thrives among auto manufacturers, food 

producers, and home builders to deliver safe, healthy, and longlasting products that people can afford. 

We all acknowledge that American health care and health insurance are very expensive. And in today’s hearing we will investigate 

how health savings accounts, or HSAs, allow Americans to lower 

the cost of health care by drawing on an important idea, an area 

of their expertise, and that’s themselves. 

HSAs have delivered great benefits, and there may be even more 

to come if lawmakers strengthen HSAs’ hold in the marketplace. I 

believe they can broaden access to quality medical care, increase 

patient choice, and improve health for all Americans. 

It is for this reason that I joined with the Senate Finance Committee Chairman, Orrin Hatch, to enhance both health savings accounts and flexible spending accounts to give hard-working Americans more choice and control when it comes to their health care decisions. 

According to one estimate, if half of employer-sponsored insurance incorporated HSAs, national savings and health care spending 

could total $57 billion annually. So how do they work? 

An HSA is a tax-exempt account that is set up to pay or reimburse certain medical expenses incurred while covering—while covered by the kinds of high-deductive health care plans many Americans have today. Employees and employers contribute these funds 

pre-tax, and the money that has gone unused can roll over year to 

year, and consumers continue to have access to the money even if 

they change employers or leave the workforce. So it is portable. 

And since the creation of HSAs in 2003, the number of people 

who have an HSA has risen dramatically. In 2005, roughly 1 million people were enrolled, and today 22 million people have HSAs. 

Americans clearly see the benefit of directing their own health dollars towards their own health care needs and expenses. 

My own home State of Minnesota has the third-highest enrollment in HSAs in the country, with nearly 1.2 million enrollees. 

And a 2016 study of large employers that offered consumer-directed 

health plans, CDHPs, in the form of a high-deductible health plan 

with HSAs, found significant long-term cost reduction and no evidence of worse health outcomes. 

In recent years, the State of Indiana implemented an HSA structure both in its Medicaid program and in insurance offered to State 

employees. Then-Governor Daniels noted that this consumer-driven 

approach resulted in savings and customer satisfaction. In 2010, 

state employees who enrolled were expected to save more than $8 

million, compared to their co-workers in the traditional health care 

alternative. 

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Ultimately, the HSA is a vital tool that helps improve our health 

care system even for those who do not have an HSA. By putting 

consumers directly in charge of their health care, the health care 

sector becomes more consumer-conscious. 

As in many areas of our economy, the answer usually lies in the 

wisdom of the American people. I look forward to hearing from our 

distinguished panel of witnesses today how HSAs and the idea of 

consumer-driven health care can help improve the affordability of 

health care. 

But before I introduce them, I now recognize the Ranking Member, Senator Heinrich, for his opening statement. 

[The prepared statement of Chairman Paulsen appears in the 

Submissions for the Record on page 26.] 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Thank you, Chairman Paulsen. I am looking 

forward to today’s discussion on health savings accounts. These 

tax-free accounts play a constructive role for some consumers to 

cover health care costs. HSAs are particularly helpful for those 

earning more than $100,000 who are already saving for retirement 

and have less trouble covering their monthly bills and student loan 

payments. 

But HSAs do little to bend the so-called ‘‘Health Care Cost 

Curve.’’ This is the fundamental problem that we must focus on: 

How do we provide top-quality care while reducing our overall national health care spending, and lowering consumers’ out-of-pocket 

costs? 

But HSAs seem to generate the most savings through cost shifting, not cost savings. Here employers pay less by offering skimpier 

plans, coupled with an HSA. But employees shoulder a greater 

share of costs: the financial risks of getting sick, as well as yet another obstacle to navigate between themselves and their actual 

health care. 

And this is happening at the exact time when wages remain 

stubbornly stagnant, and more and more families are struggling to 

get ahead. But my chief concern is this: 

Part of the reason that we are here today is that our Republican 

colleagues seem to be gearing up for yet another attempt to repeal 

the ACA. If the new proposal is anything like the last, we can expect it to gut Medicaid, drop millions from coverage, take away 

comprehensive coverage, and further hike premiums. 

Central to the Republican vision has been to move more and 

more consumers to high-deductible plans which have lower premiums but ask consumers to pay more for doctor visits and services 

before the health plan covers care. 

If paired with an HSA, a family can put aside up to $6,900 taxfree to use for qualified health expenditures. The investments in 

the HSAs grow tax-free. The thinking behind the HSAs is that if 

people put aside their money for their health care, they will spend 

it more wisely and, on average, spend less. 

They will have, as they say, ‘‘skin in the game.’’ The problem, 

though, is that without knowing what we’re paying for and how 

much we’re paying, without transparency, consumers simply do not 

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have the tools that they need to make rational decisions about 

costs. And HSAs are unable to help with this problem. 

What we do know is that HSAs sometimes encourage people to 

forego needed care, which is the main way that they save money. 

If you need chemotherapy to treat your breast cancer but you’ve 

under-funded your HSA and have a $2,700 deductible, what happens? 

If your child gets sick, will you take her to the doctor, or keep 

her at home, based on how much of your deductible you’ve paid 

down? 

If you or a loved one is grappling with an opioid addiction, a reality for far too many across the country and in New Mexico, will 

an HSA cover your treatment? 

Can someone battling addiction, or managing a serious mental 

health issue, make enough money to save into an HSA in the first 

place? 

These are important questions. No matter where you live, what 

you do for a living, or what party you belong to, these questions 

are at the heart of our health care conversation. 

I am worried that HSAs, an idea that has merit for some welloff consumers, are being twisted into a quick fix that will only exacerbate the challenges in New Mexico such as our ongoing fight 

against the opioid epidemic. 

I am all for working together on real solutions to making needed 

improvements in our health care system, improvements that will 

reduce costs on consumers, increase price transparency, so that 

consumers can make informed decisions and prevent surprise medical bills, as well as reduce the overall cost of health care in our 

country. 

But focusing on HSAs while avoiding an honest conversation 

about the key drivers of health care costs could have real negative 

impacts on real people who are simply trying to manage an illness 

or care for a sick loved one. 

We must focus on actions that can actually bend the cost curve, 

like investing in preventive care, using the government’s purchasing power to lower drug prices, and paying for quality of care 

rather than quantity. And we have to focus on making things simpler for families. 

I look forward to our witnesses’ testimony today, and to hearing 

their perspectives on how we can bring down health care costs for 

families. Thank you. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 27.] 

Chairman Paulsen. Thank you, Senator Heinrich. 

And with that, we will begin by introducing our witnesses. First 

we have Dr. Scott W. Atlas, who is the David and Joan Traitel Senior Fellow at Stanford University’s Hoover. Dr. Atlas has published 

more than 120 journal articles. Two recent books include ‘‘Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Costs.’’ And also ‘‘In Excellent Health: Setting the 

Record Straight on America’s Health Care System.’’ Dr. Atlas has 

been published or interviewed by The Wall Street Journal, Forbes 

Magazine, CNN, Fox News, the PBS Newshour, and many others. 

As Professor in Chief of Neuroradiology at Stanford University 

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Medical Center, he has trained more than 100 neuroradiology fellows. Dr. Atlas received a B.S. degree in Biology from the University of Illinois in Urbana-Champaign, and an M.D. from the University of Chicago School of Medicine. 

Also with us is Kevin McKechnie, who joined American Bankers 

Association back in 2001. He is currently the Executive Director of 

the HSA Council, and a Senior Vice President. Mr. McKechnie is 

also a principal in HSA Holdings, which provides health care financing expertise to several governments around the world. Previously he served for four years as government relations representative for Marsh & McClennan. Mr. McKechnie also served as Director of Government Relations for International Financial Services, 

and Legislative Assistant for former Representative William 

Dannemeier of California. Mr. McKechnie has a B.A. in History 

and Political Science from York University in Toronto, Canada, and 

pursued graduate studies in American History at American University. 

Tracy Watts is a Senior Partner in Mercer’s Washington, D.C., 

office and is on the Policy Board of Directors for the American Benefits Council. A consultant with Mercer for 30 years, Ms. Watts 

specializes in health care cost management, assisting employers in 

the design, evaluation, and ongoing management of health and 

group benefit plans for active and retired employees. As a spokesperson for Mercer she has been quoted in The Wall Street Journal, 

The New York Times, The Washington Post, Money Magazine, 

USA Today, and many others. Ms. Watts is a graduate of Texas 

Christian University. 

And also with us today is Dr. Kavita Patel, who is a non-resident 

Fellow at the Brookings Institution, as well as a practicing primary 

care internist at Johns Hopkins Medicine. Dr. Patel served in the 

Obama Administration as Director of Policy for the Office of Intergovernmental Affairs and Public Engagement. As a senior aide to 

Valerie Jarrett, Dr. Patel played a critical role in policy development and evaluation of policy initiatives connected to health reform, financial regulatory reform, and economic recovery issues. Dr. 

Patel also served and worked as a Deputy Staff Director on Health 

for the late-Senator Edward Kennedy. Being in this room, as she 

mentioned to me a little earlier. She earned her medical degree 

from the University of Texas Health Sciences Center and her Masters in Public Health from the University of California, Los Angeles. 

And with that, we will welcome each of you to the hearing today, 

and we will begin by recognizing you, Dr. Atlas, for five minutes. 

STATEMENT OF SCOTT W. ATLAS, M.D., DAVID AND JOAN 

TRAITEL SENIOR FELLOW, HOOVER INSTITUTION, STANFORD UNIVERSITY, STANFORD, CA 

Dr. Atlas. Thank you, Chairman Paulsen, Ranking Member 

Heinrich, and Members of the Committee. Thank you for the invitation and opportunity to speak today about health care reform, 

and specifically about the role of health savings accounts. 

It is in the context of overall health care reform that I will discuss the importance of HSAs, including the rationale for 

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verage their impact on broadening access to quality medical care, 

increasing patient choice, and improving health for all Americans. 

The critical concept here is that reducing the cost of medical care 

itself is the most effective pathway to broader access to quality care 

and lower insurance premiums, and ultimately of course better 

health. 

Instead, the Affordable Care Act, and most post-ACA ideas, continue to stress making insurance more affordable, mainly through 

refundable tax credits or other subsidies. But insurance premiums 

are secondary, and historically chiefly reflect two factors: Mainly 

the cost of medical care accounting for the majority and the regulatory environment. Therefore, strategies that subsidize premiums 

artificially prop up insurance coverage that typically has minimized 

out-of-pocket payment. This is directly counter productive because 

it shields medical care providers from competing on price. 

Two key points are essential to clarify from the start: 

Number one, the HSA is a vital and highly effective proven tool 

to broaden access to affordable high-quality health care for all 

Americans, even those without HSAs. It does so by putting consumers directly in charge of buying their own health care, and better than tax deductions HSAs uniquely incentivize savings. The 

fundamental purpose of an HSA is not simply to provide a tax-sheltered benefit for individuals in order to cushion the blow of high 

health care expenses. 

Two, the HSA is not an isolated, independent component of the 

health care system. Reforms to maximize their positive impact for 

consumers are tied to other reforms. To broaden access to affordable high quality health care for all Americans, there are three fundamental steps that must occur, and all directly relate to HSA reforms. 

One, patients must be strongly incentivized to consider medical 

care prices and simultaneously equipped with the tools to do so. 

This is accomplished through universally available large, liberalized and transferable HSAs in conjunction with lower-cost, higherdeductible insurance. The key question is: Is it realistic to suggest 

that patients could even consider price? 

Among privately insured adults under 65, almost 60 percent of 

all health expenditures is for elective outpatient care. Even in the 

elderly, almost 40 percent of expenses are for outpatient care. Outpatient services dominate America’s health care spending, and 

these are amenable to price-conscious purchasing. To fully leverage 

the impact of HSAs, it is important to position more patients as 

paying directly. Despite the ACA’s regulatory attempt to shift consumers to more comprehensive, what I call ‘‘bloated coverage,’’ a 

shift toward high-deductible plans with HSAs has continued. Indeed, by increasingly choosing HSAs when given the opportunity, 

Americans are approving their value. 

HSAs with high-deductible coverage have proven to reduce 

health care prices. Spending reductions average 15 percent per 

year and increase with the level of deductible and when paired 

with HSAs. Adding HSAs to high-deductible plans correlates to 50 

percent to double the savings of high-deductible plans alone. 

Downward pressure on health care prices from doctors competing 

for patients who pay directly for care has been demonstrated by 

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procedures originally not covered by insurance, like Lasik Corrective Eye Surgery, or MRNCT and CT screening. 

Data from MRI and outpatient surgery-covered care confirms 

that, when patients are motivated to compare prices, prices come 

down significantly. And this reduces prices for all health care consumers, not just HSA holders. 

The issue is not whether HSAs are effective in making health 

care more affordable, it is how to maximize their adoption and fully 

leverage them. 

All HSAs should be fully owned and controlled by individuals. 

Restrictions on full HSA participation by seniors on Medicare 

should be abolished. Given that seniors are the biggest users of 

health care, it is critical to have them exerting downward pressure 

on health care prices. 

HSA limits should be expanded and uses should be eased, including for the expenses of the HSA account holder’s elderly parents. 

And the list of allowable services and products should be expanded. 

They should be delinked from specific insurance deductibles. HSAs 

have also been a valuable vehicle for effective wellness programs. 

The ACA limited the financial incentives from employers, including 

deposits into HSAs. That should be abolished. 

The second big point is introduce the right incentives into the 

Tax Code to maximize the use and benefit of HSAs. And my belief 

is the Tax Code should cap the amounts of deductions or income 

exclusions if they’re maintained, but it should limit those deductions or exclusions to two categories of expenses: HSA contributions 

and the amount of premiums for catastrophic coverage. To have tax 

deductions for all health care expending is counterproductive. It 

gives an incentive to spend more on health care. 

Three, strategically increase the supply of medical care to stimulate competition and increase choices. In large part, this means removing archaic, anti-consumer barriers to competition among doctors, other medical care providers, health care technology, and 

drugs. 

In conclusion, in other countries governments hold down health 

care costs mainly by limiting the use of medical care, drugs, and 

technology through its power over patients and doctors often as 

single payer. And those countries get the expected results when 

looking at the actual data: long waits and worse medical outcomes 

than the United States, particularly for their poor citizens who are 

the only ones unable to circumvent those systems. 

We should consider a different approach: creating appropriate incentives, and eliminating harmful regulations so that prices of care 

come down and high-quality care is affordable for everyone. Thank 

you. 

[The prepared statement of Dr. Atlas appears in the Submissions 

for the Record on page 29.] 

Chairman Paulsen. Thank you. Mr. McKechnie, you are recognized for five minutes. 

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STATEMENT OF MR. J. KEVIN McKECHNIE, EXECUTIVE DIRECTOR, HSA COUNCIL AND SENIOR VICE PRESIDENT, AMERICAN BANKERS ASSOCIATION, WASHINGTON, DC 

Mr. McKechnie. Thank you, Mr. Chairman, Ranking Member 

Heinrich, Members of the Committee: 

I appreciate you having this hearing today. Mr. Chairman, I 

would like to request that my written testimony appear in the 

record as if read, if that’s alright? 

I founded the Council in 2004 with the hope of accelerating adoption velocity of HSAs and the qualified insurance that goes with 

them, and we’ve succeeded. According to Devenir Research of Minneapolis, there are now more than 22 million accounts containing 

about $54 billion to pay for the future health care needs of about 

30 million Americans. We think that is the number as of about 

January of this year in 2018. And that is an extrapolation, to be 

entirely candid. 

Let me start with an observation from some of your former colleagues. So far, most of the proposals before Congress attempt to 

deal with access but do not adequately address the more important 

factor, cost control. 

‘‘We have introduced legislation that would give consumers an incentive to monitor spending carefully because to do otherwise 

would be wasting their own money.’’ So says United States Senators Sam Nunn, John Breaux, Tom Daschel, David Boren, Richard 

Lugar, and Dan Coates on September 18th, 1992. A bipartisan 

group, they were obviously ahead of their time and I suggest onto 

something. HSAs are the only health insurance plans in America 

that allow their owners to save for the future. Every other plan, 

even the ones a lot of health advocates call ‘‘good insurance’’ start 

their participants off at the beginning of the year with nothing in 

the bank to satisfy out-of-pocket expenses. 

HSAs allow their owners to pay for routine care with tax-exempt 

dollars, rather than after-tax dollars. And the Kaiser Family Foundation says the average deductible for single coverage in a small 

firm last year was $2,120. An important consumer question is how 

to satisfy that deductible. With pre-tax dollars from your HSA? Or 

after-tax dollars from your wallet? 

Fidelity Investments reports that a 65-year-old couple would 

need $275,000 just to pay for the health expenses Medicare doesn’t 

cover in retirement. I’m quite sure none of you are under the impression that our pension system is over-funded. HSAs can be a 

useful public policy tool to address that problem, too. 

My good friend Jody Dietel, Chief Compliance Officer for Wage 

Works, testified yesterday before your colleagues on the House 

Ways and Means Committee that the median household income for 

an HSA account holder, according to their data, is only $57,060. 

Our anecdotal data of six companies just like Wage Works lowers 

that to $53,000. 

Additionally, most HSA owners, 77 percent in fact, were born 

after 1965. Only 22 percent are Baby Boomers, which is to say people at the height of their income potential. Devenir says the average HSA balance is a little more than $2,000, and that 78 percent 

of account holders have less than that in their account. 

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Accordingly, I conclude these accounts are used for their intended purpose, which is paying for routine health care expenses 

by Americans of mostly modest income, comprised mostly of the 

three generations that followed the Baby Boomers, Generation Z, 

Millenials, and Gen Xers. 

I am here today on their behalf to ask for your help. While HSAs 

are one important tool for managing costs, they need improvement. 

You can’t have an HSA and be enrolled in Medicare or a traditional 

health plan, and you can’t take Social Security benefits because 

that automatically enrolls you in Part A. You can’t have access to 

Tricare, or Indian Health Services, or Veterans Administration 

benefits. You can’t be covered by a medical FSA, and you can’t 

have access to retail medical clinics or telemedicine at no cost. 

Accordingly, HSA owners would like more flexibility. HSAs 

should be able to cover more value-based services like direct primary care, expenses associated with chronic disease management, 

and telemedicine services. 

There are bipartisan bills in both Houses of Congress, several 

supported by you and your colleagues, Mr. Chairman, that would 

allow these services in a HSA, and the H3A Council strongly supports all of them. 

We also support allowing plans with an actuarial value of up to 

80 percent to be considered HSA-qualified, so we don’t have to 

come and petition Congress or the IRS to achieve plan flexibility. 

As long as you had a plan that was below 80 percent, you’d be able 

to offer whatever services made that bucket full. 

We agree that HSAs should be more flexible. We further suggest 

allowing an increase in allowable contributions, up to the out-ofpocket maximum, in order to help people pay for these additional 

services, or at least have the potential to cover their entire out-ofpocket risk with tax-exempt funds. 

We also want to allow seniors who choose to keep working and 

are covered by an employer-sponsored HSA plan to enroll in Medicare and still be HSA-eligible. The President has gone further and 

proposed allowing HSAs in the Medicare Advantage Program. We 

agree with him. We agree with him and in any event know that 

this subject merits further discussion. Medicaid should be broadened so that the example of Indiana’s HIP2.0 program can be expanded if a State so chooses. Vice President Pence, then Governor 

Pence, accomplished by Federal waiver what we think states 

should have a right to do if they want. Now I don’t think HSAs can 

solve every problem—to your point, Ranking Member Heinrich— 

but at least they have all the incentives in the right place. They 

let people save for the future. It’s very important. They promote 

transparency in pricing, exerting downward pressure on costs, and 

they respect well-known and proven insurance principles. 

I think more Americans should have access to HSAs, and recommend that legislative proposals pending before Congress be 

quickly enacted. 

Mr. Chairman, thank you for holding this hearing, and I look forward to any questions. 

[The prepared statement of Mr. McKechnie appears in the Submissions for the Record on page 42.] 

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Chairman Paulsen. Thank you. Ms. Watts, you are recognized 

for five minutes, as well. 

STATEMENT OF MS. TRACY WATTS, SENIOR PARTNER, MERCER; AND POLICY BOARD OF DIRECTORS, AMERICAN BENEFITS COUNCIL, WASHINGTON, DC 

Ms. Watts. Chairman Paulsen, Ranking Member Heinrich, and 

Members of the Committee: 

Thank you for this opportunity to meet with you to discuss the 

critical role of health savings accounts and making health care 

more affordable. 

My name is Tracy Watts. I’m a Senior Partner at Mercer, and 

I am testifying today on behalf of Mercer and the American Benefits Council where I serve on their Policy Board of Directors. 

I have more than 30 years of experience helping Fortune 500 employers develop innovative strategies to control their health care 

costs. 

Mercer is a business unit of Marsh & McClennan Companies. 

The businesses of MMC include Mercer, Oliver Wyman, and Marsha & McClennan Agency. We employ 25,000 colleagues in the 

U.S., including more than 350 in your District, Chairman Paulsen. 

The American Benefits Council is a public policy organization 

that represents Fortune 500 companies and collectively the Council’s members either sponsor directly or provide services to retirement and health plans covering more than 100 million Americans. 

So I would like to begin my testimony by highlighting some relevant findings from Mercer’s National Survey of Employer-Sponsored Health Plans. The survey includes responses from 2,500 employers, and it is the oldest, longest, and most comprehensive survey of its kind. The results can be projected to any size employer 

population in the U.S. 

Our survey shows that an increasing number of American workers and their families enrolled in consumer-directed plans, or 

CDHPs. And on page 3 of the PowerPoint attachment to my written testimony you will see about 34 percent of American workers 

employed by large companies, those with 500 or more employees, 

enrolled in a CDHP. 

Since 2009, the enrollment in CDHP plans has increased an astounding 325 percent. In addition to increased reliance on consumer-directed plans by American workers, if you turn to page 4 

you will see that HSA-eligible plans cost 20 percent less than PPO 

plans in general, and they are 6 percent less costly than PPO plans 

with deductibles over $1,000. It is important to note that the success of HSA-eligible plans in reducing plan costs is one of the few 

strategies proven to help bend the curve, and in turn help manage 

premium costs for employees. 

A driving force behind growth into HSA-eligible plans is the 

threat of the 40 percent Cadillac tax, now delayed to 2022, and we 

thank you for that. And thank you, Senator Heinrich, for your leadership in working to repeal the tax. 

Next I would like to share an example of how we help clients 

analyze and evaluate their health plan performance. This particular example shows the positive impact of HSA-eligible plans on 

both cost and health risk. 

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In this example, the employer has sponsored an HSA-eligible 

CDHP plan alongside a PPO plan for more than three years. And 

on page 8 you will see that we matched enrollees in the PPO plan 

to enrollees in the CDHP option who shared the same demographic 

and risk profiles at the start of the three-year comparative period. 

There were approximately 13,000 plan members in each of the 

comparison groups. So it is a good sample size. When we looked at 

how the participants in each plan option used their medical services over the three-year period, it was quite similar across the two 

groups. There was basically no difference in the use of preventive 

screenings and annual physicals. 

The CDHP plan did have lower utilization of the emergency 

room, of office visits, and prescriptions. However, the day supply 

for the prescriptions was actually higher for CDHP members, 

which could mean better utilization of mail-order benefits, and better compliance with their prescribed therapies. 

The most interesting finding, though, from this study is shown 

on page 12, where we look at health risks over the three-year period. The PPO plan had a significant decline in the low-risk category, and an increase in the high-risk category while the risk 

structure for the CDHP plan was virtually unchanged. 

We valued the change in the PPO risk at approximately an 8 

percent increase in the risk of the PPO members. This suggests 

that the CDHP plan may have been more effective at helping participants manage existing or new medical conditions or health 

risks. 

As for costs, the data were clear that the HSA-eligible plan 

ended up costing on average 15 percent less per capita than the 

PPO plan over the three-year period. We’ve performed this analysis 

for other employer clients with very similar results. 

We thank you for holding this hearing today to highlight how 

HSAs can indeed engage patients and bend the cost curve. I appreciate the opportunity to share these findings with the Committee, 

and I am pleased to answer your questions. 

[The prepared statement of Ms. Watts appears in the Submissions for the Record on page 75.] 

Chairman Paulsen. Thank you, Ms. Watts. 

Dr. Patel, you are recognized for five minutes. 

STATEMENT OF KAVITA PATEL, M.D., M.S., PRIMARY CARE 

PHYSICIAN, JOHNS HOPKINS MEDICINE, AND FELLOW, 

BROOKINGS INSTITUTION, WASHINGTON, DC 

Dr. Patel. Thank you very much. Thank you, Chairman Paulsen, Ranking Member Heinrich, and other Members of the Committee: 

This is a great honor for me to be here on this side of the dais. 

I am a former Senate staffer and career in health policy, but I am 

coming here today kind of bringing all of those worlds together, 

and perhaps most importantly as someone who delivers care to 

over 1,000 patients as part of a regular community-based primary 

care practice. And so that is actually where I start from. 

The one thing I would ask you on this very important topic about 

bending the cost curve is to really consider what I would say 

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should be all of our north star. That is, how do we make care better 

and less costly for all Americans? So that is where I come from. 

The majority of my patients are primarily insured by either 

Medicare or Medicaid, and do have commercial insurance as well. 

So I take care of kind of all gamuts. And I want to tell you about 

one specific patient, just because she will ring true probably to all 

of you on some level. 

A 47-year-old female—I did get her permission, not her name, 

but I am going to share her story—a 47-year-old female who actually works for the Federal Government, has a high-deductible 

health plan, and a health savings account, three children. Average 

income is about $63,000. And so she is right in that ballpark. She 

was unfortunately diagnosed with a very complex kidney cancer 

that fortunately has a very advanced immunotherapy that can actually target her cells, but costs about $150,000 per treatment. 

No question that this is something that I think American innovation has brought to her doorstep, but she will regularly use this 

very advanced medical device with me, one of her 14 doctors, to try 

to understand what tests does she really need? What is it that she 

can actually get on a weekly basis in order to make sure she can 

afford the very expensive drug that she absolutely must take. But 

then she will sit and bargain with me over which lab test does she 

need? Which doctor’s visits does she need to go to? And these questions are exacerbated at the end of the month when she is looking 

to next month to think about paying for her rent, thinking about 

putting food on the table. And this is something with a health savings account. 

When I asked her, when I talked to her in preparing for this 

hearing, how does that HSA help you? And she said probably the 

most profound thing that I want all of you to take home. She said: 

It really doesn’t matter whether I have an HSA or not. She said, 

I have to think about the money that I have to spend in that moment, and what I have to do or not do in order to make that work 

for my finances. 

So I want everybody to kind of take a broader view and think 

about the growing cost of care, and also what people do. They don’t 

hear ‘‘HSA’’ or a pre-deductible, they just think about the money 

that is being asked of them when they get the call from their pharmacy, or when the person in my front office desk asks them for 

their payment at the time of service. And all of us have been to 

the doctor where we see that sign that says ‘‘payment requested at 

the time of service.’’ 

And that $20 adds up when you’re dealing with these types of 

illnesses. So I come to you in that context. And I think that the 

conversation around bending the cost curve is absolutely the right 

one to have. I just want to make three points about the drivers of 

those costs: 

Number one, hospitals. Hospitals, one of whom I work for, hospitals have, year-over-year, had double-digit cost increases. And 

these increases have been held constant, no matter who your payer 

is. 

Number two, ambulatory services. Costs in ambulatory services, 

physician offices, have increased 71 percent. As a primary care doctor, I would tell you that’s a good thing. We should be spending 

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way more money in high-value services, but we’re not. We’re spending them across the board. 

The third is prescription drugs. Prescription drugs from a recent 

Office of the Inspector General Report have grown out of proportion—and I’ll just give one statistic that I’ll actually read to you because it’s startling—total reimbursement for all brand name drugs 

in Part D increased 77 percent from 2011 to 2015, despite a 17 percent decrease in the number of prescriptions for these drugs. 

So less actual prescriptions; higher actual reimbursement in Part 

D. These are not facts to be ignored. So these are three huge cost 

drivers. I have included some—Senator Kennedy’s time taught me 

that graphs are always wonderful to have, so I’ve got some graphs 

in my written testimony that illustrate some of this in I hope a 

very clear way. 

Those are three huge cost drivers. That is not to say that health 

savings accounts can’t play an important role. Absolutely. Innovative services like direct primary care, having access to chronic management services, pre-deductibles so that you don’t even have to 

think about whether you need to spend an HSA on kind of higher 

value services, work that the University of Michigan has done to 

identify what’s high value. Opioid treatment, for example, should 

not apply to your deductible. I don’t care what you’re doing. These 

are things that just make sense for everyday Americans, and we 

need to do more of that. 

We started some of that by making preventive services covered 

before deductibles in the Affordable Care Act. That was not 

enough. 

So in closing, I just want to—I know that we will get into, hopefully, an extensive kind of debate about health savings accounts 

and what fixes. Think about all of this as kind of a large balloon, 

and think about the real people and the real voices, particularly of 

patients as well as the doctors who are taking care of those patients, who are just as frustrated. And I hope that we can have a 

more productive conversation. Thank you. 

[The prepared statement of Dr. Patel appears in the Submissions 

for the Record on page 100.] 

Chairman Paulsen. Thank you, Dr. Patel, and thanks for sharing the perspective of a physician and an actual patient that you 

deal with. 

I remind all members we will keep our questioning period time 

to five minutes, and I will just begin. We have really enjoyed the 

testimony. And I certainly by no means would recommend or say 

that health care savings accounts would be a silver bullet or an answer to these challenging problems that we have across the board 

for the health care spending here in the United States, or for a lot 

of patients. 

But it is being proven to be widely utilized and widely appreciated when you have the average income of folks that use these 

health care savings accounts of about $57,000, and they are becoming more popular. But I am more interested in how they actually 

affect bending the cost curve a little bit. 

I know that one of the challenges we have in health care today 

is that health care payments are ending up being made essentially 

by a third party and not by the patients. So often physicians, often 

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patients don’t know what the cost is when they’re not able to compare, or they’re not aware in terms of utilizing what health care 

services to use. 

So you have got somebody spending other—somebody else spending money, and they may not spend it as wisely as they would 

spend their own, for instance. So these consumer-directed health 

care accounts have successfully addressed some of those challenges. 

So maybe, Dr. Atlas, I will just start with you. Can you elaborate 

maybe a little bit on how—or maybe explain to us some of the ways 

in which these consumer-directed health care plans have allowed 

consumers with their own skin in the game essentially a little bit 

to help put more in the driver’s seat and make the right informed 

consumer choices? And how has that helped to bend the cost curve 

a little bit? 

Dr. Atlas. Yeah, I mean I think you can look at—we at Hoover, 

and I am trying to be part of what the person who down the hall 

from me had his office, which was Milton Friedman, spoke quite a 

bit from evidence. And when you look at the evidence in the published literature on people who have the information necessary to 

make decisions, and have a health savings account and a high-deductible type plan, the price of care comes down significantly. 

When you look at published studies, I mentioned them very 

quickly on MRI, and on Outpatient Ambulatory Surgery, these are 

in the literature. And we see that the prices came down 18, 19 percent per year. Of course it is very true what Ranking Minority 

Member Mr. Heinrich said, which is that the information has to be 

there. And so in these studies, patients had visibility of price. 

The question really is, is there legislation necessary to do that 

because we really don’t do that in other goods and services? You 

don’t have to say to the computer store, you know, you better show 

your prices. 

The fact is that the most compelling reason for doctors and hospitals to post their prices would be knowing that they’re competing 

for patients’ money. When patients care what they’re spending, 

they are going to save money. And this is not an assertion that’s 

proven in the literature. 

We can also look back at things that weren’t covered at all by 

insurance. So here I’m talking about MRI, whole-body CT, wholebody MRI screening. And I’m a neuroradiologist, so I am very familiar with what happened. When that came out, it was $1,500 to 

$2,000 in the shopping mall. And within a year or two, the prices 

came down to $300. 

Now that is not the only reason that prices came down, but that’s 

a critical part. There’s a value-seeking behavior that is completely 

missing from the equation here. 

So it is factually proven that, when the prices are visible and 

when signs of quality are visible—which they would be, once you 

have a competitive environment—the prices come down significantly. 

And the key point here is, it’s not just the prices for the people 

who have the health savings accounts. We want health savings accounts as a vehicle to reduce the prices of medical care for everyone, while avoiding the way other countries do this, which is by 

limiting access to care. This way it is really ‘‘consumer driven,’’ to 

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use the phrase that you’re using, and that is the way to get prices 

down without impacting quality negatively. 

Chairman Paulsen. Maybe, Ms. Watts, you can explain a little 

bit, or follow up on that from the employer’s side of the equation, 

who have a lot of employees who may utilize these accounts. I 

mean, what have you seen in terms of employers benefiting from 

these types of consumer-driven plans themselves in terms of costs. 

Ms. Watts. Access to tools and resources is key to the success of 

these programs, and even the one that I talked about. So you’ve got 

your design and the incentive, if you will, to have the skin in the 

game. But it is true, consumers feel very ill-equipped to be able to 

shop for their health care. 

And so, tools exist that provide transparency information. But 

the truth is, right now only about 30 percent of your medical care 

that you would be seeking is ‘‘shoppable,’’ where you could find out 

the price, do comparative research for what the prices are. 

For everything else, it’s too complex. There’s too many parties involved to be able to know exactly what something is going to cost. 

And so one of the things that employers have done is to add advocates for the consumer. The advocate might be within the health 

plan, or it may be a third party that helps that patient navigate 

the health care delivery system. 

Someone gets this diagnosis and they are a little scared and asking themselves, should I be getting another opinion somewhere 

else? Is this the type of thing that maybe we want to send this off 

to a panel of doctors to take a look at, because it’s a little bit more 

complicated? 

And, because there’s this challenge of knowing what the price is, 

and shopping based on price, but also knowing, what is the quality 

of the provider that you’re going to be going to? Are they best 

equipped to be able to help you get the outcome that you’re looking 

for the fastest? 

Chairman Paulsen. Thank you. Alright, Senator Heinrich, you 

are recognized for five minutes. 

Senator Heinrich. Thank you, Chairman. 

Dr. Patel, it is evident from this hearing, and I have experienced 

this in the past, that policymakers love high-deductible insurance 

plans. I can assure you, my constituents do not. 

The other feedback I get from them is that high-deductible plans 

cause them to forego treatment at times. Is that something you’ve 

seen in your practice? 

Dr. Patel. Yes, Senator. So it’s very routine. Go to any kind of 

community-based, or even hospital-based practice where you have 

a high volume of patients. We all know the phenomenon of having 

people try to seek care, or plan out their year to try to understand 

when and how they will hit their deductible. And it is a very common phenomenon to have patients actually space out services that 

they need. And many of my patients, I can tell when the fall cycle 

hits, or when we get into the new year and they’re more susceptible 

to that annual deductible, they will not come in. 

And so there is a very conscious decision. And I think it speaks 

to something that I have seen over a decade of practicing. We talk 

about wage growth? I have not seen, and I can say I have now 

treated—I tried to tally—I’ve taken care of about 22,000 patients 

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of all types, and I have yet to hear somebody say, you know, I got 

into a high-deductible health plan, and I’m making more money as 

a result of it. 

Senator Heinrich. Yeah, I am waiting for that constituent. 

Dr. Patel. I am, too. I am waiting for that patient to tell me 

that. Now that is not to say that that is happening, but my experience has been that—and in the data that we are seeing, is showing 

that people are foregoing that care. 

My former employer, the Rand Corporation, ran something called 

The Rand Health Insurance Experiment, which actually illustrated 

that, depending on where you put that deductible, people will forego necessary care. And that is exactly where I think, as stewards 

of the American economy, we need to be careful. 

Senator Heinrich. Absolutely. We do not want people running 

to the doctor every time they have a cold, but we sure want them 

running to the doctor when they have indications of serious illness. 

The first chart in your written testimony shows the cost of prescription drugs growing dramatically faster than other health care 

costs. The very steep line here in your chart. And frankly I hear 

more about that than anything else in health care, no questions 

asked. 

What policy should Congress be looking at to lower the skyrocketing costs of prescription drugs? 

Dr. Patel. Absolutely. And it is certainly not simple. I was in the 

Senate when we were launching and designing the Part D Program. I would argue that the Part D Program in 2006 did not reflect the innovation in American medicine that can be made available in the Part D Program in 2018. 

So one essential—and I would hope that it is a bipartisan, this 

is not a partisan issue, it is a bipartisan issue—is to modernize the 

Medicare Part D Program in order to bring the very innovations 

that we have in Medicare Parts A and Parts B, to actually do that 

in Part D. 

Right now we have no ability for plans to bring any of the innovative tools, or things that we’ve done to manage services in other 

parts of the program. That’s one. 

Number two, better access to generics and biosimilars. You are 

hearing that not only does the Trump Administration kind of agree 

with that, but many health policy experts also feel like that is doable. 

Number three is a very direct conversation. It’s what Dr. Atlas 

had referred to about kind of a direct conversation about transparency. And that is transparency in all the levels between the 

manufacturer, the pharmaceutical benefit manager, the pharmacy, 

and the person who it really impacts, the consumer at the end. 

Senator Heinrich. I think that is an area of commonality here, 

that I hear, that transparency is key to people making good decisions. 

And, Dr. Atlas, you said this very eloquently. You said when the 

prices are visible. And it seems to me that is one of the challenges 

here. And we seem to agree that transparency is a good thing. And 

when people are given more information, they make better choices. 

It is really hard—myself included, and almost anyone I talk to— 

that is not the lay of the land in our health care system today. 

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Dr. Atlas, how do we make that change and require more transparency in the system? 

Dr. Atlas. I think this is really a critical point, and I think we 

do all agree that this transparency is necessary. 

First I want to talk about drugs and price transparency because 

this is the biggest offender of all. Because, you know, recent data 

shows that there were $179 billion in these very complicated arrangements with pharmacy benefit managers. Patients have no 

idea what the real price of their drug is. 

But the real reason they have no idea is because, just like me when I get my high cholesterol drug, I personally pay $2. I don’t 

care what the price is if I’m only paying $2. And this is the problem—when you have an insurance model, or any program that 

minimizes to near zero, or to relatively speaking near zero, what 

you, the patient, pays out-of-pocket for something. 

In fact I’m sure that everybody here is aware of the study that 

came out very recently that in over 20 percent of patient co-pays 

for drugs, when they’re using insurance, their co-pay is larger than 

if they paid for the entire drug out of pocket because there are contractual agreements that muzzle pharmacists from revealing to patients the prices of the drug if patients would pay out of their pocket. 

This is unconscionable and scandalous, but this is an example of 

the perversion of the system when patients don’t know what things 

cost. So the question really is: How do you get that to occur, and 

have them care what it costs? It’s not just the visibility. Because 

if the prices were visible but they really didn’t care—they didn’t get 

a reward for paying less, okay, fine, I know the price. So they need 

to be able to get a positive incentive to pay less, because it’s not 

necessarily the same. 

When you say someone foregoes medical care, the question isn’t 

that. The more relevant question is about necessary medical care. 

And when you really look at the data in the literature, and 

Haviland is the author of one of the studies, she showed that the 

patients did forego medical care, but they did not get harmful 

health effects by foregoing that medical care. 

So you have to look at the data and be careful not to mix up the 

kind of activity here. It’s a very difficult problem, particularly with 

drugs, because it’s so complicated to get prices there. But as one 

of my colleagues told me, if you just mandate and legislate that 

prices have to be posted, it could be like hotel rooms where on the 

back of the door you see the price, and the price is meaningless. 

No one even looks at it, no one cares. You have to be far more 

thoughtful about how you get the prices visible, and I think it’s by 

demand from patients who care what they spend. 

Chairman Paulsen. Representative Handel, you are recognized 

for five minutes. 

Representative Handel. Thank you very much, Mr. Chairman, 

and thank you to all of our witnesses today. I appreciate it. It has 

been a very good dialogue. 

I want to stay on the topic of transparency and come to you, Mr. 

McKechnie. The HSAs are designed to encourage consumers, patients, to shop around for health services. And we have heard a lot 

of conversation about whether that is easy to do, or hard to do. 

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There are some new services companies out there, Meta-bids, 

Vendi-Health, Health Care Blue Book, that are working very hard 

to make it easier. In fact, I have availed myself of one of those— 

I will not say which one, obviously—to check the prices of a mammogram. And it is stunning, the broad array of pricing on it. But 

no one would know that unless they actually picked up the phone 

and called each of those and said, ‘‘If I come in and pay cash, how 

much would it be?’’ 

So can you speak to the services that these companies offer, and 

whether you think that is a good way to go? Or do we need legislation to really drive and foster transparency? 

Mr. McKechnie. We think, obviously—thank you for your question, first of all. We think, obviously, the reason there is a request 

for legislation is because perhaps some of the other methodologies 

have yet to work. And they will be working whether or not legislation is passed in the first place. That is the nature of consumerism. 

They tend to work best, as Ms. Watts said, in that 30 percent 

where visibility tends to be around nonemergency services, which 

is why the companies you described can tell you where and when 

you can get an MRI, and for how much money. They are very good 

at that kind of diagnostic centric price transparency function. 

And when you look at a bank’s HSA platform and their web representation of that service, you can see that all of those things are 

plugged in to help people do exactly what we have been describing 

here today, which is to take their dollars, find their treatment 

choice or the one that has been prescribed to them by their doctor, 

and then where is the most efficient way to spend their scarce resources in the time that is important to them. And I think that is 

one of those qualitative questions that you miss frequently, which 

is not just that you need a service or it has been insured and therefore it is inefficient, which is very important and I agree with, but 

also it needs to be available to you, the essence of consumerism. 

When do you want to do it? And with whom do you want to do it? 

And that choice is yours to make. And the services you describe 

make them easier. 

Transparency would be achievable more easily with legislation, 

since you would have to do it. And so we support that. It is a 

shame, though, because the point of the story is everything should 

be transparent and it is not. 

Representative Handel. That is right. Thank you very much. 

Dr. Atlas, you mentioned briefly in your testimony that policy 

priorities over the past few years have really been focused more on, 

I think you called it, the insurance model, or lowering the cost of 

health insurance, rather than focusing more on lowering the actual 

cost of health care. 

Can you just expand on that a little bit more? Because I think 

that is a very important differentiation there, and a very important 

point. 

Dr. Atlas. Right. Thank you. When you subsidize insurance premiums, which is what the Affordable Care Act essentially did, or 

when you give refundable tax credits, which is essentially cash to 

people like a lot of the Republican proposals were proposing, all 

you are doing is literally propping up the price of the good. In this 

case, the good is insurance. And when you do that, you are forgetLAP51NQ082 with DISTILLER

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ting about the fact that the driver of the cost of insurance, the 

main driver, is the payout for medical services. At least historically 

it’s been roughly 80/20, 20 being administrative or other things. 

And there are some good actuarial estimates that say that the 

price, as you know, of an insurance premium has went significantly 

higher under the Affordable Care Act. And it is estimated that 

about 90 percent of the increase is due to regulations, not the cost 

of medical care. 

So that is sort of an outlier in this. So the key here is to understand what is really the driver of insurance premiums. It is the 

cost of care. That is the root problem. And the way to solve that, 

as we are all discussing—or at least I think the gist of this is— 

is to have exposure in, I don’t like to use ‘‘skin in the game,’’ but 

I just like to say ‘‘caring about the cost of what you are buying.’’ 

Medical care is the only good or service that you don’t know what 

it costs until after you’ve used it. Okay? And even when you get 

the bill, it is indecipherable, particularly in Medicare. 

I want to make one additional point about the idea about the 

idea that higher deductibles and HSAs—first of all, it is not a panacea. It is not for everyone. And I don’t think anyone is saying 

that. But the reality is that everyone benefits from other people 

having them, even the people who don’t have HSAs themselves. 

And if you look at what happened—which I have a chart in what 

I submitted in my written document here—under the Affordable 

Care Act it is true that all insurance prices went up. But the fact 

is that high-deductible premiums selectively went up faster than 

everything else, even though people still buy them more than they 

did in the past. And so the economist friends of mine at Hoover 

said, well how could that be? If your data shows that the prices selectively went up faster for high-deductible care—premiums, why 

would more people buy? It’s because it is still cheaper, okay? 

But the problem is that it was selectively punished. It’s the exact 

opposite outcome of what you would want to legislate. People are 

voting by their actions for the value of HSAs and high-deductible 

plans. 

You look at the curves. There are record numbers, 22 to 30 some 

million, depending upon what estimate, of people who have HSAs, 

and increasingly employers are offering them, and people want 

them. Even in the models where there are multiple companies that 

have formed so-called exchanges, people when they were given a 

defined amount of money to use on health benefits, they opted 

more for high-deductible plans and HSAs. It is not true that people 

don’t want them, they do. 

Representative Handel. Sorry to interrupt. I’m out of time. 

Thank you so much. I yield back. 

Chairman Paulsen. Thank you. And, Mr. McKechnie, let me 

ask you this question, because Indiana has been cited as a model 

in many respects, particularly because of their State employees. 

But can you talk a little bit more about the success we’ve seen in 

Indiana, or what changes, if any, there have been in Indiana’s success since 2010? Can you comment on any lessons that have been 

learned from other states’ approaches in implementing HSAs? 

Mr. McKechnie. Sure. I think it is important to understand the 

landscape here, which is that in 2008 in that Presidential election 

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Medicaid covered slightly more than 50 million people. And by the 

time we got to election 2016, Medicaid covered slightly less than 

75 million people, 74 million people. 

And so the Affordable Care Act is largely responsible for that 

growth, but of course it left the states with the question of how do 

you want to expand? And Indiana took up the Affordable Care Act’s 

challenge and said, yes, we want to expand but we want to expand 

by having an account-based system where it made sense to do so. 

And so their system had traditional Medicaid of course, but it 

also allowed for what they call Indiana Power Accounts, which is 

called the HIP2.0 Program. And of course most of your current officials at CMS were former Indiana officials, so they know exactly 

what they are talking about and can enhance whatever answer you 

might need on this question. But it goes like this: 

The marketing for Medicaid 2.0 was—HIP2.0, was so successful 

the program had to be closed. And that enrollment shut down in 

that first year because people, it turns out, at the lower end of the 

economic spectrum aren’t illiterate when it comes to finance, did 

want to have money in an account, did want to see portability, 

were happy to trade preventative care services for getting $1,100 

in their account again next year. 

And we think that’s a very salutary benefit for teaching people 

how to use financial instruments. We spent a lot of money at the 

American Bankers Association trying to promote financial literacy. 

The Governor actually did it in Medicaid and should be congratulated for it. It doesn’t exist too many places. 

So it is going well. There are some problems, however. Obviously 

nothing is perfect. And one of the imperfections is that as people 

move in and out of jobs, and in and out of Medicaid, that is a very 

significant complexity to have to manage. This is not Medicare 

where you age into it and you’re there forever. 

This is the kind of thing where you earn out of Medicaid eligibility, and you may fall back into the program. And there are integration problems with what happens at that moment. 

So they’re working on it, trying to make that more seamless, but 

that is one of the issues, sir. 

Chairman Paulsen. Okay. Let me ask a question, and anyone 

can answer it, but, you know, you have got a lot of different consumer-directed health plans. You have got HSAs. You have got 

Flexible Spending Accounts. You have got Health Reimbursement 

Accounts. I mean, any thoughts on which of those might be best 

that are showing track record of actually helping lower costs, or 

what might be best for average Americans? I mean it is always individualized for individual folks, but any thoughts? 

Ms. Watts. I will share one of Mercer’s survey data points with 

you. Of the consumer-directed plans, the account-based plans, 

about 77 percent of them are HSA plans. The remaining are HRA 

plans. And those HRA plans are really more legacy plans, because 

that is what we had first. Employers put in consumer-directed 

plans to begin with an HRA, and then we got the Health Savings 

Accounts. And so for most employers today, their consumer-directed plan is an HSA-based plan. 

Chairman Paulsen. Got it. 

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Dr. Atlas. I would just add, I think it is very important that all 

of these accounts are shifted into ones that people actually own, 

rather than are dependent on their employer, and that they don’t 

have this use-it-or-lose-it phenomenon at the end, which of course 

HSAs do not. This is really critical. In fact, it should be easier— 

and I have this chart—— 

Chairman Paulsen. Flexible Spending Accounts would, right? 

Dr. Atlas. Yes, but the reality is I’m not sure why there is a 

need for different types, because they all should be liberalized in 

their uses, and rules, and things like that. And I think that really 

there are certain incentives necessary to institute for all HSAs. 

There is incentive to save if you do not lose it. There is also an incentive to save if you are going to be able to pass it on in a taxsheltered way, as opposed to just your spouse, which is now one of 

the rules. Or, use it for your elderly parents, or someone else, even 

if it is an individual account. There’s a lot of things to be done that 

make HSAs more attractive and more valuable to you. 

Chairman Paulsen. Dr. Patel, have you seen other patients experience, you know, they have to use it or lose it, on a Flexible 

Spending Account versus maybe an HSA? 

Dr. Patel. Oh, absolutely, yes. And I do think that the everyday 

American does not actually understand HSAs and FSAs as well. I 

think they are offered these choices during the enrollment period, 

and then they just kind of pick. And they are not necessarily at the 

time of enrollment kind of savvy about what they are doing. 

And I would add one more category, Mr. Chairman: Pre-deductible coverage. Think about how much we spend on tax dollars to 

allow employers to offer kind of these benefits. Think about just 

really kind of honing in on kind of what’s, you know, necessary 

care and thinking about pre-deductible coverage. 

And I’ll just make one little comment about the healthy Indiana 

plan, because I think it is important to level set. I go back to my 

days as a health services researcher. There were over 500,000 people that were eligible; 55 percent of the people for the Power Accounts either missed a payment, or never made the first payment; 

and 14 percent of those eligible never enrolled; 9 in 10 of those people that were actually in those Power Accounts actually ended up 

falling to that lower tier. 

So while people talk about it as a success, and some might say 

it’s a failure, the truth is that there’s a lot more work to be done 

before you think about HSAs and Medicaid. 

Chairman Paulsen. Senator Heinrich, you are recognized for 

five minutes. 

Senator Heinrich. For every time I hear about HSAs, I hear 

ten times about premium inflation, obviously, and premiums are 

projected to increase by about 15 percent next year, at least according to CBO. 

Dr. Patel, do you have an opinion on how the Trump Administration’s actions with regard to undermining the individual markets 

affect those premiums over time? 

Dr. Patel. Well I think the critical—yes, I do have an opinion. 

I think that premium costs, unfortunately, in the current Administration there has been an interpretation that this is all just benefit 

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lease people from kind of these requirements around kind of essential health benefits, et cetera, that somehow magically we’ll offer 

these better value plans, and therefore they will be cheaper, and 

that will bring down premiums. 

Unfortunately, by changing some of the rules around what plans 

must, or the way they can offer benefits, you are actually creating 

kind of a two-tiered system where if people know that they are 

going to have to deal with chronic illnesses like the patient I talked 

about, there is no universe where she is going to try to get one of 

these less generous plans. That is just simple math. 

So the critical question is: How are we, without getting into—I 

realize the word ‘‘mandate,’’ and all these things are just toxic politically—but what we really need to do is have an honest conversation about what are the services and valuable benefits within the 

care delivery system that we must have coverage for? And then, 

what are the things that we really need to have people drive away 

from? 

And that is the places where you—I know that she had to leave, 

but when you talk about the cost of mammograms, I can go within 

one mile and find a mammogram that is ten times the cost, and 

I can find something that is a couple hundred dollars. 

So how do we get at that issue? And that is certainly not being 

addressed in the current Administration. 

Senator Heinrich. HSAs are premised on a consumer’s ability 

to shop around for the best value. And certainly, you know, I have 

found that for my upper-income constituents in New Mexico, who 

tend to be on the lower end of the overall curve, but for people 

making over $100,000 a year, they have a lot of value. But my 

rural constituents oftentimes do not have any ability to shop 

around. I mean, they are really captive of whatever infrastructure 

is left in rural America. 

Is there—what is the HSA value for them? Is it just primarily 

the fact that you might receive the tax benefit? But do you lose the 

ability to impact the overall system when you cannot choose between providers, really for any of you? 

Mr. McKechnie. 

Mr. McKechnie. I would be happy to try and answer. I am not 

sure that is a HSA-specific question. I know the country is going 

through a discussion about the availability of providers by county, 

and insurers by county, and so leaving aside the question of HSAs 

for a moment, I can understand, and I have had the privilege of 

working with some of the members of the New Mexico State Legislature, Carol Lovell particularly, in this topic area. As we come to 

the HSA question, a gentleman actually responded I believe to— 

from our Board, addressing that exact issue, which is not necessarily where you live in the State, but where are you on the economic spectrum? 

Because the question of how do you satisfy that first thousand 

dollars of obligation is a very important one, and not everybody has 

a thousand dollars, and we recognize that, too. But if you are going 

to pay a thousand dollars, and the tax rates vary between 15 and 

40 percent for income, is it $1,150 that you owe? Is it $1,400 that 

you owe? And how are those any better than owing simply $1,000? 

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And so on that issue I imagine we can just leave that aside now, 

the point having been made. But I think you are right. If there is 

nobody around the corner from you to go and get treated, I am not 

sure that is an insurance question. I think that is probably something much more difficult to answer. 

Ms. Watts. Could I comment? 

Senator Heinrich. Ms. Watts. 

Ms. Watts. We co-authored a paper, Mercer, with the American 

Benefits Council on employer innovations in health care. And I believe one of the case studies in there is one of our ABC member 

companies that is a rural company in the coal industry. And they 

have access issues for their employees. And they have actually 

done direct contracting with some providers, and some of the care 

that they provide is virtual health care because people don’t have 

access. And somebody previously said this isn’t just an HSA issue. 

The HSA is really just more of a funding vehicle, and it does get 

people to have skin in the game. 

The question you are asking about is access. But thanks to technology we are on the verge of having much more of an open door 

to access, no matter where you are. And having people understand 

the value and being able to make better decisions—— 

Senator Heinrich. I would agree with you wholeheartedly, with 

the exception of one issue. To have that world exist, we actually 

have to have the infrastructure to be able to access telemedicine 

and virtual medicine in those rural areas. And I will tell you that 

there are vast areas in this country where the broadband access, 

the infrastructure to make that happen, which I think you would 

find Republicans and Democrats both agree, is a great change to 

our health care system, does not actually exist. 

Dr. Atlas. Could I add one quick comment on telemedicine, 

which is there is another anticompetitive problem in the M.D. 

world, which is that states have their own licensure of doctors, and 

that prevents, in addition to other rules, prevents active telemedicine, and actually limits competition. And this is a problem. 

Chairman Paulsen. I want to thank everyone for taking the 

time to testify today. This has been great. We unfortunately had 

some Members who were confined to some other important hearings and issues, particularly on the House side. 

So we will—I want to make sure that we know that Members 

who wish to submit questions for the record, the hearing record 

will remain open for three business days. And you may anticipate 

some opportunity to respond in writing, as well, from some of those 

Members who were unable to attend. 

Thank you, again. And with that, the Committee is adjourned. 

[Whereupon, at 4:14 p.m., Thursday, June 7, 2018, the hearing 

in the above-entitled matter was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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I call this hearing to order. 

All Americans deserve access to affordable, patient-centered health care. 

Unfortunately, the fight to achieve this worthy goal has become politicized to the 

point where it’s perilous to even acknowledge the shortcomings of our current Byzantine system. 

There are bipartisan solutions to this problem, and today we will be discussing 

one. 

That is why I am excited to convene today’s hearing, titled ‘‘The Potential for 

Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve.’’ 

When does a patient decide that a common cold isn’t worth the expense of a doctor’s visit? Or whether it would be worth saving dollars by going to a general practitioner who could easily treat an ailment rather than a pricey specialist? 

Patients would have a hard time answering these questions, because the actual 

cost of care remains obscured until long after services are rendered. 

Even after patients receive an explanation of benefits, the true cost is obscured 

by what providers charged and what the government or insurers decided they would 

pay for a service. 

This lack of transparency has contributed to rising health costs, which ultimately 

leads to more unaffordable insurance and even less satisfaction with the health care 

system. 

Yet, in the current environment, consumers and providers alike are divorced from 

the true cost of care. 

As the economist Milton Friedman once said, nobody spends somebody else’s 

money as wisely or as frugally as he spends his own. 

Americans are excellent comparison shoppers—television, direct mail marketing, 

billboards, and storefronts all appeal to consumers’ senses of value for price when 

making important choices for themselves and their families. 

An important part of everyday life is making decisions based on personal preferences, needs, and, of course, cost, and it is for this reason that competition thrives 

among auto manufacturers, food producers, and home builders to deliver safe, 

healthy, and long-lasting products that people can afford. 

We all acknowledge that American health care and health insurance are very expensive. In today’s hearing, we will investigate how health savings accounts, or 

HSAs, allow Americans to lower the cost of health care by drawing on an important 

area of their expertise: themselves. 

HSAs have delivered great benefits, and there may be even more to come if lawmakers strengthen HSA’s hold in the marketplace. 

I believe they can broaden access to quality medical care, increase patient choice, 

and improve health for all Americans. 

It is for this reason that I joined with Senate Finance Committee Chairman Orrin 

Hatch to enhance both Health Savings Accounts and Flexible Spending Accounts to 

give hard-working Americans more choice and control when it comes to their health 

care decisions. 

According to one estimate, if half of employer-sponsored insurance incorporated 

HSAs, national savings in health care spending could total $57 billion annually. 

So how do they work? An HSA is a tax-exempt account set up to pay or reimburse 

certain medical expenses incurred while covered by the kinds of high-deductible 

health care plans many Americans have today. 

Employees and employers contribute funds pre-tax. Money that has gone unused 

can roll over year to year, and consumers continue to have access to the money even 

if they change employers or leave the workforce. 

Since the creation of HSAs in 2003, the number of people who have an HSA has 

risen dramatically. 

In 2005, roughly one million people were enrolled. 

Today, 22 million people have HSAs. Americans clearly see the benefit of directing 

their own health dollars towards their own health care needs and expenses. 

My own thrifty State of Minnesota has the third-highest enrollment in HSAs in 

the country, with nearly 1.2 million enrollees. 

A 2016 study of large employers that offered consumer-directed health plans 

(CDHPs) in the form of high-deductible health plans with HSAs found significant 

long-term cost reduction and no evidence of worse health outcomes. 

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In recent years, the State of Indiana implemented an HSA structure both in its 

Medicaid program and in insurance offered to State employees. Then-Governor Daniels noted that this consumer-driven approach resulted in savings and customer satisfaction. 

In 2010, State employees who enrolled were expected to save more than $8 million 

compared to their coworkers in the traditional health care alternative. 

Ultimately, the HSA is a vital tool that helps improve our health care system, 

even for those who don’t have an HSA. By putting consumers directly in charge of 

their health care, the health care sector becomes more consumer conscious. 

As in many areas of our economy, the answer usually lies in the wisdom of the 

American people. 

I look forward to hearing from our distinguished panel of witnesses today how 

HSAs and the idea of consumer-driven health care can improve the affordability of 

health care. 

Before I introduce them, I now recognize our Ranking Member, Senator Heinrich, 

for his opening statement. 

PREPARED STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, JOINT

ECONOMIC COMMITTEE

Thank you Mr. Chairman. 

I’m looking forward to today’s discussion on Health Savings Accounts. 

These tax-free savings accounts play a role for some consumers to cover health 

care costs. 

HSAs are particularly helpful for those earning more than $100,000 who are already saving for retirement, and have less trouble covering their monthly bills and 

student loan payments. 

But HSAs do little to bend the so-called health care cost curve. 

This is the problem we must focus on—how do we provide top-quality care while 

reducing our overall national health care spending AND lowering consumers’ out of 

pocket costs. 

But HSAs seem to generate the most savings through cost shifting, not cost saving. 

Here, employers pay less by offering skimpier plans coupled with an HSA. 

But, employees shoulder a greater share of costs, the financial risks of getting 

sick, as well as yet another obstacle to navigate between themselves and their 

health care. 

And this is happening at the exact time when wages remain stubbornly stagnant, 

and more and more families are struggling to get ahead. 

But my chief concern is this: part of the reason we are here today is that our Republican colleagues seem to be gearing up for yet another attempt to repeal the 

ACA. 

If the new proposal is anything like the last, we can expect it to gut Medicaid, 

drop millions from coverage, take away comprehensive coverage, and further hike 

premiums. 

Central to the Republican vision has been to move more and more consumers to 

high-deductible plans, which have lower premiums but ask consumers to pay more 

for doctor visits and services before the health plan covers care. 

If paired with an HSA, a family can put aside up to $6,900 tax free to use for 

qualified health expenditures. The investments in the HSAs grow tax free. 

The thinking behind HSAs is that if people set aside money for their health care, 

they will spend it more wisely, and, on average, spend less. They will have some 

‘‘skin in the game.’’ 

The problem, though, is that without knowing what we’re paying for and how 

much we’re paying, consumers simply do not have the tools they need to make rational decisions about cost. 

And HSAs are unable to help with this problem. 

What we do know is that HSAs sometimes encourage people to forego needed 

care, which is the main way they save money. 

If you need chemotherapy to treat your breast cancer, but you’ve underfunded 

your HSA and have a $2,700 deductible, what happens? 

If your child gets sick, will you take her to the doctor or keep her at home based 

on how much of your deductible you’ve paid down? 

If you or a loved one is grappling with an opioid addiction—a reality for far too 

many across the country and in New Mexico—will an HSA cover your treatment? 

Can someone battling addiction or managing a serious mental health issue make 

enough money to save into an HSA? 

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These are important questions. 

No matter where you live, what you do for a living, or what party you belong to, 

these questions are at the heart of our health care conversation. 

I’m worried that HSAs—an idea that I agree works for some consumers—are 

being twisted into a quick-fix that will only exacerbate the challenges in New Mexico, such as our ongoing fight against the opioid epidemic. 

I am all for working together on real solutions to make needed improvements to 

our health care system. 

Improvements that will reduce costs on consumers, increase price transparency so 

consumers can make informed decisions, prevent surprise medical bills, as well as 

reduce the overall cost of health care in America. 

But focusing on HSAs, while avoiding an honest conversation about the key drivers of health care costs, could have real negative impacts on real people who are 

simply trying to manage an illness or care for a sick loved one. 

We must focus on actions that can bend the cost curve, like investing in preventive care, using the government’s purchasing power to lower drug prices, and paying 

for quality of care, rather than quantity. 

And we have to focus on making things simpler for families. 

I look forward to our witnesses’ testimony and to hearing their perspectives on 

how we can bring down health care costs for families. 

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Expanding and lncentivizing Health Savings Accounts: 

A Critical Reform For Broadly Available, High Quality Health Care 

Scott W. Atlas, MD 

David and Joan Traitel Senior Fellow 

Hoover Institution 

Stanford University 

Email: swatlas@stanford.edu 

The overall goal of US health care reform is to broaden access for Americans to high quality medical 

care. Over decades, the improper expectation has developed that health insurance will subsidize the 

entire gamut of medical services, including routine care, with little out-of-pocket payment. Through a 

series of regulations, including coverage mandates, copayment limits, and restrictions on medical 

savings accounts, the Affordable Care Act (ACA) counterproductively doubled down on that 

longstanding misapplication of health insurance and pushed health care reform in the wrong direction. 

Fundamentally, insurance is about reducing risk, and in health care, the risk is incurring large and 

unanticipated medical expenses. Instead, the ACA's broad coverage requirements and misguided 

subsidies encouraged more widespread adoption of bloated insurance and furthered the inappropriate 

construct that insurance should minimize out-of-pocket payment for all medical care. Patients in such 

plans do not perceive themselves as paying for these services, and neither do physicians and other 

providers. With patients having little incentive to consider value, prices and doctor qualifications remain 

invisible, and providers don't need to compete on price. The natural results are overuse of health care 

services and unrestrained costs. 

It is in the context of overall health care reform that I will discuss the importance of health savings 

accounts (HSAs), including the rationale for incentivizing their use and for strategically reforming them 

to leverage their impact on broadening access to quality medical care, increasing patient choice, and 

improving health for all Americans. 

The critical concept is that reducing the cost of medical care itself is the most effective pathway to 

broader access to quality care, lower insurance premiums, and ultimately better health. Instead, most 

post-ACA ideas continue to stress making insurance more affordable, mainly through cash to consumers 

in refundable tax credits or other subsidies. Insurance premiums are secondary, though, and historically 

chiefly reflect two factors: 1) the cost of medical care, accounting for about 80 percent of insurance 

premiums; and 2) the regulatory environment, accounting for most of the rest. Prior and anticipated 

payouts for medical services are by far the single largest component of health insurance premiums. 

When the cost of health care services increases, insurance premiums rise. Other factors do have some 

impact on private insurance premiums, including government regulations, in particular mandated 

coverage; characteristics of the insured individual (for example, age and certain behaviors); and cost 

shifting caused by underpayment by public insurance. By overlooking the main factor- the cost of 

medical care itself- strategies to subsidize premiums artificially prop up insurance coverage that 

typically minimizes out-of-pocket payment. This is directly counterproductive, because it shields medical 
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care providers from competing on price. While a number of recent proposals rightfully strip back some 

ofthe ACA's harmful regulations and taxes that directly increased insurance premiums, more emphasis 

is urgently needed on reducing medical care prices, the core cause of high insurance costs and the chief 

barrier to wide access to care. 

Lowering the cost of medical care itself, though, is fraught with peril. It must be achieved without 

harming patient care. That means without jeopardizing quality, restricting access, or inhibiting critical 

innovation of American medical care that- based on peer-reviewed data throughout the leading medical 

journals- is the standard of excellence for the world. Cost reduction can be accomplished without 

restricting health care use or creating obstacles to future innovation, i.e., avoiding the way that other 

governments regulate costs in their centralized, single-payer systems. Decreasing the cost of care for 

everyone requires creating conditions long proven to bring down prices while improving quality: 

incentivizing empowered consumers to seek value, increasing the supply of medical care, and 

stimulating competition for consumers. 

Two key points are essential to clarify from the start, in order to fully understand the role and 

importance of HSAs in US health care reform: 

1) the HSA is a vital and highly effective tool to broaden access to affordable, high quality health care for 

all Americans, even those without HSAs. It does so by putting consumers directly in charge of buying 

their own health care. The fundamental purpose of an HSA is NOT simply to provide a tax-sheltered 

benefit for individuals, in order to cushion the blow of high health care expenses for account holders; 

2) the HSA is NOT an isolated, independent component of the health care system. Rather, it is intimately 

related to other aspects of the health care system, including insurance structure and regulation and tax 

policy. Reforms to maximize the positive impact of HSAs for consumers are therefore tied to other 

regulations and reforms. 

To broaden access to affordable, high quality health care for all Americans, three fundamental steps 

must occur, and all directly relate to HSA reforms: 

1) Patients must be strongly incentivized to consider medical care prices and simultaneously equipped 

with the tools optimized to do so. This is accomplished through universally available, large, liberalized, 

and transferable HSAs, in conjunction with lower cost, higher deductible insurance coverage. 

For consumers to incorporate price into decisions to buy health care and then leverage that 

consideration to pressure prices downward for everyone, they must have clear personal gain from 

paying less, and they must pay directly for more of their own care. Conscious value-seeking by 

incentivized consumers is the essential lever to force competition among sellers, in this case the health 

care providers, which translates into lower prices and better value. 

But is it realistic to suggest that patients could seriously consider price and value? Critics often claim this 

is unworkable: how can you shop around from the back of the ambulance? But emergency care 

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represents only six percent of health spending'. Among privately insured adults under age 652

, almost 

60 percent of all health expenditures is for elective outpatient care; only 20 percent is spent on inpatient 

care and 21 percent on medications. Of the top one percent of spenders3

, the group responsible for 

more than one quarter of all health spending at an average of $100,000 per person per year, a full45 

percent of spending is also outpatient. Likewise, 60 percent of Medicaid money is spent for outpatient 

care. Even in the elderly, almost 40 percent of expenses are for outpatient care'. Outpatient services 

dominate America's health spending, and these are amenable to price-conscious purchasing. 

Better than tax deductions or income exclusions for health expenses, health savings accounts (HSAs) 

introduce something unique and powerful into health care decisions. Instead of simply introducing 

incentives that subsidize health care spending relative to other spending, they also incentivize saving. 

HSAs allow individuals to set aside money tax-free for uncovered health expenses, including routine 

care. These tax-sheltered accounts grow by contribution or investment. Note that widespread HSAs, 

when paired with high deductible plans, could pay for the bulk of medical care events, since most health 

care experiences involve smaller, non-catastrophic expenses. Since they reward saving, HSAs are highly 

effective in motivating patients to consider price and value. 

To fully leverage the impact of HSAs, it is important to position more patients as direct payers for health 

care. One key vehicle to position patients as direct payers for a higher proportion of their medical care is 

widely available, higher deductible insurance plans (HDHPs) with fewer coverage mandates and cheaper 

premiums. Higher deductibles force direct patient payment for care up to the deductible. Such 

catastrophic coverage would restore the essential purpose of insurance- to reduce the risk of incurring 

large, unanticipated medical expenses. Because patients would pay for most medical care directly at the 

point-of-care, they would be newly exposed to most health care prices and, consequently, newly 

concerned with value. Provider prices would become more visible and align with what consumers value, 

rather than being set artificially or generated via obscure, complex third-party payer arrangements. 

While the visibility of information that patients require for assessing value must be radically improved, 

we may not even need legislation to force price transparency. The most compelling motivation for 

doctors and hospitals to post prices and signals of quality would be their understanding that they are 

suddenly competing for price-conscious patients who control the money. 

Despite the ACA's attempt to shift consumers to bloated coverage, a shift toward high deductible plans 

with HSAs has continued. In the decade-and-a-half since the tracking of this type of coverage, employers 

have increasingly offered such plans, and consumers have increasingly selected high-deductible plans. 

Among those enrollees, a shift toward higher deductibles has continued. 5 Since the introduction of HSAs 

in 2004, the number of accounts has skyrocketed to over 22 million as of the end of 2017 (see Figs. 1, 2 

1 Owning the Cost of Emergency Medicine: Beyond 2%; lee MH, Schuur JD, Zink BJ; Annals Emerg Med 2013;62:498 2 IMS Institute for Healthcare Informatics. Healthcare spending among privately insured individuals under age 65. February 

2012 

'ibid 

4 What Contributes Most to High Health Care Costs? Health Care Spending in High Resource Patients. D Pritchard, A Petrilla, 5 

Hallinan, DH Taylor Jr., VF Schabert, and RW Dubois; Journal of Managed Care & Specialty Pharmacy 2016 22:102-109 5 Kaiser Family Foundation, "Employee Health Benefits Annual Surveys, 2007-2014," http:/ /kff.org/healthcosts/report/employer·health~benefits-annual-survey-archives. 

3 
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below). Indeed, by increasingly choosing HSAs when given the opportunity, American consumers are 

approving their value. 

30% Percentage of Covered Workers Enrolled 

in HDHP/HRA or an HSA-Qualified HDHP, 2006-2017 

25% 

20% 

II HSA-Qualified HDHP 

HDHP/HRA 

15% 1 

10% 

5% 

0% 

2006 2007 2008 

2009 2010 2011 

2012 2013 2014 2015 

2016 2017 

Fig. 1. Percentage of covered employees into HSA-qualified coverage has steadily increased since their 

introduction. 

4 
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30 -

25 -

20 

10 

5 

0 

Total HSA Accounts 

DATA SOURCE: Devenlr Research, 

2017 Year-End HS/\ Market Statistics 

& Trends; 2.22.2018 

Year 

27.5 

22.2 

2019 

Fig. 2. Enrollment into HSAs has steadily increased since their introduction (2019 is Devenir projection). 

HSAs with high deductible coverage have already proven to be a highly effective instrument to reduce 

health care prices and help individuals buy affordable insurance. A March, 2015 study confirmed 

previous strong evidence that health spending is significantly reduced for those in such plans. Spending 

reductions averaged 15% annually' and increased with the level of the deductible and when paired with 

HSAs. In Haviland's 2011 study, adding HSAs to high-deductible plans correlated to an increased savings 

of from 5.5 percent to 14.1 percent, or SO percent to more than double the savings of high-deductible 

plans alone. More than one-third of the savings by enrollees in that study reflected lower costs per 

health care event, i.e. value-based decision-making by consumers'. In other words, prices mattered. 

These reductions in health care spending occurred without harmful impacts, like increases in emergency 

room visits or hospitalizations, and without any greater impact on economically vulnerable families8 

6 Do "Consumer~Directed" Health Plans Bend the Cost Curve Over Time?; A Haviland eta!, NBER Working Paper No. 21031, 

March 2015; http://www.nber.org/papers/w21031 

7 Haviland AM, Sood N, McDevitt RD, and Marquis MS. The effects of consumer-directed health plans on episodes of health 

care. Forum for Health Economics and Policy, 2011;14{2):1-27; 

http://www.rand.org/pubs/external_publications/EP201100208.html 

B Haviland, A., N. Sood, R. McDevitt, and S.M. Marquis 2011. "How Do Consumer Directed Health Plans Affect Vulnerable 

Populations." Forum for Health Economics & Policy. 2011;14(2) (Online): 1558-9544. 

5 
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When people have savings to protect in HSAs, the cost of care comes down without harmful impact on 

health. 

Consumer-empowering shifts toward widespread HSAs and higher deductible coverage reduce prices 

and broaden access to quality care- the main goal of health system reforms in the first place- and these 

shifts should be accelerated. Downward pressure on health care prices from competing for patients who 

pay directly for care has been clearly demonstrated by medical procedures originally not covered by 

insurance. For instance, prices rapidly and dramatically decreased when patients paid out-of-pocket for 

LASIK corrective vision surgery and MRI or CT screening. Published evidence from MRI9 and outpatient 

surgery10 confirms that when patients are motivated to compare prices, prices come down by almost 

twenty percent. While price reductions are particularly visible to high deductible plan holders with HSAs, 

the downward pressure on prices from these instruments reduces prices for all health care consumers. 

Annual health expenditures would fall by an estimated $57 billion if only half of those Americans with 

employer-sponsored insurance enrolled in such consumer-directed plans". Savings would increase 

further if deductibles were truly high, rather than simply meeting the outdated definition of $1,000 used 

in those estimates, and if high deductible plans were freed from excessive, costly mandates. Total 

annual savings from these reforms could approach $200 billion. 

Note that premiums of high-deductible catastrophic coverage are lower than premiums of so-called 

comprehensive coverage because of the anticipated lower costs of covering the medical care under the 

plan. However, my analysis of Employer Health Benefits Annual Survey data" (see Fig. 2 below) shows 

that premiums for HDHPs rose from two to five times faster than premium increases of any other type 

of coverage after ACA passage. 

9 S-J Wu, G Sylwestrzak, C Shah and A DeVries; Price transparency for MRis increased use of less costly providers and triggered 

provider competition; Health Affairs 2014;33:1391-1398; http://content.healthaffairs.org/content/33/8/1391.abstract 10 JC Robinson, T Brown and C Whaley; Reference~Based Benefit Design Changes Consumers1 Choices And Emp!oyers1 Payments 

For Ambulatory Surgery; Health Affairs 2015;34:415-422, http://content.healthaffairs.org/content/34/3/415.abstract 

11 Haviland, A., M.S. Marquis, R.D. McDevitt, and N. Sood. 2012. "Growth of Consumer Directed Health Plans to One-Half of All 

Employer-Sponsored Insurance Could Save $57 billion Annually." Health Affairs 31(5): 1009-15 

(http://content.healthaffairs.org/content/31/5/1009.full) 

12 Kaiser Family Foundation Employer Health Benefits Annual Survey Archives; https://www.kff.org/healthcosts/report/emp!oyer-health~benefits-annual~survey-archives/ 

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Acceleration of HDHP* Premium Increases (%)1 

vs. After (2009-2014) Passage of ACA Bill ~ 

~ .. 

~ 1.2 v 

.E 

E 

·e " 0.8 ~ Q. 

'" 0.6 "" (!! 

:> '" 0.4 <t 

.5 0.2 .. '" c 

.. 0 -" u 

;fl. 

·HDHP includes high deductible plans offered with either HRA or HSA 

1lncludes both employee and employer payments 

~Beginning with first year of tracking HDHP plans 

SOURCE: EHB Annual Surveys, Kaiser Family Foundation 

ALL PLANS 

Fig. 2. ACA regulations have accelerated the increase in premiums of high deductible plans more than any other 

type of coverage. 

The factors by which the ACA contributed to rising premiums in high deductible plans must be 

eliminated. Excess mandated coverage that made HDHP insurance more expensive should be rolled 

back, including the ACA's "essential benefits" that increased premiums by 10 percent13 and the 2,270 

state coverage mandates for everything from acupuncture to marriage therapy. To make HDHPs even 

more affordable, we should remove the ACA's 3:1 age rating that raised premiums for younger enrollees 

by 19 percent to 35 percent, 14 many of whom would buy lower premium coverage. 

The issue is not whether HSAs ore effective in making health care more affordable for everyone; it is 

how to maximize their adoption and fully leverage their power. 

It is essential that HSAs are made available to all Americans, perhaps even automatically opened for 

every citizen with a social security number or at birth. All HSAs should be fully owned and controlled by 

individuals, eliminating more restrictive variants that are tied to specific employers. To maximize 

13 EF Hais!maier and D Gonshorowskl, ((Responding to King v. Burwell: Congress's First Step Should Be to Remove Costly 

Mandates Driving Up Premiums" (Heritage Foundation Issue Brief 4400, May 2015), 

http://www.heritage.org/research/reports/2015/0S/responding-to-king-v-burwell-congresss-first-step-should-be-to-removecostly-mandates~driving-up-premiums. 

14 JT O'Connor, "Comprehensive Assessment of ACA Factors That Will Affect Individual Market Premiums in 2014," Milliman 

Reports, April25, 2013, http://ahip.org/MillimanReportACA2013/. 

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consumer leverage on prices and thereby broaden access to affordable, quality care for everyone, the 

current ban on full HSA participation by all seniors on Medicare should be abolished. Given that seniors 

are the biggest users of health care, motivating them to seek value is a crucial part of exerting 

downward pressure on health care prices. Nearly 4 million Americans reach age 65 every year and live 

25% longer now than in 197215• Today's seniors need to save money for decades, not years, offuture 

health care. The expected tripling of health expenses for a 65-year-old by 2030 makes HSAs even more 

important16• Presently, HSA participation is quite restricted for seniors. Seniors who have applied for or 

accepted Social Security cannot contribute to an HSA. Restricted accounts called "Medicare Advantage 

MSAs" are currently available but require enrollment in a high-deductible MA health plan. Among other 

restrictions, deposits into these MSAs are prohibited except from Medicare itself and are limited in 

amount to typically less than half of the required deductible of the accompanying coverage. 

HSA limits should be expanded by liberalizing maximum allowable contributions (and catch-up 

contributions for persons in their 50s) to, for example, equal those of total annual out-of-pocket limits 

for ACA Marketplace plans (for 2018, $7,350 for individuals and $14,700 for families). Restrictions on 

HSA uses should be eased, most importantly for the expenses of the HSA holder's elderly parents. And 

the list of allowable health care services and products that can be purchased with HSA funds should be 

expanded to include, for instance, over-the-counter drugs without need for doctor's prescription, and 

home health care devices. 

Beyond broadening their maximums and their uses, several other reforms are important in order to 

achieve the desired impact of HSAs on health care availability and quality for everyone. This means 

ensuring stronger incentives are in place to motivate value-seeking by patients. HSAs should never 

expire or be forfeited due to an arbitrary "use it or lose it" deadline. On the death of the owner, HSAs 

are currently deemed taxable unless the beneficiary is the spouse. This should change, so that taxsheltered rollovers would be allowed to all surviving family members, not just spouses. 

HSAs should be de-linked from specific insurance deductible requirements (i.e., in defining "HSAqualified plans"). The requirement of owning coverage with government-specified deductibles in order 

to open an HSA is counterproductive, as it limits the use, and therefore the power, of HSAs. It also 

eliminates the possibility of HSAs with other, more tailored plans that could cover necessary care subject 

to a lower deductible, especially for chronically ill people. We should modify the insurance exchange 

regulations to allow everyone, regardless of age or employer, the option of high deductible plans with 

the same liberalized rules on HSAs. The only requirement for making contributions to the reformed HSA 

should be that the enrollee at least has active catastrophic insurance coverage, without any specified 

deductible. Eliminating those requirements would help more families save for out-of-pocket expenses 

and broaden consumer power. 

HSAs have also been a valuable vehicle through which a growing number of employers offer wellness 

programs and medical screenings, including such tests as blood pressure, body mass index, and 

15 JM Ortman, VA Velkoft, and H Hogan; An Aging Nation: The Older Population in the United States: Population Estimates and 

Projection; Current Population Reports; May 2014 P25-1140 16 Actuarial data from HealthView using historical claim data and projections, June 2011 

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cholesterol. In 2015, 96.7 percent of employers offered lifestyle programs, 17 increasing from 73 percent 

in 2011 and 57 percent in 2009. More than one-third of firms offering well ness programs include 

financial incentives to participants, including lower insurance premiums, reduced cost sharing, and 

higher employer contributions to individual HSAs.18 Consumers have demonstrated the efficacy of 

smoking cessation and obesity interventions, including cash financial incentives. Significant gains in 

productivity, marked reductions in health claims, improvement of chronic illnesses, and major cost 

savings have resulted and have benefited both participant employees and their employers.19 Medical 

costs and absentee day costs fall by about three to six dollars for every dollar spent on wellness 

programs.20 The ACA limits the financial incentives from employers, including cash deposits into 

employee HSAs, to 30 percent of the cost of that employee's health coverage. Abolishing that limit 

would expand these powerful motivators for employees, encouraging employees to participate in more 

wellness programs already proven to improve health and reduce health costs. 

HSAs could also transform Medicaid into a bridge program geared toward enrolling beneficiaries into 

affordable private insurance, with equal access to doctors, specialists, treatments, and medical 

technology as the general population, instead of shunting poor Americans into a parallel second-class 

system with worse health outcomes and far less access to care. A reformed Medicaid would establish 

and seed fund HSAs and provide an option for limited-mandate, high deductible private insurance with 

currently budgeted federal dollars. States should not only be encouraged to allow Medicaid enrollees to 

opt for HSA contributions; federal funding could be contingent on states meeting certain enrollment 

thresholds into limited-mandate coverage and HSAs. It would give control of the health care dollar to 

low-income families to foster provider competition for that money. HSAs would provide new incentives 

for lower-income families to seek good health through wellness programs and healthy behavior in order 

to save and protect their new, growing financial assets. These reforms would change the purpose and 

culture of Medicaid agency offices from running special government-administered Medicaid plans to 

establishing HSAs and finding private, low cost health plans for beneficiaries. 

Below is a summary table comparing the proposed expanded, liberalized HSA to current HSAs: 

17 National Business Group on Health, "Taking Action to Improve Employee Health: Results from the Sixth Annual EmployerSponsored Health and Well-being Survey," March 25, 2015, https://www.businessgrouphealth.org/pub/29d50202-782b-cb6e2763-a29a9426f589. 

18 Kaiser Foundation and Heath Research and Educational Trust, "2014 Employer Health Benefits Survey, Section 12: Wellness 

Programs and Risk Assessments," September 2014, http://kff.org/report -section/ehbs-2014-section-twelve-wellness-programsand-health-risk-assessments/. 

19 l.l. Berry eta!., 11What's the Hard Return on Employee Wei! ness Programs?" Harvard Business Review, December 2010, 

https://hbr.org/2010/12/whats-the-hard-return-on-employee-wellness-programs. 

2

° K. Baicker eta!., "Workplace Wellness Programs Can Generate Savings," Health Affairs 29 (2010): 304-11. 

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Criterion Current HSA New HSA 

Uses of HSA funds. 

~i~a~~~~q~~~~~; -~~~~~~~~~ 

Not for non-prescription drugs 

other than insulin 

withheld from ss Medicare Part B 

(e:g. $104.90/mo fOr 2015}; 

Cat\ make tax-free ASA · 

withdrawals for Medicare 

(not 

ca~strophic coverage (no other 

sp\!clflc requirement; no 

specified deduttibl~ range) 

,~)~,,~~~~' 

• OTC drug~ horite qea!th 

products are eligible .Without 

need for MD. Rx 

fOr elderly. ~~ents 

2) Introduce the right incentives into the tax code to maximize the use and benefit of HSAs. 

The tax code plays an important role in realigning consumer incentives to fund HSAs and leverage 

downward pressure on health care prices. Beyond the numbers ($275 billion in 2016, according to 

CB021 ), the unlimited income exclusion for health expenses created harmful, counterproductive 

incentives. It encouraged higher demand for care, regardless of cost, while distorting insurance into 

21 From Options for Reducing the Deficit: Reduce Tax Preferences for Employment~Based Health Insurance; Congressional 

Budget Office. https://www.cbo.gov/budget-options/2016/52246 

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covering almost all services. Similarly, insurance premium subsidies in the ACA and the tax credits 

proposed by the GOP artificially prop up high insurance premiums for bloated coverage that minimizes 

out-of-pocket payment. This prevents patients from caring about price, eliminating the incentives for 

doctors and hospitals to compete on price. 

Presuming that health care deductions or income exclusions are maintained, the tax code should cap 

amounts, and it should also limit eligibility for deductions or exclusions to two categories of healthrelated expenses: 1) HSA contributions, and 2) catastrophic coverage premiums (note: the definition of 

"high deductible, catastrophic coverage" is based on 75 percent of the new maximum allowable HSA 

contribution. For example, to qualify as a high deductible plan for 2018, during which the allowable HSA 

contribution will be $7,350, the definition of high deductible would equal $5,512.50. This linkage 

ensures that the HSA contribution maximum will always be higher than covering just the deductible). It 

would be counterproductive to allow a tax preference for "comprehensive" insurance, because low 

deductible, heavily mandated plans hide the costs of covered care-that is a fundamental cause of lack 

of access and rising costs for everyone. Tax deductions for all health care spending are also 

counterproductive, because they give an incentive to spend more money on health care; in other words, 

there is an opportunity cost if you spend money on something other than health care because the 

money is worth more when spent on health care. This tax reform would eliminate that misincentive. 

Instead, the new incentive is to put money into an HSA and then seek value when buying health care; 

the opportunity cost is when it is spent, because it could be saved and then grow by investment (or later 

be bequeathed to the account owner's survivors). The tax revenue decrease from the anticipated HSA 

expansion would be offset by the new limits on income exclusions. 

Note that the tax exclusion or deduction for significantly expanded HSA contributions will increase 

everyone's savings, including the middle class and the poor, by lower priced medical care and more 

affordable insurance coverage. And while limiting the health expense exclusion/deduction would reduce 

the employer benefit, the truth is that to a large extent employees pay for their benefits by receiving 

lower wages than they would have otherwise been paid. Employment benefits, including health care 

benefits, replace wages. Over time, employees will instead receive higher wages and more take-home 

pay as employers are forced to compete with higher wages to attract labor. Ultimately, the cost of 

insurance premiums and medical care will be reduced by this plan more than the tax benefit for health 

spending that has distorted the market for health care. 

3) Strategically increase the supply of medical care to stimulate competition and increase choices for 

value-seeking patients. 

The supply of medical care must be significantly yet strategically increased, so patients have more 

options to seek out the best value for their money. In large part, this means removing archaic anticonsumer barriers to competition among medical care providers, health care technology, and drugs. 

To improve access to affordable, quality primary care, we need to simplify the credentialing 

requirements and remove outmoded scope-of-practice limits on qualified nurse practitioners and 

physician assistants. Private clinics staffed by NPs and PAs can provide cheaper primary care, including 

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vaccinations, blood pressure monitoring, treating simple infections, and dispensing common drugs. In a 

2011 review, 88% of visits to retail clinics involved simple care22; care was 30-40% cheaper23 than at 

physician offices and about 80% cheaper than at emergency departments; and patients reported high 

levels of satisfaction24• 

Medical school graduation numbers have stagnated for almost 40 years, despite widely recognized 

doctor shortages. Increasing specialist supply is also critical, since almost two-thirds of the 2025 

projected doctor shortage of 124,000 will be in specialists25• We should eliminate archaic non-reciprocal 

licensing by states in favor of national MD licensing. This unnecessarily limits specialist competition, 

especially as telemedicine proliferates. Severe specialist and subspecialist training program restrictions 

have been in place for decades. These anti-consumer practices need to be open to public scrutiny and 

abolished. 

We should also eradicate archaic barriers to medical technology and prescription drugs that impede 

competition and raise prices. Although originally intended to "restrain health care facility costs", the 

certificate-of-need {CON) requirements26 are another example of overregulation with unintended 

consequences, and are still in place in 34 states, Puerto Rico, and the District of Columbia. High drug 

prices are a conundrum: the same policies that are associated with the lower prices seen in other 

countries-price regulation and weaker patent rights-are also those that are generally associated with 

delayed launches and reduced access to drugs27• But we also see an extraordinary lack of price 

transparency for drugs, fueled by complex behind-the-scenes rebates28 totaling $179 billion in 2016 

from companies to pharmacy benefit managers {PBM), the government, and insurance that prevents 

any possible price consideration by patients. Worse, many PBMs contractually prohibit pharmacists 

from volunteering that a medication may be less expensive if purchased at the cash price with 

contractual gag clauses, according to a 2016 survey29 of over 600 community pharmacies. And newly 

published data30 revealed that well over 20% of patient co-pays {while using insurance) exceeded actual 

total drug costs if patients paid by cash without insurance. The hidden truth is that prices vary 

tremendously between drug stores for the same exact drug, yet patients are not sufficiently incentivized 

22 Ashwood JS, Reid RO, Setodji CM, Weber E1 Gaynor M, Mehrotra A. Trends in Retail Clinic Use Among The Commercially 

Insured. The American journal of managed care. 2011;17(11):e443-e448. 

23 Mehrotra A, liu H, Adams J, et al. The Costs and Quality of Care for Three Common Illnesses at Retail Clinics as Compared to 

Other Medical Settings. Annals af internal medicine. 2009;151(5):321-328. 

24 Weinick, Robin M., Craig Pollack, Michael P. Fisher, Emily M. Gillen, and Ateev Mehrotra, Policy Implications of the Use of 

Retail Clinics. Santa Monica, CA: RAND Corporation, 2010. https://www.rand.org/pubs/technical_reports/TR810.html. 25 The Complexities of Physician Supply and Demand: Projections Through 2025 Michael J. Dill and EdwardS. Salsberg Center 

for Workforce Studies November 2008; AAMC 

26 CON-Certificate of Need State Laws- 8/25/2016; National Conference of State Legislatures, 

http:/ /www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx 

27 Cockburn I, Lanjouw JO and Schankerman M (2016) Patents and the global diffusion of new drugs. American Economic 

Review, 106 (01). pp. 136-164. 

"Credit Suisse, 18 April2017 Americas/United States/Europe Equity Research Pharmaceuticals & Biotechnology, "Global 

Pharma and Biotech" 

29 National Community Pharmacists Association News Release, Pharmacists Survey: Prescription Drug Costs Skewed by Fees on 

Pharmacies, Patients, Jun 28, 2016 

30 Van Nuys K, Joyce G, Ribero R, Goldman DP. Frequency and Magnitude of Co~payments Exceeding Prescription Drug 

Costs. lAMA 2018;319(10):1045-1047. doi:10.1001/jama.2018.0102 

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to alter buying patterns. In a December 2017 Consumer Reports study31, the national average price for a 

one-month supply of five common generics ranged by a factor of 20 between different retailers for a 

given drug. Even in a single city, the 30-day supply price showed a 10-fo/d to 17-fo/d variation per drug. 

For the nearly 40 million seniors taking five or more medications daily, the savings from price 

comparison shopping could be many hundreds of dollars per month. Eliminating excess regulatory 

barriers to the supply of drugs, coupled with expanded HSAs empowering patients to compare prices, 

would reduce prices by competition. That pathway would help optimize value without hampering the 

unique access to drug treatment enjoyed by American patients. 

Conclusions 

From the evidence, we can conclude that expanded, liberalized, and transferable HSAs represent a key 

instrument in an overall strategy of broadening access to affordable, high quality health care for 

everyone. If appropriately designed, HSAs represent a strong incentive to consider price and value for 

those seeking medical care. HSAs offer more effective incentives than tax deductions for health 

expenses. HSAs have been proven to reduce the cost of medical care for individuals, and also to improve 

health by increasing the use of validated wellness programs. While expanded HSAs alone are not 

necessarily a panacea, they are a critically important and effective step. 

In other countries, governments hold down health care costs mainly by limiting the use of medical care, 

drugs, and technology, through its power over patients and doctors as the single payer. And those 

countries get the expected results: long waits and worse medical outcomes, particularly for the poor, 

who are unable to circumvent those systems. 

We should consider a different approach32 - creating appropriate incentives and eliminating harmful 

regulations to reduce prices, so that high quality care is affordable for everyone. Broadly available 

options for cheaper, limited mandate, high deductible coverage; markedly expanded HSAs; and targeted 

tax incentives to leverage consumer power are keys to injecting price sensitivity for health care. 

Coupling those with strategic increases in the supply of medical care would generate competition and 

reduce the price of health care, expanding access to quality care for everyone. 

31 "Shop Around for Lower Drug Prices", Consumer Reports, AprilS, 2018; https://www.consumerreports.org/drug-prices/shoparound-for~better-drug-prices/ 

32 Restoring Quality Health Care: A Six-Point Plan for Comprehensive Reform at Lower Cost, By Scott W. Atlas, Hoover Institution 

Press, Stanford, 2016; https:/ /www.hoover.org/research/restoring-quality-health-care 

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June 7, 2018 

Testimony of 

J. Kevin A. McKechnie 

On behalf of the 

American Bankers Association's HSA Council 

before the 

Joint Economic Committee 

United States Congress 

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June 7, 2018 

Chairman Paulsen, Ranking Member Heinrich, and members of the Committee, thank you 

for the opportunity to discuss with you the many benefits and immense future promise of 

Health Savings Accounts (HSAs). 

I am Kevin McKechnie. Since 2004 I have had the honor to serve as Executive 

Director and founder of the American Bankers Association's HSA Council, an organization 

of banks, insurers, administrators, and technology partners that represents about 94 

percent of the HSAs in the United States. 

HSAs are the only health insurance plans in America that allow their owners to save 

for the future. Every other health plan, even the ones a lot of health advocates call "good 

insurance," start their participants off at the beginning of the year with nothing in the bank 

to satisl'y out of pocket expenses. Facing the future with nothing is one reason Americans 

are so worried about their health insurance and the relentlessly rising costs of their health 

care. HSAs are part of the solution. 

In this presentation, I will try to give you an overview of HSAs, their history and how 

they work, and what makes them effective and beneficial. I'll also try to give you a taste of 

their amazing promise, concluding with some specific recommendations that can help you 

bring that promise to life. 

About the ABA's HSA Council 

The HSA Council is part of the American Bankers Association (ABA), the voice of the 

nation's $17 trillion banking industry, which is composed of small, regional, and large 

banks that together employ more than 2 million people, safeguard $13 trillion in deposits, 

and extend over $9 trillion in loans. 

The Council is dedicated to advancing policies that preserve and expand banks' 

ability to offer Health Savings Accounts. We represent our members before Congress, the 

White House, and the courts, in order to preserve the ability of Americans to pay for health 

care using an HSA. Our job is to work every day to improve, strengthen, and expand access 

to account-based health care solutions for all Americans. 

The chairman of our board of directors is JimGandalfo, a senior executive ofPNC 

Financial Services Group. To our knowledge, ours is the only national trade association that 

advocates exclusively for the interests of America's rapidly expanding HSA community. We 

are humbled and inspired by this mission. We believe HSAs are a blessing in the lives of 

millions of American families, and help improve the overall quality and efficiency of health 

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June 7, 2018 

care in America. 

Back in 2004 we founded the Council with the hope that we could accelerate the 

adoption of HSAs and their accompanying, high-quality health insurance. And I'm pleased 

to report our hope has been realized-and then some. 

Today, according to Devenir Research, there are more than 22 million HSAs 

nationwide, and they make no less than $54 billion available to help pay for the future 

health care needs of, we estimate, 30 to 35 million Americans. And this rapid adoption is 

still in its early years. We've only just started to scratch the surface. 

In fourteen years, we've gone from zero HSAs to 22 million, and from nobody 

benefitting from an HSA to one out of every ten Americans benefiting directly from an HSA. 

And the other nine in ten Americans are benefitting indirectly. 

The potential for future expansion of HSA ownership is immense. So is the potential 

for helping reduce health care costs and reducing the number of the uninsured. 

This is why we believe expanding and strengthening HSAs is and must be an integral 

part of any serious plan to improve health care in America. 

History of HSAs 

Why do HSAs exist? Before I go into the details of what an HSA is and how it works, I 

want to take a moment to explain where the concept came from. It sprung fully grown from 

the mind of). Patrick Rooney, founder and president of Golden Rule Insurance, sometime in 

the latter 1980s. Rooney's idea was to allow people to pair a high-deductible health 

insurance policy with a federally tax-advantaged savings account. (The deductible is the 

amount of money you have to spend before your insurance kicks in.) With this 

combination, Rooney reasoned, a number of good things will happen. People who sign up 

for the insurance will enjoy lower than normal premiums, thanks to the high deductible. 

And yet their coverage will not be substandard. It will be high-quality. And it will effectively 

be first-dollar coverage, thanks to the accompanying account, which enables the patient to 

cover all of his expenses up to the deductible. And this combination will save money, 

because any money the consumer doesn't spend, he can save and accumulate for his own 

future health care expenses. That will encourage him to be prudent with his purchases and 

shop smarter, because he'll have skin in the game. He'll spend his own money, and spend it 

more wisely. And that will benefit everyone. The ultimate result? Cheaper health insurance 

and lower health care costs for all. More people covered. More people cared for. That's Pat 

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Rooney's original vision for HSAs: that they can help all of us get the health care we need, 

when we need it, at a price we can afford. 

This appealing idea was quickly picked up by smart health economists looking for 

ways to alleviate the nation's excessive health care cost inflation-which back then, as now, 

was ravaging public and private budgets. 

One of the first serious legislative proposals for health savings accounts was 

introduced in the United States Senate 26 years ago. Importantly, the bill was bipartisan. 

On September 8, 1992, Democratic Senators Sam Nunn, John Breaux, Tom Daschle, and 

David Boren, and Republican Senators Richard Lugar and Dan Coats announced a new bill 

they had written, to establish what they called medical savings accounts. At the time, 

Congress was still in the early stages of what would become a decades-long national debate 

over how to help the uninsured. These Senators felt that more creativity was needed than 

just spending more government money to expand the number of people with health 

insurance. "So far," they wrote, "most of the proposals before Congress attempt to deal with 

access [to health care] but do not adequately address the more important factor-cost 

control. We have introduced legislation ... that would give consumers an incentive to 

monitor spending carefully because to do otherwise would be wasting their 'own' money." 

In 1996 Congress gave the new bipartisan concept a try, enacting a limited pilot-test 

under the name of Medical Savings Accounts. Seven years later, in late 2003, Congress took 

the idea national. The name was changed to Health Savings Accounts, a number of changes 

and improvements were made to the accounts' structure, and they were made available to 

some, but not all, Americans. 

From the beginning, the mission of the HSA opportunity has been to help bend the 

cost curve downward-to reduce health care costs generally, and government health 

expenditures in particular-by giving consumers more skin in the game and more control 

over their personal medical decisions. 

In this mission, HSAs have succeeded admirably. 

AboutHSAs 

What exactly is an HSA? A Health Savings Account is a tax-advantaged personal 

savings account that helps people pay for the cost of medical expenses, such as doctor bills 

and prescription drugs. The money in the account belongs to the account owner, and is not 

taxed so long as it is used for legitimate health care expenses. Money deposited but not 

spent can grow over time and thus become a nest egg for medical expenses in retirement or 

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June 7, 2018 

be left to one's loved ones after death. Deposits can be received from other people, 

including your employer. There are limits on how much can be contributed to an HSA each 

year. In order to be able to open and contribute to an HSA, the account owner must also 

participate in a qualified high-deductible health plan (HDHP), more commonly known as an 

HSA-qualified plan. Congress has defined certain rules and protections affecting HSAqualified plans, described in more detail below. All HSA-qualified plans must be HDHPs, but 

not all HDHPs are HSA-qualified. 

Tax advantages. HSAs save their owners money for current health care needs by 

allowing them to pay for routine care with tax-exempt dollars rather than after-tax dollars. 

This means a big savings for the consumer. Depending on your tax bracket, using your HSA 

can save you an additional15 to 40 percent on your out-of-pocket health care purchases. 

Only individuals with an HSA can enjoy these additional tax savings. 

Specifically, as set forth in the HSA statute, which is section 223 of the federal tax 

code, contributions to an HSA are deductible from the HSA owner's income, any financial 

gain realized through interest or investments is not subject to income taxes, and funds 

spent from your HSA on qualified medical expenses are exempt from income taxes for the 

remainder of your life, meaning now and throughout retirement Alternatively, HSA funds 

may be used as retirement income after age 64 without penalty, if the HSA owner pays 

income taxes on the distributions. 

Contribution limits. Congress has limited the amount of money that may be 

deposited in an HSA each year. The amount grows with inflation. Back in 2004 the 

maximum contribution was $2,500 for an individual and $5,000 for a family. The 

comparable figures for 2018 are $3,450 for an individual and $6,900 for a family. 

Deductible limits. A deductible is the amount of money you must pay for health care 

services by yourself before your health insurance kicks in. Back in 2004 the minimum 

deductible permitted with an HSA-qualified plan was $1,000 for an individual and $2,000 

for a family. The comparable figures for 2018 are $1,350 for an individual and $2,700 for a 

family. 

Out-ofPocket limits. To help protect families from excessive medical costs, Congress 

has required that an HSA-qualified health plan must limit the amount that the individual is 

required to pay out-of-pocket for covered expenses. This is usually called the maximum 

out-of-pocket limit or OOP max. In 2004, it was set at $5,000 for an individual and $10,000 

for a family. The comparable figures for 2018 are $6,650 for an individual and $13,300 for a 

family. 

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Tracking and reporting. Account owners are responsible for ensuring their HSA 

money is spent properly and must report their account activity on their personal income 

tax returns. 

What can an HSA be used for? With certain exceptions, HSA funds may be used for 

any qualified medical expense that is deductible under section 213 of the federal tax code. 

While HSA funds may not be used to pay the premiums on an employer-provided health 

insurance plan, they may be used for premiums on COBRA continuation coverage and 

qualified long term care insurance. In retirement, HSA funds may be used, not only for 

qualified medical expenses, but also to pay premiums on Medicare Parts B and D coverage 

and long term care insurance. HSA funds may not be used for Medigap premiums. Under 

current law, once you enroll in Medicare you may no longer contribute to your HSA. 

To summarize, HSAs allow people to save, tax-free, for out-of-pocket health care 

expenses and certain kinds of premiums during their working years, and to save for health 

care expenses in retirement. Those benefits distinguish it from all other kinds of taxadvantaged accounts. 

When an HSA is offered as an employee benefit, it differs in a couple of important 

ways from other consumer-directed health products, namely, Flexible Spending 

Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs). First, the funds in 

the HSA account are the property of the employee, and accumulate from year to year. 

Second, because the HSA is owned by the individual, not the employer, the funds in the 

account do not revert to the employer if unused. There is no "use it or lose it" rule (and that 

feature of FSAs has been modified). When you leave the company, you will keep the money 

in your HSA, but you will have to forfeit any money left in your FSA or HRA except in 

certain cases. 

Most employers who offer HSA-qualified plans also contribute funds to an 

employee's HSA, which helps lessen the sting of the deductible. 

Who can have an HSA? Many Americans are permitted to have to an HSA, but there 

are exceptions. People who do not have an HSA-qualified health plan are not allowed to 

contribute to their HSA. Nor are people who are enrolled in a government-run health 

insurance program such as Medicare or Medicaid. 

HSA Enrollment Trends 

How many HSAs are there? Devenir Research believes there are at least 22 million 

HSA accounts in existence and somewhere between 30 and 35 million individuals enjoying 

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the benefits of a Health Savings Account (approximately one-tenth of the U.S. population). 

Who has an HSA? In terms of age, three out of every four current HSA owners is 

under the age of 50, one in four is over 50. 

In terms of gender, about 57 percent of HSA owners are male, 43 percent female. 

In terms of household income, Wage Works data suggests that two-thirds of this 

group earn less than $75,000 a year. Half make less than $60,000 a year. A little over 8 

percent earn more than $100,000 a year. And just four-one-hundredths of one percent earn 

above $200,000. HSA owners have average incomes below $75,000 in every state in the 

Union except Connecticut, Maryland, Massachusetts, and New jersey (and the District of 

Columbia). 

What is the trend in HDHP jHSA enrollment? According to the Centers for Disease 

Control and Prevention (CDC), which tracks health insurance enrollment figures for the U.S. 

Department of Health and Human Services (HHS): 

• Nearly 43 percent of non-elderly Americans-about 119 million people-are 

enrolled in an HDHP (both HSA-qualified and not). 

That number has grown by nearly 20 percentage points since 2010. 

• By 2020, just 18 months from now, 50 percent of the U.S. workforce are projected to 

be enrolled in an HDHP that is also HSA-qualified according to the Center for 

Disease Control (CDC) 

• The share of the total under-65 population that has an HSA account has more than 

doubled in just the past eight years, rising from about 8 percent in 2010 to more 

than 18 percent last year. 

Enrollment in HDHPs is rising rapidly, and with it potential future HSA enrollment. 

Alas, one area where HSAs appear to be receding is in the Affordable Care Act 

exchanges. According to a paper published by the Heritage Foundation on june 1 of this 

year, "Numerous Obamacare plans now have out-of-pocket limits that are higher than the 

amount that the federal law allows in order for a plan to be paired with a health savings 

account .... Because Obamacare's maximum out-of-pocket limits are higher than those for 

HSA-compatible plans, over half (57 percent) of all plan designs now offered on 

Healthcare.gov have out-of-pocket maximums that are too high for the plan to qualif'y as 

HSA-compatible." As a result, "Only 30 percent of plans sold on the federal Obamacare 

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exchange meet the criteria of having both a high-enough deductible and a low-enough outof-pocket limit to qualifY as HSA-compatible." But the good news is this problem can be 

addressed by making HSA-qualified plan designs more flexible, as I'll explain below. 

Where are HSAs growing fastest? In the employer market. Account-based health 

plans-health insurance plans paired with HSAs and HRAs-are the fastest growing health 

benefits in the employer market and now account for more than 15 percent of all 

employer-provided coverage. More than 70 percent of employers offer account-based 

health plans. A growing share of employers offer only such plans. This rapid adoption rate 

is fueled by the relentless rise of health care costs. 

Benefits of HSAs 

Do HSAs work? HSA-qualified health plans are now in their 15th benefit cycle. We 

have 14 years of data with which to assess and judge the value of this important tool. The 

results are in, and the benefits are clear: HSAs work, and work well, for millions, and not, 

incidentally, just for the healthy and the wealthy. 

Do HSAs help reduce health care costs? Yes. Companies with at least half of their 

workers enrolled in an account-based health plan report that their per-employee costs are 

over $1,000 lower than companies without an account-based health plan, according to 

Towers Watson and the National Business Group on Health. As former Treasury and White 

House economist Roy Ramthun has observed, "This is strong evidence that putting 

consumers in charge of their own health care dollars does in fact bend the cost curve 

downward." 

The professional Actuaries at the Centers for Medicare and Medicaid Services (CMS) 

have credited HDHPs with reducing national health expenditures by 0. 9 percent. 

Back in 2012, researchers at the RAND Corporation published an analysis in the 

journal Health Affairs, regarding the potential impact of account-based health plans on the 

American health system, which suggests that if account-based health plans grow to 

represent half of all employer-sponsored insurance in the United States, health care 

spending could drop by $57 billion annually-about 4 percent of all health care spending 

among non-elderly Americans. The study found HSAs more cost-effective than other kinds 

of health plans, and estimated that if every employee were to be placed in an HSA plan, the 

annual savings would be as high as $73.6 billion. We think that figure greatly understates 

the potential savings. 

Aetna reported in 2011 that employers who switched to account-based health plans 

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as their only plan option had saved $21.8 million per 10,000 members over the previous 

five years. Aetna found that employers who offered an account-based health plan alongside 

other traditional plan options (e.g., PPO, HMO) also had realized savings, but not as 

significant-only $8 million per 10,000 members over five years. 

Cigna published a study in 2012 concluding that employers can save an average of 

$9,700 per employee over five years by switching to account-based health plans. The Cigna 

report concludes that if the share of Americans enrolled in account-based health plans rose 

to SO percent and achieved the same results as in its study, the United States could save 

$3SO billion over 10 years and the level of patient care would improve. 

The academic evidence is strong for the existence of a positive "HSA effect," a 

tendency in people to spend less when using a consumer-driven, account-based approach, 

such as with an HSA. 

Let's look closer at that evidence. 

A 2009 literature review by the American Academy of Actuaries cites several 

industry-led studies, all of which find a measurable HSA effect when estimating the yearover-year spending reduction due to switching from a traditional health plan to a CDHP: 

• CIGNA Choice Fund 2008 ( 4 percent spending reduction) 

• Aetna HealthFund 2008 (10 percent spending reduction) 

• Uniprise 2008 (1S percent spending reduction) 

Importantly, all three of these studies found higher rates of preventative care use. 

A literature review by RAND Corp. cites, among other studies: 

• Nichols Moon and Wall1996 (if all workers switched to a CDHP, national health 

expenditures could be reduced by 4 to 6 percent). 

• Keeler et al1996 (if all non-elderly insured were to enroll in a CDHP, health care 

spending would decline by 0 to 13 percent). 

• Hahn 200S [Humana 200S] (after switch from a PPO plan, CDHP spending was 

lower than expected by 2S to 3S percent). 

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• Baicker Dow and Wolfson 2006 (a hypothetical switch from a PPO to a CDHP would 

reduce individual health spending by 5 percent in short run). 

• Burke and Pipich (Milliman) 2008 (CDHP plans produce 1.5 percent in savings 

beyond non-CDHPs). 

A case study by Trumbower and West (Health Equity) 2016 finds that two 

Pennsylvania school districts that switched to a CDHP reduced their health spending by an 

adjusted net of 17.46 percent in total claims, compared to districts that continued with the 

previous, traditional health plan. 

The only studies we've encountered that show CDHPs leading to higher costs in 

some (but not all) provider settings are by Parente, Feldman, and Christiansen, circa 2004-

2007. Of these, the RAND literature review cautions: "Some of the variation in results of 

these studies may stem from the heterogeneous benefit designs of both the HDHPs and the 

conventional plans studied." 

The above list is non-exhaustive, but the cumulative weight is clear. Even the least 

favorable study, Burke and Pipich (Milliman) 2008, shows a 1.5 percent savings from 

switching to a CDHP. The other studies show even higher savings. 

What all this academic data tells us is that the HSA effect is real. For the record, I 

hereby submit a list of studies in support of this fact. 

HSA Effect Studies (Select List) 

American Academy of Actuaries. "Emerging Data on Consumer-Driven Health Plans: 

A Public Policy Monograph." May 2009. URL: 

https· //www actuary,org/pdf/health/cdhp may09 pdf. 

Aetna Health Fund. "Making an Impact: Seventh Annual Aetna HealthFund Study." 

2008. URL: http://www.aetna.com/aetna-press/documentlibrary/Aetna HealthFund 2009 Study Results NA Sell Sheet.pdf 

CIGNA Choice Fund. "Two Year Experience Study, 2005-2006." March 2008. 

[Referenced in AAA, above.] 

Uniprise. "CDHP Results Discussion." March 2008. [Referenced in AAA, above.] 

Baicker K, Dow WH, Wolfson J. "Health Savings Accounts: Implications for Health 

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Spending." National Tax journal. Vol. 59, No.3. September 2006. 

Burke j. Pipich R. "Consumer Driven Impact Study." Seattle, Washington. Milliman 

Inc. April2008. URL: http://www.hsacoalition.org/wpcontent/uploads /2008 /04 I consumer-driven -impact-studyrr-04-01-0S.pdf. 

Effros R. "Increase Cost-Participation by Employees (e.g., Through High-Deductible 

Health Plans)." Rand Technical ReportTR-562/4. Santa Monica, California. RAND 

Corporation. 2009. URL: 

https://www.rand.org/pubs/technical reports(TR562z4.html. 

Hahn P. "Health Care Consumers: Passive or Active? A Three-Year Report on 

Humana's Consumer Solution." Louisville, Kentucky. Humana, Inc. june 2005. 

Keeler EB, Malkin jD, Goldman DP, Buchanan JL. "Can Medical Savings Accounts for 

the Non elderly Reduce Health Care Costs?" journal of the American Medical 

Association, Vol. 275, No. 21. Sjune 1996. 

Nichols L, Moon M, Wall SW. "Tax-Preferred Medical Savings Accounts and 

Catastrophic Health Insurance Plans: A Numerical Analysis of Winners and Losers." 

Washington, D.C. The Urban Institute. 1996. 

Trumbower B, West W. "Making the HSA Switch: Changing to an HSA-Qualified 

Health Plan Resulted in Significant 1st-Year Savings in Two Pennsylvania School 

Districts." Health Equity, Inc. 2016. 

Do HSAs help people pay for health care in retirement? Yes. In fact, HSAs are the only 

tax-advantaged savings vehicle that allow Americans to save for health care costs in 

retirement. FSAs and HRAs do not, because the money belongs to the employer and 

remains with the employer after the employee leaves. Non-HSA-qualified plans (PPO, HMO, 

and indemnity) do not, because they have no savings component and the participant has to 

renew the policy annually. HSAs also differ from traditional IRAs and 401(k)s in one 

important respect: funds withdrawn from an HSA that are spent on health care expenses 

are not taxed. Thus HSAs are unique and in these critical ways superior to other accountbased approaches. Indeed, one could argue that HSAs are the most attractive and 

consumer-friendly form of health coverage currently available in the United States today. 

To understand how beneficial an HSA can be in retirement, consider the following 

illustration. Today about 30 to 35 percent of retirees' living expenses are health-related. 

But Medicare only covers about 60 percentof the average retiree's medical costs. As a 

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result, the average couple retiring this year, according to Fidelity Investments, will face an 

estimated $275,000 in health care expenses not covered by Medicare. Due to the tax laws, 

this couple, forced to use post-tax dollars, will have to spend $334,000 to $380,000, just to 

cover those $275,000 in uncovered health care costs. But retirees with an HSA will face a 

much lower hurdle, for two reasons. First, they are allowed to use their HSA funds to pay 

for health care costs not covered by Medicare. Second, HSA withdrawals are not taxed. 

(Funds withdrawn from a traditional IRA or 401(k) are taxed.) So our illustrative couple, if 

they maintain an HSA before retiring. will get to reduce their total health care expenses 

during their golden years by $59,000 to $105,000-thanks to their HSA. 

Do HSAs give patients more control over their health care?Yes. Having an HSA tends 

to induce consumers to take a more active role in managing their own care, because they 

have skin in the game. A 2012 survey by the independent Employee Benefits Research 

Institute (EBRI) suggested that enrollees in account-based health plans were more likely to 

check whether their plan would cover their care, talk to their doctor about treatment 

options and costs, talk to their doctor about prescription drug options and costs, ask for a 

generic drug, check the price of service before seeking care, use an online cost-tracking 

tool, and develop a budget to manage health care expenses. Insurers have reported similar 

findings. 

HSAs fuel price transparency, consumer empowerment As a result of the rapid spread 

of HSAs and other account-based health plans, there has been an information revolution, 

alongside the HSA revolution. People with account-based health plans are demanding 

better information about the price and quality of their health care options, and the market 

is responding. Dozens of new companies have appeared, with names like MediBid, 

ZendyHealth, and Healthcare Blue Book, which offer consumer-reports style information 

and online comparison tools to help patients make smart choices among medical providers 

and treatments. 

Criticisms of HSAs 

Are HSAs are only for the healthy? The evidence to support this idea is thin. 

Intuitively, it makes little sense, since HSA coverage is effectively first-dollar coverage, and 

as I'll explain below, the account can be particularly helpful to people with chronic medical 

conditions. 

Are HSAs only for the wealthy? No. In terms of income, HSA owners are average. 

Median household income in the United States is currently about $59,000. The median 

household income for an HSA account holder, according to WageWorks, is $57,060. In 

terms of age, three out of every four current HSA owners is under the age of 50, one in four 

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is over 50. That tells us most HSA owners are still in the boost phase of their earning years, 

while a minority are in their high-earning years. Two-thirds of this group earn less than 

$75,000 a year, half make less than $60,000 a year, a little over 8 percent earn more than 

$100,000 a year, and just four-one-hundredths of one percent earn above $200,000. That 

confirms that HSA owners are far from being Monopoly Men in silk top hats. 

In our view, most criticisms of HSAs are really just criticisms of non-HSA-qualified 

HDHPs. The account is an innocent bystander. An HSA is a tax-advantaged account that 

helps you pay your deductibles. If policy makers are concerned about high deductibles 

being unaffordable for some patients, then we think the appropriate response would be to 

make HSA-qualified plans more flexible. We suggest some ways to do that, below. 

Are HSAs really just a disguised investment vehicle? No. According to the experts at 

Devenir, the average HSA balance is a little more than $2,000 and 78 percent of HSA 

account holders have less than that amount in their account. This indicates the accounts are 

being used for their intended purpose: to pay for routine health care expenses. 

Are HSA holders vulnerable to excessive charges? No. Just like everyone else with 

insurance, individuals enrolled in HSA-qualified plans receive the benefit of discounted 

prices for medical services negotiated by their health plan. Choosing an HSA in no way 

denies you the benefits of group purchasing and negotiated discounts. 

Do HSAs hurt Americans with chronic diseases? Just the opposite. HSAs are especially 

helpful to people with medically complex chronic conditions, for a couple of reasons. First, 

having an HSA enables the patient to purchase prescription medications with taxadvantaged dollars rather than with after-tax dollars. Second, HSA-qualified health plans 

provide true catastrophic protection, by virtue of their annual limits on out-of-pocket 

expenses, which apply to both medical and pharmacy expenses. Protection against 

excessive out-of-pocket spending has been a feature ofHSAs from the beginning. 

Do HSAs offer "skimpier" coverage than traditional insurance? No. Covered benefits 

and services in an HSA-qualified plan are generally identical to those in a traditional plan, 

not "skimpier" as some critics believe. What is different is the share of the covered benefits 

paid for by the plan as opposed to the patient. For example, an HSA-qualified plan might 

cover 60 or 70 percent of the cost of covered benefits, whereas a traditional HMO or PPO 

plan might cover 80 or 90 percent. But on the other hand, the traditional HMO or PPO may 

have a higher premium than the HSA-qualified plan, and might also have a skimpier 

network of doctors and hospitals. We can't really call one or another plan "skimpier" 

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and even that distinction is fading as deductibles continue to rise everywhere. 

Do HSA holders go bankrupt due to high out-ofpocket costs? No more so than other 

Americans, and probably less so. As we've mentioned, every HSA-qualified plan comes with 

built-in out-of-protection expense protection. And the HSA protection kicks in at lower 

limits than under non-HSA plans. 

Ways to Improve HSAs 

Can HSAs be improved? Yes. HSAs work well, but they need some improvements. 

Currently HSA plans are discriminated against, compared to other co-pay plans. Under 

current rules, you are not allowed to contribute to an HSA and also: 

1. Be enrolled in Medicare. 

2. Receive Social Security benefits. 

3. Be enrolled in a traditional health plan. 

4. Have access to TRICARE or the Indian Health Service or the VA. 

5. Be covered by a health care FSA. 

Additionally, with today's HSAs you are not allowed to: 

6. Have access to employer or retail medical clinics at no cost. 

7. Have access to telemedicine at no cost. 

8. Have access to high-value chronic disease management at no cost. 

To address these weaknesses, and make HSAs even better, Congress should make 

them available to more people, and make their basic plan design more flexible. 

Expanding the usefulness of HSAs to a larger audience will be good for everyone, 

because it will accelerate adoption and thus accelerate cost reduction. 

Expanding flexibility is also important. HSA owners want, deserve, and in many 

cases need more flexibility. Certainly HSAs should be able to cover value-based services 

like direct primary care, expenses associated with chronic care management, and 

telemedicine services. Flexibility and choice are vital to the HSA concept. Every patient is 

different. As HSAs become more popular, their flexibility must grow. 

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HSAs and Chronic Disease 

Can HSAs be improved for people with chronic diseases? Yes. There is one important 

weakness in the current HSA model: people with chronic diseases have higher prescription 

and health care costs and tend to meet their deductible quickly due to prescriptions. In one 

sense, that's not a problem, because their insurance kicks in as soon as they've met the 

deductible. But in another respect, it's a big problem, because their comparatively rapid 

and frequent depletion of their account means these vulnerable Americans have no good 

way to save tax-free for health care costs in retirement. To make matters worse, current 

law actually prohibits an HSA-qualified plan from covering chronic disease below the 

deductible. Any plan that offers such pre-deductible coverage is disqualified from being 

paired with an HSA and the individual who purchases such a plan is prohibited from 

contributing to his or her HSA. 

Policy Recommendation: Pass the Chronic Disease Management Act To address this 

problem, and help Americans with chronic illnesses, the ABA's HSA Council supports 

enactment of the Chronic Disease Management Act, introduced as 5.2410 by 

Senators john Thune (R-South Dakota) and Tom Carper (D-Delaware) and as 

H.R.4978 by Representatives Diane Black (R-Tennessee) and Earl Blumenauer (DOregon). This bipartisan legislation would allow HSA-qualified plans to cover highvalue health care services and medications associated with chronic disease 

management without a deductible. Importantly, it would do so in a voluntary rather 

than a mandatory way. 

HSAs and Medicare, Medicaid 

Should HSAs be an option for people on Medicare and Medicaid? Yes. Currently the 

138 million people-roughly four in ten Americans-who are enrolled in Medicare or 

Medicaid (59 million of them in Medicare, 79 million in Medicaid) are barred by law from 

contributing to an HSA. We can see no good policy reason for this form of discrimination 

against the poor, the elderly, and the disabled. 

Why should Medicare seniors have access to HSAs? Because allowing Medicare 

seniors to have an HSA would not only benefit vulnerable elderly and disabled patients and 

their medical providers, but also, importantly, would benefit taxpayers, because, as we've 

seen, HSAs are a powerful tool for helping to bend the cost curve downward without 

bureaucratic rationing. 

Policy Recommendation: Permit Medicare HSAs for Working Seniors. The ABA's HSA 

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Council has proposed, and President Trump (in his FY 2019 budget) and several 

Members of Congress have endorsed, the idea of allowing employed seniors who 

reach Medicare enrollment age to continue participating in their employer's HSAqualified health plan, and thus continue contributing to their HSA, while enrolled in 

Medicare. Importantly, seniors who voluntarily participate in the option would not 

be allowed to rely on Medigap supplemental coverage, and Medicare would not 

cover any of their health care costs below the deductible. When the senior leaves the 

employer plan, he or she will switch to normal Medicare without penalty. At firms 

with greater than 20 employees, Medicare secondary payer rules would apply, with 

respect to HSA-qualified coverage. (Employers with fewer than 20 employees are 

currently exempt from those rules.) Thanks to these strong safeguards, the proposal 

would certainly reduce federal expenditures-or at the very least, it would not 

increase them. An analysis by benefits firm Benefit Strategies finds that in every 

scenario, regardless of firm size, for each individual who opts in, the Treasury is 

likely to receive a net gain of $8,000 compared to current law. Only in one rare 

scenario, in which a Medicare-eligible person is working for a firm with fewer than 

20 employees but is not receiving Social Security benefits, will the net savings to the 

Treasury be less than $8,000-in that case, it will most likely be a wash. A budgetary 

cost estimate by the policy consultancy Adams Auld LLC projects a net savings to the 

Treasury of $72.3 billion over ten years. 

Policy Recommendation: Permit HSAs in original (fee-for-service) Medicare and 

Medicare Advantage. We believe every Medicare beneficiary should have the option 

of an HSA. To make this possible, Congress could take any of a number of possible 

approaches. Perhaps the simplest is to declare traditional fee-for-service Medicare 

coverage and Medicare Advantage plans to be HSA-qualified (that is, not prohibited 

coverage). If a person is enrolled in Medicare or an MA plan, he or she is 

automatically eligible to make and receive contributions to an HSA. There are other 

possible approaches, more complex than this. But the goal and basic effect would be 

the same. Most likely, Congress would want to prohibit Medigap supplemental 

coverage for those Medicare beneficiaries who have an HSA, since the savings 

account would cover the deductibles, co pays, etc., and having Medigap coverage 

would dissipate the beneficial behavioral effects of having an HSA. Also, a Medicare 

senior could save money by not having to pay Medigap premiums, and could instead 

deposit that money into the account. Meanwhile, the government could also make 

contributions to the account. It might, for example, calculate the dollar savings that 

would result from reduced utilization (thanks in part to the absence of Medigap) 

and then use some of all of that savings to make a contribution to the HSA. This 

proposal can be structured to be budget neutral. 

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Should low-income Americans have access to HSAs via Medicaid? Yes. Currently, HSAs 

are not offered in Medicaid, and Medicaid enrollees are not allowed to contribute to an 

HSA. There is a model, however, for an accounts-based approach in Medicaid, pioneered in 

the state of Indiana. The Indiana experiment, known as HIP 2.0, is distinguished by three 

main features, relative to conventional Medicaid. It offers: 1) a more modern benefit design, 

featuring choice of health plans, and a HSA-Iike savings account, which is managed by the 

patient (with rollover rewards to encourage prudent account management); 2) more 

sensible cost-sharing rules that help reduce waste; and 3) more generous reimbursement 

rates for doctors and hospitals, which increases patient access to care. Indiana Medicaid 

officials report that HIP 2.0 has reduced overall program expenditures by 6 percent, on 

average, while increasing patients' access to care, along with their satisfaction and 

happiness. Remarkably, these savings are occurring despite a significant boost in provider 

reimbursement rates. In Indiana, increasing the reimbursements has so far enabled the 

state to add more than 6,700 new providers to serve Medicaid enrollees, including those 

who are not participating in HIP 2.0. Almost 30 percent of providers surveyed report a 

decline in bad debt, and nearly 40 percent have seen a reduction in charity care. Indiana's 

experiment shows a "better Medicaid" is possible-better for patients, providers, and 

taxpayers. 

Policy recommendation: Permit HSAs in Medicaid, by statute. The AHA's HSA Council 

has proposed, and drafted legislation, to create a new HSA option within Medicaid. 

We commissioned a study by the respected Milliman firm to help us gauge the likely 

financial effects of our Medicaid HSA proposal. Milliman reported: "Full replacement 

of current Medicaid with a Medicaid HSA would save an average state 6% of their 

Medicaid budget." Using this assumption, and refining the proposal per our 

guidance, the policy consultancy Adams Auld LLC found that, if Medicaid HSAs as we 

propose to structure them became the default approach in 20 states, in adult, nondisabled populations, the likely federal savings would be on the order of $25 billion 

over a decade. The new statutory option would differ from HIP 2.0 in some ways. 

Unlike in Indiana, where the money in the account ultimately belongs to the 

government, the money in a Medicaid HSA would be the account owner's property, 

regardless of who contributed the money. And of course it would have to be paired 

with a high-quality, HSA-qualified high-deductible health plan (HDHP). In our draft 

legislation, the deductible is set at $2,500 in 2019 and is adjusted annually to rise 

with medical inflation. The full amount of the deductible is deposited in the account 

each year, with a small portion of this amount coming from the individual, but most 

of it from the state. For example, the state might contribute $2,350 and the 

individual $150. Any expenses above the deductible would be paid for by the state, 

with no further cost-sharing payments required from the individual. (Most people 

do not reach their deductible, in a given year.) The system would promote 

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prevention. Similar to a traditional HSA, preventive services, such as annual 

examinations, recommended mammograms, and smoking cessation programs, are 

covered without charge to the participant and are not counted against the 

deductible amount of $2,500. Once the participant meets the deductible by way of 

the account, all further benefits are fully covered without cost-sharing. When a 

Medicaid HSA owner leaves the Medicaid rolls, he or she retains the money in the 

HSA. which can be rolled over into a traditional HSA or, alternatively, cashed out and 

spent (after payment of any applicable taxes and penalties). Importantly, doctors 

and hospitals serving Medicaid HSA owners would receive more generous 

reimbursement for their services, and the pleasure of serving patients who care 

more about their health care decisions because they have more "skin in the game." 

The successful Indiana model is a proven way to increase patient participation and 

engagement in their care and reduce wasteful expenditures in Medicaid while 

improving patient care. It should be replicated nationally. 

Conclusion 

HSAs are a success. They work, and work well. While they can't solve every problem, 

they have all the incentives in the right place. They let people save for the future. They 

promote transparent pricing. They respect individual responsibility, the hallmark of every 

financial transaction. HSAs follow well known and proven insurance principles. They save 

money and help get more people covered. 

But they could be even better. Dozens of good HSA-improvement bills, many of them 

bipartisan, have been introduced in the current Congress. By our count, there are at least 

30 such bills in the House and 15 in the Senate. We support virtually all of them. But the 

following proposals top our priority list, for a number of reasons. These ideas are vetted, 

bipartisan, and affordable. Some would actually save taxpayer money. Individually and 

together, they can dramatically strengthen the proven, successful HSA model. 

1. Enactthe Paulsen-Hatch Health Savings Act (H.R.1175, S. 403). 

Paulsen-Hatch, the flagship HSA expansion bill of the current Congress, 

would improve and strengthen HSAs in a host of ways. Among other things, it 

would allow several new classes of Americans to have an HSA, including 

Medicare seniors, Indian Health Service enrollees, health care sharing 

ministry members, subscribers to direct primary care practices, and people 

who use on-site workplace medical clinics. It would also allow HSAs to be 

used for over-the-counter medications, and not just for prescription drugs as 

under current law. 

18 of2o 
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June 7, 2018 

2. Enact the Kelly-Blumenauer Bipartisan HSA Improvement Act (H.R.5138). 

Kelly-Blumenauer would improve HSAs in several ways. It would harmonize 

HSAs with current rules regarding health insurance options for adult 

children up to age 26, and improve coordination between HSAs, FSAs, and 

HRAs. It would also permit excepted insurance benefits to be included in an 

HSA-qualified plan. And it would extend tax deductibility to certain amounts 

spent on sports and physical fitness activities, thus making these healthpromoting activities permissible uses of HSA funds. 

3. Enact the Thune-Carper-Black-Blumenauer Chronic Disease Management Act 

(S.2410, H.R.4978). 

As described above, this compassionate bipartisan measure would allow an 

HSA-qualified health plan to cover care for medically complex chronic 

conditions, with no deductible. 

4. Create an additional method of determining HSA-qualification using the more 

flexible actuarial value (A V) approach. 

Earlier, we noted the problem ofHSA-qualified plans becoming squeezed out 

of the ACA exchanges by the rapid rise of health costs. Here's a way to slow or 

reverse that trend. In addition to the current-law approach to deductibles, 

which fixes the minimum deductible at, say, $3,450, why not allow a 

consumer to have whatever level of deductible he or she wants, consistent 

with an overall health plan actuarial value of say, 80 percent? This would 

make it much easier for health plans offered on the ACA exchanges to be 

HSA-qualified. And it also would improve the availability of such plans 

outside the exchanges as well as in the employer-sponsored group market. 

The higher the threshold, the greater the number of plans that will qualifY for 

an HSA. At 70 percent, the number of plans that count as HSA-qualified 

would basically double from its current level. At 80 percent, that number 

would roughly quadruple. This simple reform would increase the HSA 

holder's freedom of choice, allowing him to find a personally satisfying 

combination of deductibles, premiums, and cost-sharing. 

5. Increase HSA contribution limits to match the statutory limit on out-of-pocket 

expenses for HSA-qualified plans. 

19 of2o 
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June 7, 2018 

Making HSAs more flexible requires an increase in allowable contributions, 

up to the out-of-pocket maximum, currently $6,650 for individuals and 

$13,300 for families, in order to help pay for these additional services. 

6. End the discrimination against HSAs in Medicare and allow Medicare HSAs for 

working seniors. 

See our detailed description and explanation above. 

7. Allow HSA options in Medicare and Medicaid programs like the Trump 

Administration's Medicare Advantage MSA proposal. 

We support the Administration's suggested improvements to the existing 

Medicare Advantage MSA option. Under this proposal, people could roll their 

HSA funds over into an MA-MSA and contribute to it-things that are 

currently not permitted. 

HSAs help tens of millions of Americans afford good-quality health care. They're a 

truly powerful tool for improving the quality of care while driving down its cost. With a few 

sensible improvements, they can help Americans access better care now while saving for 

their future. 

Thank you for this opportunity to testify. 

200f20 
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John Breo.u:t toui8iana 

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Dear Collaaque: so~;!=~~~~~ :~~~~~s Ntw Ollt.t~s. ~ 101.:30 ($4~! ill$o.Z,Jt 

The United States is faced with a crisis in health care on two 

fronts: access and cost control. so:tar, most of the proposals before Congress attempt to deal with access but do not adequately address the more important factor--cost control. We have 

iatroduced legislation that will begin to get medical spending under control by giving individual co~sumers a larger sta~e in 

spending decisions. 

We have introduced a bill, the Medical Cost Containment Act of 

1992 ( s. 297 3) 1 which would allow employers to provide their 

employees with an annual allowance in .a "Medical Care SaYings Account" to pay for routine health cal:'a needs. This allowance 

would not be subject to income tax if useq for qualified medical e~penses. Any money not spent out of a given year's allowance 

could be kept by the employee in an account for future medical 

needs during times of unemployment or for long term care. !n 

order to protect employees and their families f40m catastrophic health care expenses above the amount in the Medical Care SaYings Account, an employer would be required. to purchase a high- deductible catastrophic insurance policy. 

Unlike many standard third party health care coverage plans, Medical Care savings Accounts would give consumers an incentive 

to monitor spending carefully because to de other~ise would be 

wasting their 'own" money. That is, money that they would 

otherwise be able to SaYe in their aceount for future neees. 

Once a Medical Care Savings Account. is·established for an employee, it is fully portable. Money: in the account can be used 

to continue insur~nce while an employee is between jobs or on strike. Recant studies show that at least 50% of the uninsured are uninsured fer four month~ or less. 

Today, even commonly required small dollar deductibles (typically $250 to $500) create a hardship for the financially stressed 

individual or ~amily seeking regular, preventive care sar~ices. 

With Medical Care Savings Accounts, however, that same indi~idual 

o~ family ~ould have this critical mon~y in their accou~~ co pay for che needed services. 

Figure 7.3 
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Medical Cost contai~~ent Act (S. 2873) 

Page 2 

we fee~ that, while the Medical Care Savings Account concept does 

not provide the total solution to the crisis in health care access, it does pegin to address the critical aspects o! 

increasing costs and utilization by consumers. 

we hope that you will join us as cosponsors of this legislation. If you have any questions please contact us or have you= staf£ 

contact Laird Bu~ett of Senator Breaux's staff at 4-4623. 

Da"~lid. Boren ,. i 

Sincerely, 

Sam Nunn 

Figure 7.3a 
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Total HSA Assets (in billions) 

mrnvestmenis 

!IIDepooits 

$3,4 

,~_.....__.._ 

S19ei 

$64,3 

$37,0 

$30.2 

2006 2007 :zoos 2009 2012. 2(11;1 2014 2015 2016 2017 20HI 2Q-19 

{eM) (est} 
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&Z01112fN1l5f20121112012&201312120136iZ01412/20146/201512/20156/201512/20J65/201712/2017 

Average Account Balance 
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Average Balance By Year The Account Opened 
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HSA Balance Distributions 
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Contributions 2017 ($) 

$Employer 

·liiAARo»over<; 

Withdrawals 2017 ($) 
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HSA Investment Assets (in billions) "' 

ss.s 

$<.2 

$13.3 

$105 

20HI 201<! 

(esl) (est) 
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Investment Account Holder vs. Deposit Only 

Grm!ter 

h•!ldMDepos~AccoV<li.On!y Dep<!S~Balane¢fot!<\vestment 

A<:eooMH<.lldmo 
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HSA Mutual Fund Holdings by Asset Class($) 

Active vs. Passive Holdings 
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% of New Accounts Attributed to Various Partnerships in 2017 
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Statement of 

Tracy Watts 

Senior Partner 

Mercer 

On Behalfofthe 

+1 

Fax+12123454808 

American Benefits Council and Mercer 

Before the Joint Economic Committee 

Hearing on 

"The Potential for Health Care Savings Accounts to Engage Patients 

and 

Bend the Health Care Cost Curve" 

June 7, 2018 

MARSH & McLENNAN COMP,i\NIES 
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Chairman Paulsen, Ranking Member Heinrich, and Members of the Committee, thank you 

for this opportunity to meet with you to discuss the critical role health savings accounts are playing 

to help make health care more affordable. 

My name is Tracy Watts, and I am a Senior Partner and US Healthcare Reform Leader at 

Mercer. I am testifying today on behalf of Mercer and the American Benefits Council, where I serve 

on their Policy Board of Directors. I have more than 30 years of experience in helping Fortune 500 

companies design, finance and administer their health care programs and develop innovative plan 

designs to control costs and improve the quality of care. 

Mercer is a business unit of Marsh & Mclennan Companies (MMC), a US-based leading 

professional services firm with a global network of more than 65,000 experts in risk, strategy, and 

people. The businesses of MMC, including Mercer, Oliver Wyman, and Marsh & Mclennan Agency, 

collaborate with our clients to navigate the increasingly complex healthcare marketplace to help 

individuals, families and employees stay healthy and productive, enable innovation, and lower costs. 

Our company employs nearly 25,000 colleagues in the US, including more than more than 

350 in your district, Chairman Paulsen. 

The Council and Mercer appreciate the opportunity to participate in today's timely and 

critical hearing. The Council is a public policy organization representing principally Fortune 

500 companies and other organizations that assist employers of all sizes in providing benefits 

to employees. Collectively, the Council's members either sponsor directly or provide services to 

retirement and health plans that cover more than 100 million Americans. 

I would like to begin my testimony today by highlighting some important and very relevant 

findings from Mercer's most recent National Survey of Employer-Sponsored Health Care Plans. The 

survey, which includes responses from more than 2,500 employers, is the oldest, largest and most 

comprehensive survey of its kind with results that are statistically valid and projectable for any size 

employer population in the US. I'll then describe some employer case studies and Mercer analyses 

that suggest employees enrolled in an HSA-eligible health plan get the care they need, have lower 

health care costs, and- most importantly- do a good job maintaining their health. 

The findings from our survey indicate that an increasing number of American workers and 

their families are enrolled in consumer-directed health plans ("CDHPs"), also known as accountbased plans. Approximately 34% of covered employees working for large employers (those with 

500 or more employees) were enrolled in a CDHP in 2017, which represents a rather astounding 

325% increase since 2009. 

In addition to demonstrating the increased reliance on CDHPs by the American worker, the 

results from our nationwide survey indicate that HSA-eligible plans save about 20% on plan costs 

when compared to PPO plans and are 6% less costly than PPO plans with deductibles over $1,000. 

I would note for the Committee that the success of HSA-eligible plans in reducing plan costs is 

one of the few strategies proven to help "bend the cost curve" and, in turn, help manage premium 

costs for employees. 
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AVERAGE MED1CAL PLAN COST PER EMPLOYEE, AMONG 

LARGE EMPLOYERS 

$12,000 

$10.000 

$8,000 

$6,000 

HOOO 

$2,000 

$0 

When we look at what has been happening with PPO deductibles for small employers, 

those with less than 500 employees, the average deductible has crept up to almost $2,000 for an 

individual. For larger employers it is now around $1,000 for an individual. By contrast, the median 

deductible for an HSA-eligible plan is $1,750 for an individual but participants also have the 

benefit of an HSA. According to our survey, 77% of employers contribute to their employees' HSA 

accounts. 

While this trend of employers shifting more responsibility for cost to employees has been 

underway for some time, the need to avoid the 40% "Cadillac Tax" accelerated the process. We've 

seen that the average PPO deductible has risen faster than the overall medical plan cost for the 

past few years, and employees have been moving out of PPOs and into CDHPs with even higher 

deductibles. While some employers may still have room to raise employee cost-share, there's a 

growing sense that we need additional strategies to slow cost growth that don't involve shifting 

more cost or responsibility to employees. 

In addition to performing our nationwide survey, we also help clients evaluate the 

performance of their medical plans- not only from a cost perspective, but also from a care and 

coverage perspective. 

As part of my testimony today, I would like to share with the Committee an example of an 

analysis that we have done for some clients that best shows the actual positive effects of HSAeligible plans on both cost and care. 
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In this case study, the employer had sponsored an HSA-eligible plan alongside a PPO plan 

for three years. We conducted a match analysis to compare and contrast the overall experience of 

approximately 26,000 individuals who were covered under either the employer's PPO or the HSAeligible plan. To control for variances in health risks that could otherwise influence an individual's 

choice of plan option, we matched 13,000 individuals in the PPO with 13,000 enrollees in the 

HSA-eligible option who shared the same demographic and risk profiles at the start of the 3-year 

comparative period. 

When we looked at how the participants in each of the plan options used their medical 

benefits, the data showed us that the utilization of health care was quite similar across the two 

groups. And while the HSA-eligible plan participants used slightly less care- with on average 

fewer emergency room visits and office visits- the HSA-eligible plan participants showed a slightly 

higher utilization of prescription medicines, which could actually mean they were more compliant 

with their prescribed therapies. As for preventive care, we also saw little difference between the 

two groups in their use of such care. 

As mentioned, we sought to only compare individuals with similar demographic and risk 

characteristics across the two plans. One really interesting finding from this case study was that 

when we looked at the two groups over the three-year period, the HSA-eligible plan participants 

maintained their health status, while those in the PPO plan saw [on average] an 8% increase in 

identified health risks. This fact alone would seem to suggest that the HSA-eligible plan may have 

been more effective at helping participants mitigate the exacerbation of existing, or onset of new, 

medical conditions or health risks. 

4 
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And, as for cost, the data was clear. The HSA-eligible plan ended up costing 15% less than 

the PPO plan over the 3-year period. 

We performed similar analyses for several of our other employer clients and the results from 

these additional studies are very similar to those that I am sharing with you today. 

Providing employees with the tools and resources to move toward consumer-directed 

health plans is a critical component. For employers that wantto continue to provide employees 

with medical plan choices but would like to see greater enrollment in their high-deductible plans, 

enrollment results from our own Mercer Marketplace 365 benefit platform support the notion 

that more employees will choose to move into a high-deductible plan ifthey have the tools and 

resources to help them feel comfortable making that decision. 

Finally, I want to note that in addition to the use of HSA-eligible plans, as well as other plans 

and coverage options, employers along with their consultants and advisors (such as Mercer) are 

developing innovative strategies to address some ofthe biggest cost drivers in the US healthcare 

system, including misplaced incentives, waste, uneven quality of care, and the lack of pricing and 

cost transparency. 

Some strategies employers are pursing include implementing Centers of Excellence 

programs, creating on-site and near site health clinics so employees have easier access to care, 

implementing programs to better manage chronic conditions, and increased use oftelemedicine. 

Unfortunately, many ofthese innovations are hamstrung by the HSA statute and regulations. For 

example, a patient with diabetes that is enrolled in an HSA-eligible HDHP must meet their entire 

deductible before the plan can cover an eye exam, foot exam, or diabetes medications. 
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Yet, the evidence is clear that patients with diabetes benefit from annual eye and foot exams 

and anti-diabetes medicines. Bipartisan bills have been introduced that change this. Additionally, 

employers can't waive cost-sharing for telemedicine, on site clinics, Centers of Excellence, or 

second opinion services for employees that are enrolled in HSA-eligible HDHPs. These reforms 

would inject Value-Based Insurance Design into this very popular plan design. 

Many of the innovations to date outlined in Mercer and the Council's report "Leading the 

Way: Employer Innovations in Health Coverage" have met with huge success and- if expanded and 

encouraged - have the potential to fundamentally improve health care for all Americans. Mercer and 

the Council have developed additional suggestions for enhancing HSAs and making other policy 

improvements to help build on these successes that we would be glad to share with you. 

More survey data and information on the case study can be found in the appendix 

to this testimony. 

We thank you for holding this hearing today. We hope that the hearing serves to help 

build on these successes by highlighting how HSAs can, indeed, engage patients and bend the 

cost curve 

Thank you again for the opportunity to share these findings with the Committee. I'll be 

pleased to answer your questions. 

6 

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ADDENDUM TO STATEMENT OF 

TRACY WATTS 

Joint Economic Committee Hearing: 

'The Potential For Health Care 

Savings Accounts To Engage 

Patients and Bend The Cost Curve" 

June 7, 2018 

MAKE TOMORROW, TODAY 

Insert offset folio 65 here 30658.065LAP51NQ082 with DISTILLER

;;_7"1T Marking 32 years of measuring health plan trends 

.1;..../ .1;..../ 

2,481 employers participated in 2017 

Extensive questionnaire covers a full range of health benefit issues and strategies 

Based on a probability sample of and employers for reliable results 

Small: 10-499 employees/Large: 500+ employees/Jumbo: 20,000+ employees 

Insert offset folio 66 here 30658.066LAP51NQ082 with DISTILLER

Large employers 

<~~~PPO/POS ~HMO ""'"CDHP 

--· 

31% • 

29% 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 

Insert offset folio 67 here 30658.067LAP51NQ082 with DISTILLER

PERCENTAGE OF COVERED EMPLOYEES ENROLLED IN EACH PLAN 

TYPE, AMONG LARGE EMPLOYERS 

Insert offset folio 68 here 30658.068LAP51NQ082 with DISTILLER

AVERAGE MEDICAL PLAN COST PER EMPLOYEE, AMONG 

LARGE EMPLOYERS 

$14,000 

$12,000 

$10,000 

$8,000 

$6,000 

$4,000 

$2,000 

$0 

PPO HMO HSA-eligible CDHP PPO with deducti

$1 ,000 or mo

Insert offset folio 69 here 30658.069LAP51NQ082 with DISTILLER

AVERAGE IN-NETWORK INDIVIDUAL DEDUCTIBLE 

$1,7

$1,917 

$1,663 $1,681 

2009 2010 2011 2012 2013 2014 2015 2016 20

111 Employers with 10-499 employees Employers with 500 or more employees 
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c 

0 

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0.15 

Admits Per Employee 

CDHP 

0.60 

055 

050 

0.45 

0.40 

.Rx scripts Per Employee 

rage 

ER Visits Per Employee 

PPO CDHP 

16.0 

14.0 

12.0 

10.0 

Office Visits Per Employee 

PPO CDHP 

Rx days supply.per E!Tlployee 

44.0 

42.0 

40.0 

38.0 

PPO CDHP 

Insert offset folio 75 here 30658.075LAP51NQ082 with DISTILLER

MEMBERS ACTED SIMILARLY IN BOTH PLANS 

Mammogram Screenings 

rage 

CDHP 

Colon Cancer Screenings 

0.12 ~---~---·~·~-~-.. 

0.10 

Cfl8 

M6 

Cholesterol Screenings 

Preventive V1s1ts 
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Large employers (500+ employees) 

%of employees electing 

dependent coverage 58% 56% 

Insert offset folio 79 here 30658.079LAP51NQ082 with DISTILLER

Large HSA sponsors 

Employee-only 77% $500 $1,750 $3,50

Family 77% $1,000 $3,600 $7,00

Employee-only -- -- $3,000 $6,35

Family -- -- $6,000 $13,00

Insert offset folio 80 here 30658.080LAP51NQ082 with DISTILLER

Large employers 

Employee-only 11% $83 18% 

Family .5% $31:8 25% 

Employee.:only 6% $140 24% 

Family 4% $470 31% 

Employee~only 10%) $128 23%', 

Family 7% $484 32% 
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A Hearing of the Joint Economic Committee of the U.S. Congress 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the 

Health Care Cost Curve" 

June7, 2018 

Statement of Kavita Patel, MD, MS 

Primary Care Physician, Johns Hopkins Medicine 

Non Resident Fellow, The Brookings Institution 

"Bending the Cost Curve: Health Savings Accounts are a Placebo for 

the Real Diagnosis" 
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Thank you Chairman Paulsen, Ranking Member Heinrich and other esteemed 

committee members for inviting me to speak on the important topic of health care. 

I am here today as health policy scholar and a practicing primary care physician in 

Washington D.C. I care for over a thousand patients and it is their stories that have 

inspired this testimony as well as my basic message to please consider that while 

health care may seem complicated, the fundamental "North Star" for any economic 

policy or legislative effort should be the following: "What more can we do to make 

care better and less expensive for all Americans?" Answering this question will help 

to guide efforts when there seem to be many distractions. The topic of today's 

hearing is Health Savings Accounts and while there are certainly opportunities to 

improve the current program which are highlighted below, it is also important to 

have a broad overview for why programs such as Health Savings Accounts, Flexible 

Spending Accounts and High Deductible Health Plans exist in the first place- that 

is aggregate cost growth in key health sectors above the rate of inflation and 

population gro\\<1h as illustrated by the chart below: 

Growth in Health Care 

4Q over 4Q percent growth 

12 

10 

8 

6 

4 

2 

0 

2008 2009 2010 2011 2012 2013 2014 2015 

Source: Census Bureau, Quarterly Services Survey (hospital services & ambulatory services}; Bureau of Economic 

Analysis National income and Product Accounts (prescription drugs, population, GOP price index). 

Growth in the 3 sectors identified above in descending order (prescription drugs, 

hospital services, and ambulatory services) can also be summarized as a problem 

around cost (distinct from price which often doesn't reflect what a patient pays) 

and resource utilization. Cost and resource utilization vary wildly depending on 

where you live in the country; below are publicly available costs for the same 

2 
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procedure on similar patients in the state of Maryland. These costs differ 

significantly yet patients will still receive care in the higher cost setting, illustrating 

that health care defies traditional notions that patient engagement or transparency 

alone can have a significant impact as well as the notion that policy interventions 

should aim to curb costs and resource utilization. In many cases, despite publicly 

available information as well as robust employer- based programs, patients are still 

left with very little demand side economics when there is such great variation in 

cost and in many cases, patients are often subject to the hospital relationships of 

individual providers. Additionally, there is very little transparency or ability to 

calculate costs associated with complications which can lead to tremendous costs. 

Actual Costs for Hip Replacement on the Same Patient, Same 

Procedure, in Different Hospitals 

Source: Wearethecost.org 

Costs of Care: Additional Drivers 

Drivers of cost, in addition to hospital costs illustrated above, include services 

provided by providers in offices as well as other goods, such as prescription drugs. 

Office- based services can differ by site of service with Hospital-Based outpatient 

facilities generally more expensive than those that are independent or 

freestanding. Prescription drugs, particularly drugs which have few alternatives 

or represent a breakthrough treatment (such as Hepatitis C, Non-Small Cell Lung 

Cancer treatment, etc) can often be priced quite high with little ability for market 

competition or savings opportunities. Opacity around rebates etc, make consumer 

power even more challenging. Out of pocket costs are also going up in medicine 

as illustrated in the figure below. Interestingly, out of pocket costs for services can 

generally be divided into 2 main categories: high and low value services. High 

value services are things that have a great degree of evidence to suppmt their usediagnosis and treatment of depression, follow up care from a hospital visit and 

visits to care for diabetes. Low value services are those which have very poor 

evidence- consider imaging in back pain, knee arthroscopy for knee pain, opioids 

for treatment of chronic pain or antibiotics for the common cold. Yet the 

copayments for all these services (copayments which would be covered by a HSA) 

are all equal. Certainly as out of pocket costs increase, patients tend to look for 

3 
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ways to decrease their financial burden (HSAs, etc) but the RAND Health 

Insurance experiment found that increased costs can also deter patients from 

seeking important services; this was a finding that has been reinforced in many 

other class health services research studies, agnostic of payer or patient 

characteristics. i 

Per capita out-of-pocket expendlturos,1970-2018 

II TotaiOOPNHEPetCaplto II Constnnt2016Doltars 

Soun:e-: KatserfamUyfoundatlonanalysis ofNatlcnal Health Expendlture(NHE) data from Centers for 

Medkareand Medk<~:idSarvicas. Office of the Actuary, NatJoni*l Heii,t/th Statlstk:S Group~ Gett th~ ct,;ta • 

Resource Utilization: The Care We Receive 

Prt<,:Y!:<nn Kt~hl~-r 

Health System Tracker 

In terms of resource utilization, look no further, than the fact that our utilization 

of services in health care is not evenly distributed; according to the Agency for 

Health Care Research and Qualityii 5% of the population accounts for 50% of 

overall healthcare spending, with an annual mean expenditure of $43,058. In 

contrast the lower so% had an annual mean of $8,384 accounting for only 2.8% of 

total costs. These patients can see 13 different doctors, fill over 50 different 

prescriptions in a year and are 8 times more likely to be admitted to the hospital. 

A health savings account, no matter how large, will do very little to change this 

trajectory. Yet given how much this small number consumes the time and 

resources of a large system, it should be a high priority for Medicare and other 

payers to target programs which can address the disproportionate needs of this 

population. Targeted approaches which have been proven to be effective in these 

higher risk populations include: 

4 
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• Team based care- still a difficult concept in current siloed, Fee for Service 

(FFS) care 

• Targeted care coordination programs with patient based navigators 

• Telehealth and remote monitoring services 

• Aggressive primary care 

• Addressing patients' behavioral health and social determinants needs 

• Early introduction of palliative care 

There are additional factors that lead to increased resource utilization including 

provider practice patterns, cost sharing or cost shifting to patients (also reinforced 

by the RAND Health Insurance Experiment) as well as complex provider networks 

that often leave patients with out of network charges that were unknown to the 

patient. 

Improvements to Current HSAs 

In addition to Health Savings Accounts, a growing number consumers are in Highdeductible health plans that are also paired with a tax-free health savings account 

(HSA-HDHP), which represent a growing percentage of plans offered on the 

individual and group market. HDHPs have defined minimum deductibles and 

maximum out-of-pocket limits iii. As of 2016, 20.2 million Americans were enrolled 

in such plans, which represents a 16% increase from 2014.iv Employers, in 

particular, are increasingly offering HSA-eligible HDHPs as a way to expand 

coverage options, lower their health care spending, and promote proactive 

consumer engagement. 

Guided by the Internal Revenue Service (IRS) safe harbor under section 

223(c)(2)(C), HSA-eligible HDHPs may provide select preventive care benefits 

prior to satisfaction of the plan deductible. v Primary prevention, while important, 

is a small component of overall health spending. By contrast, spending on chronic 

disease encompasses a substantial majority of total U.S. health care 

expenditures. Under this guidance, until the deductible is met, coverage does not 

include "any service or benefit intended to treat an existing illness, injury, or 

condition, including drugs or medications." Thus, HSA-HDHP enrollees with 

existing conditions are required to pay out-of-pocket for necessary services prior 

to meeting the plan deductible, resulting in lower utilization of care, and 

potentially resulting in poorer health outcomes and higher costs. The University of 

Michigan Center on Value- Based Insurance Design (VBID) led by Dr. Mark 

Fendrick has been an important voice in highlighting high and low services, 

particularly with respect to health savings accounts and opportunities to promote 

better care for all Americans. 

High deductible plans should adopt a more flexible benefit design offering more 

protection for certain medical services through a value-based insurance design 

plan structure. A targeted strategy exploring coverage for certain high-value, 

clinically-indicated health services prior to meeting the deductible will produce 

more value than current plans. 

5 
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Expanding the IRS "safe harbor" would increase the attractiveness and clinical 

effectiveness of HSA-HDHPs and would better align consumer engagement with 

provider payment reform initiatives. Given how entrenched HDHPs are in the 

American healthcare landscape, the current policy that imposes high deductibles 

on all chronic disease services - independent of clinical value to control spending 

has imparted a clinical and economic toll on Americans vvith chronic medical 

conditions. It is critical that regulations that prevent health plans from innovating 

be amended, such that plan designs that better meet the clinical and financial 

needs of millions of Americans may be made available. Policies which allow 

HDHPs the flexibility to provide pre-deductible coverage of high value services 

that treat chronic diseases is at a minimum, a necessity to move forward with any 

discussion of benefits of pre-tax dollar savings accounts. Recent research reported 

demonstrate that generous enhancements in HDHP prescription drug coverage for 

several chronic conditions would lower consumer out of pocket costs and result in 

only modes impact on premiums ( <2%) or deductibles. Expanding the IRS "safe 

harbor" to permit coverage of high value prescription drugs prior to meeting the 

plan's deductible would increase the clinical effectiveness of HSA-HDHPs. 

Conclusion 

Healthcare spending consumes one in every six dollars of the American economy. 

If the goal to decreased spending is universal and nonpartisan, a critical 

look at the drivers of cost must be paired with policy prescriptions that can 

meaningfully tackle these factors. Below is a simplified table that illustrates 

the drivers discussed along with key policy solutions which can optimize 

engagement from patients and providers. 

;"s;'J~' f:i'; 

Provider market power Effective payment Low 

incentives such as 

partial capitation or global payment models 

Health Plan market Aggressive rate review Low 

power and incentives for new entrants in markets with 

limited competition 

Prescription drugs Price negotiation and **possible particularly if 

regulation of yearly changes can be made to 

increases 1 include costs prior to 

meeting deductible 

Site of Service Site neutrality in **possible depending on payments how HSAs engage 

consumers 

6 
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Health Risk Robust risk adjustment, Low particularly if HSAs 

Factors/Status Payment reforms can't cover high value 

services 

Provider practice Payment reforms which Low 

patterns migrate volume to value; 

Data Sharing and 

regulatory reforms that 

promote flexibility 

Patient Cost Sharing Eliminate cost sharing **possible depending on 

for high value clinical degree of health literacy 

services as well change to 

current statute 

Provider Network Prohibit balance billing Low- in fact many HSAs 

Development may shift costs to 

consumers 

In conclusion, it is important to keep in mind that while Health Savings Accounts 

certainly have merits, there are much larger cost drivers in health care that must 

be dealt with; our country, as reflected in the recent Medicare Trustees Report, 

simply does not have the luxury of spending more for worse care. Thank you for 

this opportunity to share insights from practice and policy. 

i Brook, Robert H., Emmett B. Keeler, Kathleen N. Lohr, Joseph P. Newhouse, John E. Ware, 

William H. Rogers, Allyson Ross Davies, Cathy D. Sherbourne, George A. Goldberg, 

Patricia Camp, Caren Kamberg, Arleen Leibowitz, Joan Keesey, and David 

Reboussin, The Health Insurance Experiment: A Classic RAND Study Speaks to the 

Current Health Care Reform Debate, Santa Monica, Calif.: RAND Corporation, RB-9174-

HHS, 2006. As of June 05, 2018: 

https://www.rand.org/pubs/research briefs/RB9174.html 

ii Agency for Healthcare Research and Quality (AHRQ) Statistical Brief #497. "Concentration of 

Health Expenditure in the U.S Civilian Noninstitutionalized Population, 2014." 

November 2016. https: 1/meps.ahrq.gov /data files/publications/st497/stat497.pdf 

m Center for Value-Based Insurance Design, University of Michigan. "Health Savings AccountEligible High Deductible Health Plans: Updating the Definition of Prevention." May 2014. 

http: //vbidcenter.org/w-content/uploads/2014/oz/HDHP-white-paper final. pdf 

iv America's Health Insurance Plans (AHIP). "2016 Survey of Health Savings Account- High 

Deductible Health Plans." February 2017. https://www.ahip.org/WIJcontent/uploads/2017(02/2016 HSASurvey Draft 2.14.17.pdf 

v Center for Value-Based Insurance Design, University of Michigan. "Increasing Flexibility to 

Expand Safe Harbor Coverage in HAS-HDHPs." http:l/vbidcenter.org/WIJcontent/uploads/2016/oz/HSA-HDHP-Infographic-updated-2-8-IS.pdf 

7 
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CAROLYN B. MALONEY l;?rnOISTfiJCT,NfiWYORK 

C()MMITUU 

FINANCIAl SERVICES 

GOVEflN-M£NT REFORM 

JOINT ECONOMIC COMMmEE, 

(SENIOR Ho!JS£ OEMOCRAtj 

Hon. Erik Paulsen 

Chairman 

Joint Economic Committee 

~ongre1i1i of tbe ltntteb ~tates 

~oulie of l\tprt!ieutatt'l.lt!i 

~al!bington, l!l€ 205\5-3212 

Aprill8, 2018 

G-0 I Dirksen Senate Office Building 

Washington, DC 20510 

Dear Chairman Paulsen, 

0 

0 

1 am writing to request a hearing of the U.S. Congress Joint Economic Committee to investigate 

anti-competitive practices in the prescription drug market. There is evidence that anti-competitive 

behavior substantially drives up prices and that it may cost Americans billions of dollars a year. 

A recent lawsuit by the Attorneys General of 45 states and the U.S. Department of Justice alleges 

price-fixing by 18 generic drug manufacturers 1

• It asserts that those companies systematically 

colluded to drive up prices and profits by forming agreements to divvy up markets and set prices. 

The plaintiffs name 15 generic drugs, including those for high blood pressure, diabetes. liver 

disease, epilepsy, asthma, glaucoma, fungal infection and other diseases. According to the 

complaint, ''these agreements had the effect of artificially maintaining high prices for a large 

number of generic drugs and creating an atmosphere of competition when in fact no existed."2 

In theory, generic drugs should increase competition and reduce prices. However, an investigation 

by House Oversight and Government Reform Committee Ranking Member Elijah Cummings and 

Senator Bernie Sanders found that between July 2014 and December 2014, the prices for certain 

generic drugs rose dramatically, in some cases by more than I ,000 percent3 The details of the 

recent lawsuit suggest that collusive behavior in the generic drug industry may be taking place on a 

massive scale. 

According to the Organisation for Economic Cooperation and Development (OECD), the United 

States pays more than $1 ,000 per person on prescription drugs, which is the highest per-capita cost 

in the world.4 In 2016, Americans spent $341 billion in prescription drugs overall and more than 

$75 billion on generic prescription drugs alone,5 Generic drugs make up almost 90 percent of the 

total number of prescriptions dispensed on an annual basis6 
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There is evidence that there also are anti-competitive aspects to the market for brand name 

prescription drugs. One tactic used by manufacturers of brand name drugs is to pay a potential 

generic competitor to delay introduction of a generic equivalent- "pay for delay"- effectively 

extending the length of the patent and maintaining high prices. 7 Researchers have found that the 

prices of competing brand drugs produced by different companies often also rise in 

lockstep. Ranking Member Cummings, Congressman Peter Welch, and Senator Sanders have 

raised concerns about this phenomenon in the multiple sclerosis and diabetes drug markets. 8 

The high cost of prescription drugs should be a high-priority, nonpartisan issue. A March 2018 poll 

by the Kaiser Family Foundation found that 80 percent of Americans think that prescription drug 

prices are "unreasonable."9 The same survey also found that 83 percent say that Republicans "are 

not doing enough" on the issue and that 82 percent say the same about Democrats. 

The U.S. Congress Joint Economic Committee can play a role in helping to shed light on the 

economic impact of anti-competitive behavior in the market for brand name and generic 

prescription drugs. Moreover, it can take advantage of a broader opportunity to study other anticompetitive aspects of our economy, which stifle innovation and increase costs on consumers. 

When "free markets" aren't truly free, Americans pay the price. 

Thank you for your consideration of my request. 

Sincerely, 

c ... ,~ /1. tt~ CAROLYN B. MALONEY 

Senior House Democrat, Joint Economic Committee 

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ENDNOTES 

1 Charles Lane, "Probe into Generic Drug Price Fixing Set To Widen,'' National Public Radio, Mar. 7, 2018, 

trW2~DY~~~~.~UW[H~~lliUJ22ll~~~~j~~~QD~~lli1~~ngn~~~~~;Karen 

4 Organisation for Economic Cooperation and Development, graph of per-capita pharmaceutical spending, 

2015, https://data.oecd.org/healthres/phannaceutical-spending.htm; Dana 0. Sarnak, David Squires, Greg 

Kuzmak, Shawn Bishop, "Paying for Prescription Drugs Around the World: Why ls the U.S. an Outlier?" 

The Commonwealth Fund, Oct. 5, 2017 Y':TilY,commonwealthfund.org/publicationslissuebriet);/1Q.!liill:!Lps_escription-drug-costs-us-outlier 

5 Suzanne M. Kirchhoff, Judith A. Johnson, Susan Thaul, "Frequently Asked Questions About Prescription 

Drug Pricing and Research Service, May 2, 2017, 

JillllliW~QU0iJW£rj;frr~dBd12db!&f ; Centers for Medicare and Medicaid Services, "National Health 

for Medicare & Medicaid Services, 2017, ,vww.cms.gov/Research6 Generic Pharmaceutical Association, "20 17 Generic Drug Savings and Access in the United States," Oct 

2017, )Jl(p:l /bitly/2tv5gz Y 

7 Federal Trade Commission, "FTC Sues Endo Pharmaceuticals Inc. and Others for !!legally Blocking 

Lower-Cost Generic Versions of the Branded Drugs Opana ER and Lidoderm," Mar. 31,2016, 

8 "Cummings and Welch Launch Investigation for MS Drugs," 

Office Peter Welch, Aug. 17,2017, h!!J2'!d/5'{s:ki:Llli;'!)g~c'YlJ!llili!!c.c~.IJ!\'2Lfru:l~'ili: 

9 Ashley Kirzingcr, et aL "Kaiser Health Tracking Poll March 2018: Views on Prescription Drug Pricing 

and Medicare-for-All Proposals," The Henry l Kaiser Family Foundation, Apr. 4, 2018, 

www.kff.org/health-costs/poll-findi!w/kaiser-health-tracking-poll-march-20 18-prescription-drug-pricing1Hedig.~rc-fQ!:1!L\7.ru:smosalsl 

Page 3 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve" June 7, 2018 

Questions for tbe Record for Dr. Atlas 

Senator Ben Sasse 

June 21, 2018 

1. Using health care savings accounts to increase competition and drive down prices can 

only happen in coordination with more transparency in pricing. In your view, what role 

should the federal government play in enhancing this transparency? 

a. Have you seen any evidence of expanding price transparency so far? 

2. In your view, what is not considered a qualified medical expense but should be? 

a. What would be the impact of allowing funds in health care savings accounts to be 

used for premium payments? 

3. If the financial trade off were between keeping annual contribution limits at their current 

level but expanding HSA eligibility to all plans regardless of deductible status versus 

keeping the current tie to high deductible plans but increasing annual contribution limits, 

which would you favor and why? 

4. As the health care industry increasingly moves towards value-based care and away from 

a fee-for-service model, how should HSAs adapt accordingly? 

a. How should qualified medical expenses be adjusted to account for the fact that 

medical care is less likely to be a fixed fee? 

5. Is it possible to see the large-scale expansion of HSAs necessary to enhance competition 

and drive down costs if insurance continues to be largely employer-sponsored and if HSAs 

are unavailable for most Americans with high-deductible plans? 

a. What needs to change to drive up participation? 

6. As more Americans move away from traditional health insurance and into alternative 

models like direct primary care and health sharing ministries, how can health care savings 

accounts adapt? 

a. In your view, should HSAs be used for these expenses? 

7. What does the data indicate about the average consumer of these plans and the trends 

in age, health history, and income level? 

a. Where are their gaps in the data? 

b. Is risk segmentation decreasing as a result of HSA expansion? 

c. Are private employers offering high deductible health plans at higher rates? 
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Joint Economic Committee Hearing; June 7, 2018 

''The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost Curve" 

Answers for the Record by Or. Scott W. Atlas to Questions by Senator Ben Sasse; June 21, 2018 

1) Price transparency is absolutely essential for value-seeking consumers to force competition among 

sellers, in this case the health care providers, which translates into lower prices and better value. 

A growing number of tools are definitely becoming available to compare prices. Several states have put 

forth laws to require price transparency in health care1

, and insurers, employers, and even providers 

increasingly offer price transparency tools2

• Some physician specialties have recognized the need 

themselves; for example, several web-based resources have been developed to improve price 

transparency in oncology3• According to the Health Care Incentives Institute, "a very strong and 

thorough body of research demonstrates that consumers will seek lower-priced, high-quality providers 

when given the right information in the right format"'. However, results are mixed. Reasons behind the 

inconsistent or less-than-dramatic cost reductions include the low percentage of patients who use these 

tools (partly due to complexity of presentation), and two more fundamental problems: 1) price 

transparency from the perspective of providers or policy makers does not necessarily lead to 

transparency in the type of "price" most relevant to patients-the out-of-pocket costs; and 2) insurance 

structuring reduces motivation to care about price. It seems unlikely that more federal laws will simplify 

price information or clearly sort out out-of-pocket prices from overall price. Regardless, given the 

current predominant insurance that minimizes out-of-pocket payment, mandated price visibility without 

other reforms would not be very effective, because third pa'rty payers would have different, opaque 

arrangements with providers. This is particularly true in prescription drugs, where the extraordinary lack 

of price transparency is fueled by complex behind-the-scenes rebates (totaling $179 billion in 2016) 4 

from companies to pharmacy benefit managers (PBM), the government, and insurers that pervert 

incentives and prevent any possible price consideration by patients. Worse, many PBMs contractually 

prohibit pharmacists from volunteering that a medication may be less expensive if purchased at the cash 

price with contractual gag clauses, according to a 2016 survey of over 600 community pharmacies5

. Of 

course, these anti-consumer agreements should be outlawed. 

We may nat need specific legislation to force price transparency. Indeed, no other good or service 

requires such governmental legislation. Uniquely in health care, government regulations themselves 

have undermined price visibility, by pushing people toward insurance that minimizes out-of-pocket 

payments so that patients perceive "someone else is paying". Along with misguided tax incentives, 

regulations have prevented consumers from caring much about medical care prices, consequently 

1 Report Card on State Price Transparency Laws- July 2016; F de Brantes, S Delbanco; Health Care Incentives Improvement Institute (HCI3)-

Catalyst for Payment Reform (CPR) Report Card on State Price Transparency Laws 2 Higgins A, Brainard N, Veselovskiy G. Characterizing health plan price estimator tools: findings from a national survey. Am J Manag Care 

2016;22(2):126-31 

1 Price Transparency for Whom? In Search of Out·Of·Pocket Cost Estimates to Facilitate Cost Communication in Cancer Care; Y·C Shih, S Fuld 

Nasso, S. YousufZafa, PharmacoEconomics 2018;36:259-261 4 Source: Credit Suisse research, Global Pharma and Biotech, Aprll18, 2017 5 NCPA Pharmacists Survey: Prescription Drug Costs Skewed by Fees on Pharmacies, Patients; June 28, 2016 
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shielding care providers from competing on price. The key is to equip patients with the incentives to 

consider price and the vehicles to gain from doing so. 

Note that most health care involves smaller, non-catastrophic expenses, so widespread and reformed 

HSAs, when paired with high deductible plans, would pay for the bulk of all medical care events. That 

means provider prices would immediately become demanded for most medical care, and those prices 

would naturally align with what consumers value, rather than being set artificially or generated via 

obscure, complex third-party payer arrangements. Ultimately, the most compelling motivation for 

doctors and hospitals to post prices and signals of quality would be their understanding that they are 

suddenly competing for price-conscious patients who control the money. 

Perhaps the most important point is this- price transparency is essential, but it is not sufficient. First, 

patients must directly gain from paying less. That direct personal gain is generated through larger, 

liberalized, and transferable HSAs that significantly reward saving with assets that stay with the patient 

and family. Second, patients must pay directly for more of their own care. If 1 only pay $1.50 per month 

out-of-pocket for my cholesterol drug (because the cost is nearly totally covered by insurance), why 

would I care if prices varied by 20-fold, as shown in a December, 2017 Consumer Reports study6? To 

position patients as direct payers for a higher proportion of their medical care, higher deductible 

insurance plans (HDHPs) must become available to everyone, rather than limited, and must be 

permitted to include fewer coverage mandates to make them cheaper. Although not necessarily 

appropriate for everyone, when given the opportunity, patients increasingly opt for lower cost, higher 

deductible insurance 7

, and these plans put patients directly position to pay for care. Again, direct 

payment by patients with strong personal incentives to seek value is the most powerful/ever to reducing 

costs of care. 

2) The list of a "qualified medical expense" (i.e. an expense allowable for tax-free payment from an HSA) 

should be expanded to include, for instance, over-the-counter drugs without need for doctor's 

prescription, and home health care devices. But far more importantly, eligible expenses of expanded 

HSAs should also include payments for the HSA holder's elderly parents. This is especially important, 

given today's ban on full HSA participation by all seniors on Medicare (this, too, should be abolished 

immediately- see my submitted written testimony for details and chart of new HSA structure). Given 

that seniors are the biggest users of health care, motivating them (or those who pay for their expenses) 

to seek value is a crucial part of exerting downward pressure on health care prices. 

HSAs should not be usable for health insurance premiums. It would be counterproductive to allow any 

tax preference, whether a deduction, an income exclusion, or an HSA expense, for "comprehensive" 

insurance, because low deductible, heavily mandated plans hide the costs of covered care-that 

coverage is a fundamental cause of lack of access and rising costs for everyone. Presuming that health 

care deductions or income exclusions are maintained, I propose that the tax code should cap total 

amounts, and it should also limit eligibility for deductions or exclusions to only two categories of healthrelated expenses: 1) HSA contributions, and 2) high deductible, catastrophic coverage premiums (note: 

6 Shop Around for Lower Drug Prices, LL Gill, Consumer Reports, April OS, 2018 7 EHB Annual Surveys, Kaiser Family Foundation 
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the definition of "high deductible, catastrophic coverage" is based on 75 percent of the new maximum 

allowable HSA contribution. If people want to buy insurance that minimizes out-of-pocket payment, 

that's fine, but it should not be incentivized and subsidized by other taxpayers. 

3) There should not be any "financial trade-off" between keeping annual contribution limits at their 

current level but expanding HSA eligibility to all plans regardless of deductible status versus keeping the 

current tie to high deductible plans but increasing annual contribution limits. The idea of the 

hypothetical "trade-off' presumably rests in the anticipated revenue decrease from expanding HSA size. 

However, as mentioned in my testimony, revenues would actually increase or stay the same on net 

because of the new tax cap on income exclusion for employer health benefits. Remember, the unlimited 

income exclusion for health expenses created harmful, counterproductive incentives. It encouraged 

higher demand for care, regardless of cost, while distorting insurance into covering almost all services. 

Tax deductions for all health care spending are also counterproductive, because they give an incentive 

to spend more money on health care. This tax reform to cap amounts, and to limit eligibility for 

deductions or exclusions to HSA contributions and catastrophic coverage premiums would eliminate 

that misincentive. 

The second point is that expanding HSA eligibility to all plans regardless of deductible status and 

increasing annual contribution limits are both important to maximize downward pressure on prices of 

medical care and secondarily on insurance premiums- even for those without HSAs. The more people 

are positioned to pay directly for more of their care, the more downward pressure on prices will occur 

through providers competing for cost-conscious patients. Patients must also see the reward for saving 

their money and seeking value, and that is through reformed, larger, transferable, and more useful 

HSAs. Today's counterproductive limitations and insurance regulations, however, have dramatically 

limited the potential benefits of HSAs to everyone who uses medical care. Remember, today's high 

price of medical care and the regulatory burden of ObamaCare forcing the purchase of expensive 

insurance filled with mandates has left the consumer with far less money for funding HSAs. Meanwhile, 

ObamaCare subsidies for insurance that minimizes out-of-pocket payment have prevented consumers 

from caring much about medical care prices and have consequently shielded doctors from competing on 

price. Unpressured prices on medical care plus ObamaCare's regulatory burden equals markedly higher 

insurance premiums (doubled from 2013 to 2017, even with significantly higher deductibles, per 

eHealth)- and that means less money for HSA contributions. 

4) The health care industry may or may not move to different models of payment for care. Much of that 

depends on whether or not more people are empowered to pay directly for their own care via reformed 

HSAs, or alternatively if patients are shielded even more from decision-making and direct payment. 

Regardless of those changes to come, qualified medical expenses should first and foremost be broad, for 

two reasons: 1) so that patients find HSAs highly valuable, and 2) so as much of medical care as possible 

is purchased via HSAs. That is the way to maximize their impact on prices and ultimately on better 

access to quality care for everyone, including those without HSAs. 

5) Employer-sponsorship of health benefits and insurance is perhaps the best working model of US 

health insurance, and as more companies compete for employees, benefits will undoubtedly become 
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even better-that's not the problem. The fact is that employers are increasingly offering HSAs and 

higher deductible coverage as options for their employees (see figures in my written testimony), despite 

the fact that that premiums for HDHPs rose from two to five times faster than premium increases of any 

other type of coverage after ACA passage (see figure in my written testimony). 

To drive up HSA participation and maximize its use, Congress should first eliminate regulations that limit 

HSAs and high deductible, low premium coverage. Excess mandated coverage that made HDHP 

insurance more expensive should be rolled back, including the ACA's "essential benefits" that increased 

premiums by 10 percent• and the 2,270 state coverage mandates for everything from acupuncture to 

marriage therapy. To make HDHPs even more affordable, we should remove the ACA's 3:1 age rating 

that raised premiums for younger enrollees by 19 percent to 35 percent, 9 many of whom would buy 

lower premium coverage. 

Second, patients must see the reward for saving their money and seeking value, and that is through 

reformed, larger, transferable, and more useful HSAs. Congress should make HSAs more valued by 

consumers- this is critical- by liberalizing their uses, expanding their availability, and incentivizing their 

importance via tax reforms, as fallows: 

Congress should make HSAs available to all Americans, perhaps even automatically opened for every 

citizen with a social security number or at birth. All HSAs should be fully owned by individuals, not tied 

to specific employers. To maximize consumer leverage on prices, the current ban on full HSA 

participation by all seniors on Medicare should be abolished. Given that seniors are the biggest users of 

health care, motivating them to seek value is a crucial part of exerting downward pressure on health 

care prices. 

HSA limits should be expanded by liberalizing maximum allowable contributions (and catch-up 

contributions for persons in their 50s) to, for example, equal those of total annual out-of-pocket limits 

for ACA Marketplace plans (for 2018, $7,350 for individuals and $14,700 for families). Restrictions on 

HSA uses should be eased, most importantly for the expenses of the HSA holder's elderly parents. And 

the list of allowable health care services and products that can be purchased with HSA funds should be 

expanded to include, for instance, over-the-counter drugs without need for doctor's prescription, and 

home health care devices. 

HSAs should never expire or be forfeited due to an arbitrary "use it or lose it" deadline. On the death of 

the owner, HSAs are currently deemed taxable unless the beneficiary is the spouse. This should change, 

so that tax-sheltered rollovers would be allowed to all surviving family members, not just spouses. 

' EF Haislmaier and D Gonshorowski, "Responding to King v. Burwell: Congress's First Step Should Be to Remove Costly 

Mandates Driving Up Premiums" (Heritage Foundation Issue Brief 4400, May 2015), 

http://www.heritage.org/research/reports/2015/05/responding-to-king-v-burwell-congresss-first-step-should-be-to-removecostly~mandates-driving-up-premiums. 

9 JT O'Connor, "Comprehensive Assessment of ACA Factors That Will Affect Individual Market Premiums in 2014," Milliman 

Reports, April 25, 2013, http:/ /ahlp.org/MillimanReportACA2013/. 
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HSAs should be de-linked from specific insurance deductible requirements (i.e., in defining "HSAqualified plans"). The requirement of government-specified deductibles in order to open an HSA is 

counterproductive. It also eliminates the possibility of HSAs with other, more tailored plans that could 

cover necessary care subject to a lower deductible, especially for chronically ill people. Congress should 

modify the insurance exchange regulations to allow everyone, regardless of age or employer, the option 

of high deductible plans with the same liberalized rules on HSAs. The only requirement for making taxfree contributions to the reformed HSA should be that the enrollee at least has active catastrophic 

insurance coverage, without any specified deductible. 

The ACA limits the financial incentives from employers, including cash deposits into employee HSAs, to 

30 percent of the cost of that employee's health coverage. Abolishing that limit would expand these 

powerful motivators for employees, encouraging employees to participate in more wellness programs 

already proven to improve health and reduce health costs. 

HSAs could also transform Medicaid into a bridge program geared toward enrolling beneficiaries into 

affordable private insurance, with equal access to doctors, specialists, treatments, and medical 

technology as the general population, instead of shunting poor Americans into a parallel second-class 

system with worse health outcomes and far less access to care. A reformed Medicaid would establish 

and seed fund HSAs and provide an option for limited-mandate, high deductible private insurance with 

currently budgeted federal dollars. Federal funding could be contingent on states meeting certain 

enrollment thresholds into limited-mandate coverage and HSAs. HSAs would provide new incentives for 

lower-income families to seek good health through wellness programs and healthy behavior in order to 

save and protect their new, growing financial assets. 

Specific tax reforms are also part of incentivizing HSA adoption (see my written testimony for complete 

details). 

Finally, the supply of medical care must be significantly yet strategically increased, so patients have 

enough competing choices to seek out the best value for their money. In large part, this means 

removing archaic anti-consumer barriers to competition among medical care providers, health care 

technology, and drugs (see my written testimony for complete details). 

6) HSAs should absolutely be usable for direct primary care payment and other innovative health care 

payment strategies and coverage. The fundamental goal is to maximize HSA adoption and fully leverage 

their power. Widespread adoption of HSAs and more value-seeking by patients is the best pathway to 

broaden access to affordable, high quality health care for all Americans, even those without HSAs. 

7} (These questions are more fully answered in the written testimonies; see figures there} 

Despite the ACA's attempt to shift consumers to bloated coverage, a shift toward high deductible plans 

with HSAs has continued. In the decade-and-a-half since the tracking of this type of coverage, employers 

have increasingly offered such plans, and consumers have increasingly selected high-deductible plans. 
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Among those enrollees, a shift toward higher deductibles has continued. 10 Since the introduction of 

HSAs in 2004, HSAs have skyrocketed to between 22 and 34 million as of the end of 2017 11• Note that 

this is not a tax benefit for "the rich" - median household income for HSA holders is $57,060; two-thirds 

earn less than $75,000 a year12• By increasingly choosing HSAs when given the opportunity, American 

consumers are approving their value. 

10 Kaiser Family Foundation, "Employee Health Benefits Annual Surveys, 2007-2014," http://kff.org/healthcosts/report/employer-hea!th-benefits-annual-survey~archives. 

11 http://www.devenir.com/research/2017-year-end-devenir-hsa-research-reoort/. and 

https:/lwww.ebri.org/publications(ib/index.cfm ?fa,ibDisp&content id,354 7 

12 Testimony Before the Subcommittee on Health of the Ways and Means Committee of the House of Representatives Hearing 

on lowering Costs and Expanding Access to Health Care Consumer-Directed Health Plans Submitted by Jody L Dietel, ACFC!, 

CAS Chief Compliance Officer for WageWorks, Inc. June 6, 2018 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve" June 7, 2018 

Questions for tbe Record for Dr. Atlas 

Submitted by Representative Carolyn B. Maloney 

June 21, 2018 

1) In general, do HSAs mitigate differences in health outcomes for individuals across 

income strata? In what ways do they succeed or fail? 

2) The current limit on HSA contributions is $3,450 for an individual and $6,900 per family. 

What percentage of HSA contributors max out? 

3) One recent bill doubles the amount that can be contributed to an HSA. Given that a small 

percentage of taxpayers reach the current maximum contribution, what is the rationale for 

doubling the amount that can be contributed to an HSA? Who would benefit? 
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Joint Economic Committee Hearing; June 7, 2018 

''The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost Curve" 

Answers for the Record by Dr. Scott W. Atlas to Questions by Representative Carolyn B. Maloney; June 21,2018 

1) HSAs improve access to affordable, quality health care for people at all levels of income, but 

particularly represent the most effective pathway to quality health care for the middle class and poor. 

First, the fundamental impact of HSAs is to reduce the prices of health care for everyone, rich or poor, 

and whether or not they have an HSA. With larger and improved HSAs, patients become sensitive to 

price because they are rewarded by saving money. Doctors and hospitals would compete for patients 

who would now pay directly for care and would be newly sensitive to price and value. When people 

have savings to protect in HSAs, the cost of care comes down' without harmful impact on health, like 

increases in emergency room visits or hospitalizations, and without any greater impact on economically 

vulnerable families2

• That reduced price makes care more available for everyone, including people 

without HSAs and including the poor. Moreover, costs of all insurance would be significantly less, 

including government insurance programs like Medicaid and Medicare. Note that 60 percent of 

Medicaid money is spent for outpatient care3

, and outpatient non-emergency care is amenable to 

patient choice. This broadens options and access to care for everyone- including people without HSAs, 

and regardless of source of payment. 

Second, HSA reform necessarily goes hand-in-hand with eliminating anti-consumer regulations that limit 

competition among doctors and hospitals- this is essential to give empowered patients choices for 

spending their HSA money. Of particular importance to lower income groups is increasing the available 

supply of cheaper and more convenient neighborhood primary care. We know that neighborhood retail 

clinics staffed by nurse practitioners and physician assistants can provide high quality but cheaper 

primary care, including vaccinations, blood pressure monitoring, infection treatment, and dispensing 

common drugs. In a 2011 review, 88% of visits to retail clinics involved simple care•, 3Q-40% cheaper 

than at physician offices' and about 80% cheaper than at emergency departments, and with high levels 

of quality and patient satisfaction•. To maximize this, Congress should push to simplify the credentialing 

requirements and remove outmoded scope-of-practice limits on qualified nurse practitioners and 

physician assistants. 

Third, HSAs represent one of the best vehicles for offering effective wellness programs and screening 

tests. This is highly beneficial to working class people, because these programs improve chronic illnesses 

1 AM Haviland et al; Do "Consumer-Directed" Health Plans Bend the Cost Curve Over Time?;, NBER Working Paper No. 21031, March 2015; 

http://www.nber.org/papers/w21031 

2 Haviland, A., N. Sood, R. McDevitt, and S.M. Marquis 2011. "How Do Consumer Directed Health Plans Affect Vulnerable Populations." Forum 

for Health Economics & Policy. 2011;14(2) (Online): 1558*9544 3 D Pritchard, A Petrilla, S Hallinan, DH Taylor Jr., VF Schabert, and RW Dubois; What Contributes Most to High Health Care Costs? Health Care 

Spending in High Resource Patients.; Journal of Managed Care & Specialty Pharmacy 2016 22:102M109 4 Ashwood JS, Reid RO, Setodji CM, Weber E, Gaynor M, Mehrotra A. Trends in Retail Clinic Use Among The Commercially Insured. The 

American journal of managed care. 2011;17(11):e443~e448. 

s Mehrotra A, Uu H, Adams J, et aL The Costs and Quality of Care for Three Common lllnesses at Retail Clinics as Compared to Other Medical 

Settings. Annals of internal medicine. 2009;151(5):321M328. 6 Welnick, Robin M., Craig Pollack, Michael P. Fisher, Emily M. Gi!len, and Ateev Mehrotra, Policy Implications of the Use of Retail Clinics. Santa 

Monica, CA: RAND Corporation, 2010. https://www.rand.org/pubs/technlcal_reports/TRSlO.html. 
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and save money' for both the employee and the employer'. Yet ObamaCare limits financial incentives 

from employers, like deposits into employee HSAs. Congress should abolish this rule. 

Fourth, we know the harsh reality of today's Medicaid, the current program for the poor that 

ObamaCare expanded at great cost: 55 percent of doctors in major metropolitan areas already refuse 

new Medicaid patients9• Even of those providers signed up with Medicaid, 56 percent of primary care 

doctors and 43 percent of specialists are not available to new patients, according to HHS10. Moreover, 

the quality of medical care is inferior under Medicaid, according to peer-reviewed medical journals. 

Lower quality means more in-hospital deaths, more complications from surgery, shorter survival after 

treatment, and longer hospital stays than similar patients with private insurance11• Instead, with HSAs, 

Medicaid could be a bridge toward affordable private insurance to eliminate today's substandard, 

parallel health care system for the poor. New Medicaid should establish and seed-fund HSAs with 

current federal dollars, empowering beneficiaries and incentivizing healthy lifestyles to protect those 

new assets. With these reforms, doctors and hospitals would receive payments from the same insurance 

as from non-Medicaid patients; the limits in access and treatment options would be eliminated. 

2) The number of accounts has skyrocketed to between 22 and 35 million 12 since HSA introduction in 

2004. For both individual and employer contributions, contribution levels have been increasing. 

Individual contributions in 2016 were higher the longer the holder had the account; for those holding an 

account since 2005, the 2016 contribution averaged $3,658, while for those opening new accounts in 

2016, the contribution averaged $1,29013• Today's counterproductive limitations and insurance 

regulations, however, have dramatically limited the potential benefits of HSAs to everyone who uses 

medical care. Remember, today's high price of medical care and the regulatory burden of ObamaCare 

forcing the purchase of expensive insurance filled with mandates has left the consumer with far less 

money for funding HSAs. Meanwhile, ObamaCare subsidies for insurance that minimizes out-of-pocket 

payment have prevented consumers from caring much about medical care prices and have consequently 

shielded doctors from competing on price. Unpressured prices on medical care plus ObamaCare's 

regulatory burden equals markedly higher insurance premiums (doubled from 2013 to 2017, even with 

significantly higher deductibles, per eHealth) and that means less money far HSA contributions. 

3) The rationale for doubling the current maximum contribution to HSAs is quite clear. Widespread 

HSAs, when paired with cheaper high deductible plans, could pay for the bulk of all medical care events, 

7 K. Baicker et aL, "Workplace Wel!ness Programs Can Generate Savings," Health Affairs 29 (2010): 304-11. 

aLL. Berry et al., "What's the Hard Return on Employee We!!ness Programs?" Harvard Business Review, December 2010, 

https:/ /hbr.org/2010/12/whats-the-hard-return-on-employee-wellness-programs. 9 Merritt Hawkins, Medicaid and Medicare Acceptance Rates, 2014 Annual Survey/' 

w Department of Health and Human Services, "Access to Care: Provider Availability in Medicaid Managed Care," Report OE!-02-13-00670 

{December 2014), http://oig.hhs.gov/oei/reports/oel~02-13-00670.pdf. 

11 See, for example, Michael A. Gaglia, "Effect of Insurance Type on Adverse Cardiac Events after Percutaneous Coronary Intervention," 

American Journal of Cardiology 107 {2011): 675-80; D, J. La Par eta!., "Primary Payer Status Affects Mortality for Major Surgical Operations," 

Annals of Surgery 252 (2010): 544-51; L Kwok eta!., "The Impact of Health Insurance Status on the Survival of Patients with Head and Neck 

Cancer," Cancer 116 (2010}: 476-85; R. R. Kelz eta!., ''Morbidity and Mortality of Colorectal Carcinoma Differs by Insurance Status," Cancer 101 

(2004): 2187-94; J. G. Allen eta!., "Insurance Status Is an Independent Predictor of Long-Term Survival after Lung Transplantation in the United 
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since most health care involves smaller, non-catastrophic expenses. The more people are positioned to 

pay directly for more of their care, the more downward pressure on prices will occur through providers 

competing for cost-conscious patients. Patients must be strongly incentivized to care about medical care 

prices and simultaneously equipped with the tools to do so. Patients must see the reward for saving 

their money and seeking value, and that is through reformed, larger, transferable, and more useful 

HSAs. Even in their current form with current regulatory burdens and unnecessarily high costs of 

ObamaCare insurance, HSAs with high deductible coverage have proven to be a highly effective 

instrument to reduce health care prices and help individuals buy more affordable insurance. As prices 

come down due to more value-seeking consumers with larger HSAs, quality health care becomes 

cheaper and more available to everyone, including patients without HSAs. 
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Joint Economic Committee Hearing 

The Potential for Health Care Savings Accounts to Engage Patients and Bend the 

Health Care Cost Curve 

June 7, 2018 

Questions for the Record for Mr. McKechnie 

Senator Ben Sasse 

June 26, 2018 

1. Using health care savings accounts to increase competition and drive down prices can 

only happen in coordination with more transparency in pricing. In your view, what role 

should the federal government play in enhancing this transparency? 

KM Answer: On food labels, at gos stations, even in coffee houses, consumers have more 

information about products they are about to purchase than in health care. Even before the 

advent of consumer driven accounts like HSAs, the lack of basic pricing data should have been an 

outrage to the employers footing the bill. Now that deductibles in non-HSA-qualified plans are 

rising quickly, and the portion of consumers covered by HSA accounts is rising commensurately, 

the idea that health care providers can keep their pricing secret, or at least opaque, or at worst 

unknown, is harmful and should no longer be tolerated. Consumers will likely be effective at 

forcing transparency simply through provider choice- show me prices or I'll go elsewhere. But, 

the federal government can and should compel pricing disclosure on the most popular outpatient 

services. There are severo/laboratories for testing the efficacy of this practice from Medicare to 

the Federal Employees Health Benefit Program. I would also argue that the authority to compel 

pricing disclosure likely exists in existing law currently- it's a mystery to me why various federal 

administrators have resisted disclosure absent congressional authorization. 

a. Have you seen any evidence of expanding price transparency so far? 

KM Answer: The best example so far is in diagnostics, where consumers in nonemergency situations have the chance to explore different treatment options and 

different pricing schemes. Almost 60% of all health expenditures for privately insured 

adults under 65 and almost 40% of the elderly's expenses are for outpatient care, 

according to a 2012 report from the IMS Institute for Healthcare Informatics as detailed 

by Dr. Scott Atlas in his June 19 editorial in the Wall Street Journal. Transparency tools 

listing the prices for outpatient care are increasingly part of health benefit product 

offerings, which is a benefit to consumers and plan sponsors alike. 

2. In your view, what is not considered a qualified medical expense but should be? 

KM Answer: One approach that has elicited bills from several Senators is to identify additional 

expenses and amend the Internal Revenue Code such that certain high-value services may be 
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covered pre-deductible. Direct Primary Core services, expenses associated with managing chronic 

conditions and services like Telemedicine would be appropriate candidates far HSA-qualified 

status or pre-deductible coverage. 

a. What would be the impact of allowing funds in health care savings accounts to be 

used for premium payments? 

KM Answer: The HSA Council has commented several times concerning our opposition to 

this feature of HSA expansion. We believe it is more important to keep funds available 

for routine care than pay for insurance benefits, which may require satisfaction of a 

deductible before becoming available; more importantly, paying premiums reduces the 

balance of the account thus reducing the funds available to pay for routine care. 

3. If the financial trade off were between keeping annual contribution limits at their current 

level but expanding HSA eligibility to all plans regardless of deductible status versus 

keeping the current tie to high deductible plans but increasing annual contribution limits, 

which would you favor and why? 

KM Answer: The HSA Council has supported increasing contributions to an amount equal to the 

statutory out-of-pocket-maximum for an HSA-qualified plan so that HSA owners can cover their 

entire out-of-pocket risk with tax preferred funds should the need arise. There is currently a gap 

between the maximum contribution and out-of-pocket maximum limits. Individuals can 

contribute $3,450 and families $6,900 in 2018; however, their respective out-of-pocket risks are 

$6,650 and $13,300. In addition, Fidelity Investments says that a retiring couple would need 

approximately $270,000 to pay for the things Medicare doesn't. Accordingly, the need is for 

savings tied to medical care, while keeping premiums low. Traditional plans are more expensive 

than HSAs and have no savings feature. 

4. As the health care industry increasingly moves towards value-based care and away from 

a fee-for-service model, how should HSAs adapt accordingly? 

a. How should qualified medical expenses be adjusted to account for the fact that 

medical care is less likely to be a fixed fee? 

KM Answer: IRS guidance needs to be updated to reflect new payment models in 

health care. We note that increasingly health care services are being bundled and 

paid under fixed fee arrangements rather than fees for every individual service. It 

is not clear whether HSA funds may be used tax-free to pay for these care bundles. 

Some of these payments are being made in advance of care being provided but do 

not constitute "insurance." Instead, they amount to pre-paid health care. 

Additionally, because 86 cents of every health care dollar is spent to manage 

chronic conditions, it makes financial and policy sense to allow more plan design 

flexibility such that HSA qualified plans have the option to provide chronic disease 

prevention drugs and services on a pre-deductible basis. 
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5. Is it possible to see the large-scale expansion of HSAs necessary to enhance competition 

and drive down costs if insurance continues to be largely employer-sponsored and if HSAs 

are unavailable for most Americans with high-deductible plans? 

KM Answer: Yes. We believe employers ore in the best position to drive change and innovation 

in the current market. 

a. What needs to change to drive up participation? 

KM Answer: Encouraging more flexible plan designs and greater employer contributions 

will have the biggest impact. Regarding the latter, removing employer/employee 

contributions from the calculation of the Cadillac tax- absent its outright repeal - is KEY 

to employer groups continuing to support and promote change through increased HSA 

participation. 

6. As more Americans move away from traditional health insurance and into alternative 

models like direct primary care and health sharing ministries, how can health care savings 

accounts adapt? 

KM Answer: The law should be changed to permit these arrangements to be compatible with 

HSAs. 

a. In your view, should HSAs be used for these expenses? 

KM Answer: Yes. Consumers should have the choice to spend their own money as they 

see fit. 

7. What does the data indicate about the average consumer of these plans and the trends 

in age, health history, and income level? 

KM Answer: Senator, I would commend to you the testimony of Jody Dietel, Chief Compliance 

Officer far WageWorks, before the House Ways & Means Committee on June 6, 2018. I will 

include the testimony as an attachment and suggest it be made part of the record. Wage Works 

has been the most generous of the HSA Council's member companies in compiling and sharing 

data. According to them, "the median household income for an HSA accountholder is $57,060;" 

"nearly 77% of participants contributing to an HSA were born in 1965 or after, belonging to the 

Gen Z, Millennia/ and Gen X demographic. Only about 22% of[WageWorks'] participants are Baby 

Boomers." 

As to the other issues, I unfortunately do not know where the data gaps are, except to soy that 

we need more of it if we want a more accurate picture of the "HSA Effect" which I describe in my 

testimony. 

As to the increasing use of HSAs by employers, Mercer, in its 2017 Employer Survev. says that the 

number of employers offering HSAs as their only option grew from 6% in 2012 to 10% in 2017 but 

that the proportion of employers adding HSAs as an option went from 28% to 54% during the 

same time frame. Industry observers suggest these metrics are evidence of either explosive 

growth or lower than expected growth. 
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a. Where are their gaps in the data? 

b. Is risk segmentation decreasing as a result of HSA expansion? 

c. Are private employers offering high deductible health plans at higher rates? 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the 

Health Care Cost Curve" 

June 7, 2018 

Questions for the Record for Mr. McKechnie 

Submitted by Representative Carolyn B. Maloney 

July 26, 2018 

1) The marginal federal tax rate for the lowest earners that pay taxes is 10 percent and that 

the marginal rate for the highest earners is about 40 percent. How does this benefit how 

the benefits ofHSAs are distributed across the income spectrum? 

KM Answer: The best way to answer is to pose the question from the perspective of a 

consumer from any income bracket: assuming the consumer has an average deductible, 

which I cited as $2,120 last year for single coverage in a small firm according to Kaiser 

Family Foundation, the range of pre-tax earnings required to satisfY that deductible 

would be $2,332for income tax filers at the 10% marginal tax rate and $2,968for 

income tax filers at the 40% marginal tax rate. Alternatively, income tax filers of all 

brackets would need to earn $2, I 20 to satisfY a $2,120 deductible, if they had an HSA, a 

savings of $212 and $848 respectively. Over a 60-month period, assuming both filers had 

spent up to their deductible each year, that the HSA-owners had saved the entire 

difforence between the pre- and post-tax amounts, and assuming just a 3% compound 

interest rate, HSA owners who were 10% marginal income tax filers would enjoy a 

$1,371.52 benefit, and 40% marginal tax income tax filers would enjoy a $5,485.42 

benefit compared to an individual with just traditional P PO coverage. 

In addition, HSA owners searching for coverage in the individual market the Affordable 

Care Act (ACA) sought to reform would save an additional7.65% on FICA tax through 

pre-tax payroll contributions, assuming that feature is not already built into your 

definition of "marginal tax rate." If the FICA savings are already considered then this 

should simply be noted as an additional benefit. 

2) Savings rates also vary widely by income. How do differences in savings rates by income 

quintiles affect the distributional effects ofHSAs? 

KM Answer: Savings rates tend to decline as income declines so it's important to 

understand the relevance of employer contributions to modest income HSA owners, 

which are the vast majority of HSA-owners. Kaiser Family Foundation, in their 2017 

Employer Health Benefits Survev. says that the average employer contribution to people 

covered by HSA -qualified plans was $1, 417. I would commend to you the testimony of 

Jody Dietel, Chief Compliance Officer for Wage Works, before the House Ways & Means 
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Committee on June 6, 2018. I will include the testimony as an attachment and suggest it 

be made part of the record. Wage Works has been the most generous of the HSA 

Council's member companies in compiling and sharing data. According to them, "the 

median household income for an HSA accountholder is $57,060. "Obviously, an employer 

contribution of$1,417 is more valuable as a proportion of income to an HSA-owner 

earning household income at or below the Wage Works median level than above it. We 

include employer contributions as "Suggested Industry Guidance" in all of our 

publications. 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve" June 7, 2018 

Questions for the Record for Ms. Watts 

Senator Ben Sasse 

July 26, 2018 

1. Using health care savings accounts to increase competition and drive down prices can 

only happen in coordination with more transparency in pricing. In your view, what role 

should the federal government play in enhancing this transparency? 

Employers have been working to increase health care quality and transparency through 

innovative strategies such as providing new and enhanced transparency tools, incentives 

to use the tools, and reference based pricing. The ability to achieve large-scale success, 

however, exponentially increases when private sector employers are working hand in 

glove with public payers to implement similar policies measured in standardized ways. 

a. Have you seen any evidence of expanding price transparency so far? 

More than 80% of large (500 or more employees) employers who offer their 

employees health coverage provide access to a transparency tool- 67% through their 

health plan and an additionallS% through a specialty vendor. 
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As I mentioned during the hearing, Mercer and the American Benefits Council coauthored a white paper, leading the Way- Employer Innovations in Health Coverage. In 

one of the examples, AT&T committed to consumerism by offering a range of highdeductible HSA-eligible plans. To help employees find the right level of coverage for their 

health needs and financial situation, their platform includes a cost-comparison tool that 

uses the employees' claims data as well as a questionnaire to help employees evaluate 

the financial implications of their plan choices. Enrollment has risen 30% in the lowestcost plan, and medical trend is below average. 

2. In your view, what is not considered a qualified medical expense but should be? 

Some best practice efforts to promote quality, cost efficiency and better health outcomes 

are hamstrung by the HSA statute and regulations. For example, a patient with diabetes 

that is enrolled in an HSA-eligible HDHP must meet their entire deductible before the plan 

can cover an eye exam, foot exam, or diabetes medications. Yet, the evidence is clear that 

patients with diabetes benefit from annual eye and foot exams and anti-diabetes 

medicines. Additionally, employers can't waive or limit cost-sharing for telemedicine, use 

of an on site clinic, Centers of Excellence, or second opinion services for employees that 

are enrolled in HSA-eligible HDHPs. All of which drive efficiency and better outcomes. 

a. What would be the impact of allowing funds in health care savings accounts to be 

used for premium payments? 

Under current law, insurance premiums are considered qualified medical expenses 

when used to pay for health care continuation coverage (e.g. COBRA), Medicare and 

other select coverages. Allowing HSA funds to be used for premiums for employersponsored pre-65 early retiree plans has merit and would be equitable with current 

law. 

3. If the financial trade off were between keeping annual contribution limits at their 

current level but expanding HSA eligibility to all plans regardless of deductible status 

versus keeping the current tie to high deductible plans but increasing annual 

contribution limits, which would you favor and why? 

We would need to consider the details and goals of each option carefully before 

responding. Deductibles and other cost sharing features are critical to driving the desired 

consumerist behavior. 
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4. As the health care industry increasingly moves towards value-based care and away from 

a fee-for-service model, how should HSAs adapt accordingly? 

As our health care system transitions from one that rewards volume to one that rewards 

value, it would be helpful if HSAs were also afforded more flexibility to transition - for 

example, value-based care is centered around the idea of providing the right care at the 

right time in the right setting. Plan benefit designs are structured to promote this concept. 

One example relates to telemedicine, a plan might want to encourage greater use of 

telemedicine by eliminating all cost-sharing (including the deductible), charging a $25 

copay to visit a Minute Clinic, a $75 copay to go an urgent care facility, and a $250 copay 

to go to the emergency room. Currently, plans must charge fair market value to anyone 

in an HSA that utilizes telemedicine before they have met their deductible. This makes it 

harder for the plan or employer to incentivize the telemedicine services. Additionally, 

plans and employers who want to encourage greater use of centers of excellence 

programs, second opinion services, and onsite and near site clinics are all hamstrung by 

these same rules requiring application of the deductible even when enrollees want to 

utilize these high value sites of care. 

Additionally, guidance from the U.S. Department of Treasury and the Internal Revenue 

Service prohibits HSA plans from covering chronic disease prevention pre-deductible. 

Because nearly half of all Americans have at least one chronic condition and about $0.86 

of every health care dollar is spent on managing chronic disease, it makes good policy 

sense to allow these plans to cover chronic disease prevention pre-deductible. This policy 

would be very beneficial to patients, employers, and payers alike, including improved 

health, enhanced workplace productivity, and the avoidance of unnecessary emergency 

care visits and hospitalizations. 

a. How should qualified medical expenses be adjusted to account for the fact that 

medical care is less likely to be a fixed fee? 

Affording more flexibility is a critical part of encouraging continued innovation in 

value-based care. For example, consider how legislation can accommodate direct 

primary care or new and emerging models for high quality, efficient care delivery. 
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5. Is it possible to see the large-scale expansion of HSAs necessary to enhance competition 

and drive down costs if insurance continues to be largely employer-sponsored and if 

HSAs are unavailable for most Americans with high-deductible plans? 

According to Mercer survey data, 64% of employers with more than 500 employees 

offered a consumer directed health plan option (account based plan) in 2017- double 

the amount six years ago. 

Employers are highly motivated to reduce healthcare costs and improve quality, indeed, 

employers are at the forefront of improving America's health care system through 

innovative strategies and value-based solutions. HSAs have been used to help make 

health coverage more affordable and encourage wiser consumption of health services. 

However, outdated laws and regulations make it difficult for employers to include 

innovative reforms in HSA-eligible high-deductible plans such as certain disease 

management programs. These laws and regulations should be updated to better align 

HSAs with innovative delivery systems reforms. Data belies the assumption that HSAs are 

unavailable for most Americans with high-deductible plans. Indeed, according to data 

from WageWorks, the median household income for an HSA accountholder is $57,060. 

a. What needs to change to drive up participation? 

Flexibility on the plan design (as mentioned in #2 above) would be well received and 

timely to continue to encourage enrollment in HDHPs. As I noted in my testimony, 

providing employees with the tools and resources to move toward consumerdirected health plans is a critical component. This is evidenced by the enrollment 

results from our own Mercer Marketplace 365 benefit platform, which indicate that 
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more employees will choose to move into a high-deductible plan if they have the tools 

and resources to help them feel comfortable making that decision. 

6. As more Americans move away from traditional health insurance and into alternative 

models like direct primary care and health sharing ministries, how can health care 

savings accounts adapt? 

a. In your view, should HSAs be used for these expenses? 

As noted above, outdated laws and regulations make it difficult for employers to 

include innovative reforms in HSA-eligible high-deductible plans. These laws and 

regulations should be updated to better align HSAs with innovative delivery systems 

reforms. 

7. What does the data indicate about the average consumer of these plans and the trends 

in age, health history, and income level? 

Generally speaking, older employees are more likely to elect lower deductible (richer) 

options. Once employee salaries exceed $30k, salary appears to have less influence on an 

employee's decision. Below $30k, employees are much more likely to take the lowest cost 

option made available 

Source: 2018 Mercer Marketplace 365 enrollment results; standard deductible options only 

a. Where are their gaps in the data? 
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b. Is risk segmentation decreasing as a result of HSA expansion? 

Using Mercer 2017 survey data, the average age of plan members is very close when 

comparing HSA (42) eligible plan to PPO (44) and HMO (43). There is a slightly higher 

percentage of employees electing dependent coverage in the HSA eligible plan. 

c. Are private employers offering high deductible health plans at higher rates? 

There was continued, though modest, growth in employer offerings of CDHPs in 

2017. Among employers with 10-499 employees, CDHP offerings rose from 25 

percent to 29 percent, while among employers with 500 or more employees, 

offerings rose from 61 percent to 64 percent. It is important to note that larger 

employers tend to offer their employees several health plan options while smaller 

employers typically offer one health plan option - most often a high deductible 

PPO (over $1,000) that does not qualify for an HSA because it includes a co-pay 

for a physician office visit (pre-deductible). 

The least expensive medical plan type is the high-deductible CDHP that is eligible 

for a tax-advantaged HSA; the average cost of coverage in this plan is $10,203 

per employee. HMO coverage remains the most costly of the three medical plan 

types, averaging $12,298 per employee, followed by PPO coverage, at $11,764. 
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Medical plan cost per employee, by plan type 

Aft employers 

Ill 2016 2017 

Does not Include dental cost. 

12: 14 

Source: Mercer National Survey of Employer-Sponsored Health Plans, 2017 

From an employee perspective, the HSA eligible plan contribution requirements 

are much more affordable than PPO and HMO options. Employee only coverage 

for $83/month and family coverage for $318/month compared to $140 for 

employee only and $470 for family coverage for PPO coverage. 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve" June 7, 2018 

Questions for the Record for Dr. Patel 

Senator Ben Sasse 

July 26, 2018 

1. Using health care savings accounts to increase competition and drive down prices can 

only happen in coordination with more transparency in pricing. In your view, what role 

should the federal government play in enhancing this transparency? 

a. Have you seen any evidence of expanding price transparency so far? 

Pricing Transparency has been an oft-invoked topic or solution but very little practical examples 

that have also driven down pricing; the federal government can play an essential role in promoting 

greater pricing transparency by facilitating full disclosures around rebates, for example in 

pharmaceuticals. There is some evidence of expanding price transparency through private sector 

efforts supported by companies such as Castlight, etc, but they are limited. There are also 

interesting, provocative examples of individual providers/physicians who have become concierge 

style doctors, offering a transparent listing of prices as well as offering medications and labs on a 

cost basis, in a transparent manner, often cheaper than through pharmacies, lab companies etc. 

Unfortunately many Americans simply can't take advantage of concierge models nor should that 

be where transparency is only highlighted. 

2. In your view, what is not considered a qualified medical expense but should be? 

a. What would be the impact of allowing funds in health care savings accounts to be 

used for premium payments? 

Right now, care for chronic conditions are subject to copayments in commercial plans and 

Medicare; this care is important and we want to encourage this work and I would strongly 

advocate for this care to be a qualified medical expense. The impact financially would be minimaL 

3. lfthe financial trade off were between keeping annual contribution limits at their current 

level but expanding HSA eligibility to all plans regardless of deductible status versus 

keeping the current tie to high deductible plans but increasing annual contribution limits, 

which would you favor and why? 

Given the financial burden that such an expansion would pose on the federal government and the 

urgent need to reduce costs for all Americans, I would reconsider expanding HSA eligibility and 

start first with reforms that I referred to in my written testimony to encourage pre-deductible 

inclusion of high value clinical services for consideration in current Health Savings Accounts.' 
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Joint Economic Committee Hearing 

"The Potential for Health Care Savings Accounts to Engage Patients and Bend the Health Care Cost 

Curve" June 7, 2018 

Questions for the Record for Dr. Patel 

Submitted by Representative Carolyn B. Maloney 

July 26, 2018 

1) There has been research suggesting that health outcomes are correlated with income and 

wealth. Could you describe that correlation? Has that correlation changed over time and 

what is the prognosis for the future? 

Thank you for this important question; yes there have been some important studies that 

have highlighted the strong relationship between income, wealth and important outcomes 

such as mortality. In the United States between 2001 and 2014, higher income was 

associated with greater longevity, and differences in life expectancy across income 

groups increased.; This correlation hasn't changed and in terms of prognosis, unlikely to 

change in the future. What might change are the effects of other important variables such 

as geography (where you live might be a stronger predictor of outcomes) as well as 

certain elements of access to health care which might be a stronger predictor (such as the 

presence or absence of regular health care insurance). 

2) In general, do HSAs mitigate differences in health outcomes for individuals across 

income strata? Do provisions of the Affordable Care Act mitigate these differences? 

I am not personally aware of any evidence regarding mitigation of health outcomes for 

individuals across income strata. Provisions of the Affordable Care Act such as the 

standardization of benefits attempt to mitigate these differences. 

3) It has been argued that HSAs will constrain medical costs by giving individuals with 

high-deductible health plans incentives to take control of their health care. They will shop 

more wisely and thus induce providers to reduce prices. As a practicing physician, are 

you confident that most patients can make such decisions? 

The patients I treat come from all walks of life- they are people with limited incomes as 

well as high powered executives with high deductible health plans that have health 

savings accounts; almost all of these patients feel helpless however when so many 

decisions regarding where a patient might receive a procedure or get their blood drawn 

etc are really driven by the doctor as well as the referral patterns that dominate. This is 

why I have emphasized the need to also move high value clinical services predeductible 

so that we can allow for as many Americans with CDHPs (Consumer Directed Health 

Plans) to benefit from the pre-tax dollars for important services. 
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4) In your testimony you reference "opacity" in pricing as critical to driving down costs of 

prescription drugs. Could you explain how drug prices are not opaque? Is the market for 

prescription drugs competitive? 

Drug pricing in its current form is extremely opaque; my apologies if the opposite 

message was unintentionally conveyed; currently manufacturers set prices but then an 

opaque (opaque to the consumer or purchaser of health care) process of rebates and 

discounts takes place between the manufacturers and number of intermediaries such as 

Prescription benefit managers (PBMs) and GPOs (Group Purchasing Organizations). 

; Chetty, R., Stepner, M., Abraham, S., Lin, S., Scuderi, B., Turner, N., .. Cutler, D. (2016). The Association Between 

Income and Life Expectancy in the United States, 2001-2014: Association Between Income and Life Expectancy in the 

United States. JAMA, 315(16), 1750--1766. http://doi.org/10.10011jama.2016.4226