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50–037 2009

HEALTH SAVINGS ACCOUNTS (HSAs) 

AND CONSUMER DRIVEN HEALTH CARE: 

COST CONTAINMENT OR COST SHIFT? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 14, 2008 

Serial No. 110–84 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

JON TRAUB, Minority Staff Director 

SUBCOMMITTEE ON HEALTH 

FORTNEY PETE STARK, California, Chairman 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

XAVIER BECERRA, California 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

DAVE CAMP, Michigan 

SAM JOHNSON, Texas 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

KENNY HULSHOF, Missouri 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of May 7, 2008, announcing the hearing ............................................... 2 

WITNESSES 

John E. Dicken, Director, Health Care, U.S. Government Accountability Office 

(GAO) .................................................................................................................... 9 

Michael E. Chernew, Ph.D., Professor of Health Care Policy, Harvard Medical 

School, Boston, Massachusetts ............................................................................ 26 

Linda J. Blumberg, Ph.D., Principal Research Associate, The Urban Institute 32 

Judy Waxman, Vice President and Director of Health and Reproductive 

Rights, National Women’s Law Center .............................................................. 39 

Wayne Sensor, CEO, Alegent Health, Omaha, Nebraska .................................... 47 

SUBMISSIONS FOR THE RECORD 

America’s Health Insurance Plans (AHIP), statement ......................................... 81 

American Benefits Council, statement ................................................................... 87 

Consumers for Health Care Choices at the Heartland Institute, statement ...... 93 

Consumers Union, statement ................................................................................. 94 

Energy Manufacturing Company, Inc., statement ................................................ 96 

Henderson Brothers, Inc., statement ..................................................................... 97 

Melodee S. Webb, statement ................................................................................... 97 

National Business Group on Health, statement ................................................... 99 

Ross Schriftman, statement .................................................................................... 103 

Terri Buck, statement ............................................................................................. 105 

The Council for Affordable Health Insurance (CAHI), statement ....................... 106 


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HEALTH SAVINGS ACCOUNTS (HSAs) 

AND CONSUMER DRIVEN HEALTH CARE: 

COST CONTAINMENT OR COST SHIFT? 

WEDNESDAY, MAY 14, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:30 a.m., in 

Room 1100, Longworth House Office Building, Hon. Fortney Pete 

Stark (Chairman of the Subcommittee), presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

May 07, 2008 

HL–25 

Stark Announces Hearing on 

Health Savings Accounts (HSAs) 

and Consumer Driven Health Care: 

Cost Containment or Cost Shift? 

House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) announced today that the Subcommittee on Health will hold a hearing on Health Savings Accounts (HSAs) and so-called Consumer Driven Health Care (CDHC) or highdeductible health plans (HDHPs). The hearing will take place at 10:30 a.m. on 

Wednesday, May 14, 2008, in Room 1100, Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

The Medicare Modernization Act of 2003 (MMA) (P.L. 108–173) created new taxpreferred Health Savings Accounts (HSAs) to encourage adoption of high-deductible 

health plans (HDHPs). These accounts allow individuals and/or their employers to 

make tax-preferred contributions toward qualified medical expenses, provided they 

have HDHPs with deductibles of at least $1,100 for individuals and $2,200 for families for 2008. HSA holders can contribute more to the savings account (up to a specified limit) than would be required to fulfill their annual deductible, and any unused 

portions of the account accrue tax-free and can be withdrawn tax-free so long as the 

funds are used only for qualified medical expenses. However, unlike employer-provided Flexible Spending Accounts (FSAs), individuals are not required to prove or 

otherwise substantiate that their HSA withdrawals are being used for health care 

purposes. 

As employers attempt to limit their health costs, some are turning to HDHPs— 

often called ‘‘consumer driven’’ health care plans—which have high-deductibles, 

often in exchange for lower premiums. While HDHPs have grown in recent years, 

only a fraction of those with these plans have active HSAs. These plans shift the 

cost of health care away from insurers and employers and toward individuals. These 

plans are predicated on the assumption that consumers will make more rational 

health care choices if they have a significant financial stake in the cost of their care. 

Proponents of these plans argue that they will help control overall health spending. 

But these plans may discourage consumers from seeking treatment and obtaining 

preventive care, and total health spending could even increase if people defer or 

delay needed preventive care or initial treatment. These plans result in significant 

out-of-pocket costs for those with serious medical conditions. A June 2007 Kaiser 

Family Foundation study found that pregnant women could face high out-of-pocket 

costs under these plans, particularly when complications arise. Furthermore, an 

April 2008 GAO study found that the average HSA enrollees had incomes nearly 

three times the average income of other tax filers and that HSA contributions were 

almost twice that of withdrawals. Simply stated, these policies are designed to help 

those who can afford to put money away to do so, but only serve to put health care 

further out of reach for those with high medical costs and/or modest incomes. 


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In announcing the hearing, Chairman Stark said, ‘‘HSAs and high deductible 

plans are a flawed policy approach to making health care more affordable. 

They make things worse, not better. Instead of using the Tax Code to encourage people to purchase coverage that may be woefully inadequate, we 

should focus on providing comprehensive health care coverage to those 

most in need in the most cost-efficient way possible.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on HSAs and high deductible health plans. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Follow the online instructions, 

completing all informational forms and clicking ‘‘submit.’’ Attach your submission as 

a Word or WordPerfect document, in compliance with the formatting requirements 

listed below, by close of business Wednesday, May 28, 2008. Finally, please note 

that due to the change in House mail policy, the U.S. Capitol Police will refuse 

sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman STARK. Good morning, and we will begin our hearing 

on health savings accounts and high-deductible health plans. 


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In the context of health reform, some people have suggested that 

consumer-driven plans, which is a soft, fuzzy term for cost-shifting 

to patients, offer an effective or even an efficient option to expand 

coverage to the uninsured and to beef up existing coverage. I think 

that nothing could be further from the truth. 

While these plans currently affect a small percentage of those 

with insurance, the ideology behind it seems to be what motivates 

some of our friends and the implications of widespread adoption of 

these plans I think is cause for alarm for all of us. MMA encouraged the adoption of high-deductible plans by creating health savings accounts, HSAs, that permit unprecedented tax-free savings 

for health care if one enrolls in a qualified plan. 

The GAO will confirm for us that these HSAs are disproportionately used by high-income people and GAO’s previous research suggested these plans attract healthier people than average. The selection of healthy, wealthy people, if these plans were widely adopted, 

could lead to a devastating cost increase for all who decided to remain in conventional insurance. It seems to me it’s a waste of resources to forego revenue to advance that goal. We need to focus 

on measures that will help decrease cost and increase access, not 

the reverse. 

The term ‘‘consumer-driven’’ or high-deductible plans are yet another instance in which the conservative rhetoric doesn’t match the 

reality. These plans simply shift costs and responsibilities to consumers. Control may sound good generically, but health care is one 

area where no one is ever clearly in control. Some argue that consumers will make better decisions if they have more skin in the 

game, but health care is not a rational economic market. It’s not 

and never will be like buying an automobile. 

People often make health care decisions when they’re sick, in 

pain, confused, and at their most vulnerable time. Consumer’s 

Union, which publishes consumers reports has submitted written 

testimony to that effect. High deductible plans, especially in the 

non-group market, often exclude basic benefits. 

In my friend Mr. Camp’s district we could not find an HSA-qualified plan that covered maternity care out of over 30 plans that we 

reviewed. In my own district, only four plans would cover maternity benefits, and even if you paid for them out of your pocket, it 

wouldn’t use that as working toward your deductible. 

While HSA eligible, high-deductible plans may exclude preventive benefits from the deductible, most don’t. And while some employers may contribute to the accounts, most don’t. Even Mr. Sensor’s organization, the witness invited to champion this model, only 

contributes 100 bucks to the health savings account. That’s information separately provided to the Committee and not in today’s 

testimony. And that’s probably why few of their employees have 

taken up that option. 

Most of his employees in the HRA-affiliated plan, where they essentially got full coverage and no copayment at all, given the employer contribution, there appears to be no risk or potential loss for 

the employee and no risk for the employer since they retain the 

unspent funds in the account. And, as I say, I have no objection 

to employers self-insuring for the copayment or at-risk portions if 


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they decided to provide first-dollar payment to their employees, 

which I think is a good idea. 

The good things Alegent does in terms of disease management 

can and should be done in conventional plans as well, but simply 

shifting cost to patients isn’t going to result in overall savings. It 

certainly doesn’t encourage people to get needed preventive care 

and it will discourage lower and middle income people from seeking 

care when they need it. It seems penny-wise and pound-foolish. 

If these plans were widely adopted, they might increase costs to 

our health care system, not to mention increase the uninsured 

while eroding the level of coverage among those fortunate enough 

to have insurance today. We must not be distracted from our goal, 

and that is to ensure guaranteed quality, affordable health care for 

everyone. 

I want to note that we may hear a lot of talk today about how 

important it is to have better information, and I agree. But that’s 

a red herring used to advance any policy, including this policy, 

which we’re going to discuss today which we feel is destructive. 

We get good information and put it in the right hands at the 

right time, but that’s a separate topic for another day. 

Chairman STARK. Mr. Camp, would you like to comment? 

Mr. CAMP. Well, thank you, Mr. Chairman. 

Now, for the rest of the story. You know, the Subcommittee’s timing is impeccable since we have a new report that highlighted that 

now, 6.1 million Americans are covered by high deductible health 

plans and in accompanying HSA. The greatest growth in HSA enrollment is now in the small group market where HSA enrollment 

is increased 72 percent over 2007. 

This growth is especially important because these are the same 

sorts of employers who are dropping their health insurance coverage because of rapidly increasing costs. For many small businesses, the affordability of HSAs has enabled them to offer health 

insurance coverage to their employees for the first time. The lower 

costs associated with HSAs have also enabled many small businesses to use those savings to invest in their employee’s HSA accounts. 

Martha Gallenger, who owns Corporate Building Services in 

Olathe, Kansas, wrote, and I quote: ‘‘We started an HSA plan in 

August of 2004. It has lowered our annual cost of insurance by 42 

percent, even with my putting $600 per year in each employee’s 

health savings account.’’ 

Mr. Wayne Sensor, who is the CEO of Alegent Health System in 

Omaha, Nebraska will testify of their costs of decrease by 15 percent, since they began offering consumer-driven health plans to 

their employees. These savings have also allowed Alegent to deposit extra money into all participating employees’ HSAs. 

Frankly, I was surprised to see how the GAO report is being 

cited to make sweeping conclusions about HSA being a tax shelter 

for those with high incomes. The report relies on data from 2005, 

when there was a mere 1 million people enrolled in HSAs. Today, 

there are more than 6 million people in HSA qualifying plans. So, 

again, before this Subcommittee, we have the GAO using incomplete data to draw an erroneous, sweeping conclusion. 


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And, frankly, I want some answers as to why this is continually 

happening and again I am going to send a letter to the acting controller and try to get some answers. There is also a flood methodology in this report as we have seen in the past. They are only analyzing HSA accounts that had money either added or withdrawn, 

leaving aside all the HSA accounts that had no activities. 

They have also compared HSA account filers with all other taxpayers. Those who are insured and uninsured, skewing the result 

on income as well, and so by including the uninsured they get a 

distorted income amount. So, again, I think they have the wool 

pulled over the eyes of this Committee. I am ready for a frank and 

open discussion on this issue, but to skew these reports, to pull the 

wool over the eyes of this Committee is improper. 

So, beyond the fact that enrollment has grown six-fold from the 

date the GAO looked at, GAO’s findings are directly contradicted 

by information from actual HSA plans, which found that 45 percent 

of HSA accountholders made less than 45,000 a year. Unlike the 

2005 data used by GAO, we have also heard from many employers, 

whose current experiences demonstrate how HSAs directly benefit 

more low and middle income workers. And it shouldn’t be a surprise, given they have lower premiums. 

Mr. Sensor’s experience with HSAs also highlights the need for 

health care consumers to have more information about the price 

and quality of health care services. As a result of their experience 

with HSAs, Alegent now posts their quality data and the costs of 

most services on their website. With a few clicks, you can now find 

out exactly how much an episode of care any of their nine hospitals 

will cost you and review their quality data, enabling consumers to 

make informed decisions about their health care. 

Now, I don’t believe HSAs are the only solution and that they 

alone will cure all of our current health care problems, but it is indisputable that because of HSAs, millions of Americans have been 

able to purchase affordable health insurance coverage for themselves and their families. 

Rather than trying to undermine a successful product, we should 

focus on how we can use HSAs to increase insurance coverage and 

reduce health care costs. I also hope that we can work together to 

provide greater price transparency and better quality data to empower all health care consumers in their quest to receive affordable 

and effective care. 

And to that end I ask unanimous consent to submit a letter from 

the HSA working group, about 35 associations and other groups to 

this Committee, as well as a survey from the Center for Policy and 

Research on Health Insurance Plans. It actually has, I think, a better methodology than the official reports we’ve been getting from 

the GAO. 

Thank you. 

[The letter follows:] 


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Chairman STARK. Oh, absolutely, without objection. 

I would concur the gentleman’s remarks that often our data lags 

behind the changes and I for instance would be curious. A very 

small percentage of HSA policyholders actually had savings accounts and I would be curious to know whether that changed. In 

other words, the growth in policies sold, I think, your data is probably, I’d have no clue. 

The question in my mind would be are we just encouraging high 

deductible plans; and are the people actually putting any money in 

it, which we don’t know. And I think today we can discuss whether 

that’s useful or not, and we’ve got a panel here. And I would ask 

all of our witnesses that I will introduce in just a moment if they 

could address at least estimates or comment on where they think 

we are since 2005. 

Was that data 2005? 

Mr. CAMP. Yes. 

Chairman STARK. And where we think in the last 3 years times 

have changed or the approaches have varied, or whether it is fair 

to extrapolate or not. 

We are going to hear from John Dicken, the Director of Health 

Care with the GAO; from Dr. Michael Chernew, the Professor of 

Health Care Policy at the Harvard Medical School; from Dr. Linda 

Blumberg, who is the Principal Research Associate at the Urban 

Institute; from Ms. Judy Waxman, who is Vice President and Director of Health and Reproductive Rights at the National Women’s 

Law Center; Mr. Wayne Sensor who is CEO of Alegent Health in 

Omaha, Nebraska. And I ask each of the witnesses to summarize 

their testimony or expand on it in approximately 5 minutes. 

We will have a lot of time during inquiry to dig into your testimony in more detail; and, I would say to the Members who are 

going to have, I understand, a few procedural votes this morning, 

I would hope not to recess the Committee for any longer than is 

necessary. And I would say to the Members if we get one Member 

from each side of the aisle back after a vote, just commence the 

hearings, and so we can move right along and not inconvenience 

the witnesses or the Members. 

Mr. Dicken, would you like to proceed? 

STATEMENT OF JOHN E. DICKEN, DIRECTOR, HEALTH CARE, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO) 

Mr. DICKEN. Thank you. 

Mr. Chairman, Ranking Member Camp, and Members of the 

Subcommittee, I am pleased to be here today as the Subcommittee 

discusses issues related to health savings accounts and HSA eligible high deductible health plans. 

HSAs were introduced in 2004 and HSA-eligible health plans are 

now a small but growing share of the private health insurance 

market with more than 6 million Americans covered. These health 

plans have three components: first is a deductible, significantly 

higher than typical with more traditional plans; second is the actual HSA, a tax-advantaged account for paying medical expenses 

and accumulating savings; and, third, is often a decision-support 

tool to provide enrollees with standardized information on the cost 

and quality of health care providers and services. 


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My remarks today highlight several key points from my written 

statement, which is based primarily on GAO’s April 2008 report entitled, ‘‘Health Savings Accounts: Participation Increased and Was 

More Common Among Individuals with Higher Incomes.’’ As health 

insurance premiums have continued to rise, more people have purchased HSA-eligible plans, paying lower premiums in exchange for 

the higher deductible. A series of health insurance carrier surveys 

reported that the number of lives covered by these plans increased 

sharply from about 138,000 in September 2004 to an estimated 6.1 

million in January 2008. 

Participation in HSAs has also grown. Our analysis of IRS data 

showed that the number of tax filers aged 19 to 64 reporting HSA 

activity nearly tripled from about 120,000 in 2004 to about 355,000 

in 2005. Industry estimates indicate continued growth in HSA participation through 2007. While the enrollment growth has been 

striking, survey estimates indicate that more than 40 percent of eligible health plan enrollees did not open an HSA. Further, more 

than 20 percent of these enrollees did not plan to open an HSA citing their inability to afford it or belief that they did not need one. 

Turning to those with an HSA, tax filers who reported HSA activity generally had higher incomes than other tax filers. The average, adjusted, gross income for those reporting HSA activity in 

2005 was about $139,000 compared with about $57,000 for other 

tax filers. Such income differences between HSA and other filers 

existed across all age groups and within different tax filing 

statuses, such as single or joint ex-filers. The situation was similar 

for Federal employees enrolled in the Federal Employees Health 

Benefits Program. In 2005, 43 percent of active employees enrolled 

in an HSA-eligible plan earned a Federal income of $75,000 or 

more compared with 23 percent of all enrollees. 

Let me turn to how participants funded and used their HSAs. 

Among all tax filers reporting HSA activity in 2005, average contributions were about $2,100, about double the average withdrawals of about $1,000. Among filers reporting HSA contributions, 

about 41 percent did not withdraw any funds that year, while 

about 22 percent withdrew as much or more than they contributed 

in 2005. This is consistent with statements from industry experts 

that characterize HSA accountholders as either savers or spenders. 

Of the HSA funds withdrawn in 2005, about 93 percent of reported withdrawals were claimed for qualified medical expenses. 

The remaining 7 percent of withdrawals were reported for nonqualified expenses, which are subject to tax and, if withdrawn before age 65, an additional tax penalty. However, we reported in 

2006 that enrollees were sometimes unsure what medical expenses 

qualified for payment using their HSAs. 

Finally, as HSAs attract more participants and average account 

balances grow, the availability of tools to guide consumers in making informed health care decisions will be even more important. 

Few HSA-eligible plan enrollees who participated in focus groups 

we conducted in 2006, researched the cost of services, other than 

prescription drugs, before obtaining care. 

Further, industry experts and employers told us that the tools 

provided by insurance carriers often did not provide sufficient information to allow enrollees to fully assess the cost and quality 


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tradeoffs of their purchasing decisions. Overcoming these barriers 

will likely require time, education and improved tools to provide 

enrollees with better information about the cost and quality of their 

health care. 

Mr. Chairman, this concludes my statement. 

I will be happy to answer any questions that you or Members of 

the Subcommittee may have. 

Thank you. 

[The prepared statement of John Dicken follows:] 


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Chairman STARK. Thank you. 

Dr. Chernew, would you like to enlighten us? 

STATEMENT OF MICHAEL E. CHERNEW, PH.D., PROFESSOR OF 

HEALTH CARE POLICY, HARVARD MEDICAL SCHOOL, BOSTON, MASSACHUSETTS 

Mr. CHERNEW. Thank you, Chairman Stark and Ranking Member Camp and Members of the Health Subcommittee for inviting 

me here today to speak to you about this important topic. 

I believe that we all share the goal of trying to reform the health 

care system in ways that will improve the quality of care and control the costs. Today, I am going to speak with you about how costsharing can help us meet those objectives. I should preface my remarks by saying that as an economist I believe in markets. 

I believe consumers in general are best situated to assess their 

desires and act accordingly in the market. But, as a growing body 

of research demonstrates, markets do not always work well. And 

I think health care is an area where we were concerned about markets failing. 

There are several reasons why I think health care markets are 

particularly problematic. First, the consequences of a poor decision 

in health care are worse than the consequences of poor decisions 

in many other markets, including, for example, death. So it matters 

if people don’t make the right choices. 

Second, in health care markets information is particularly complex. It is very difficult to ask consumers to make judgments about 

medical things. It is particularly difficult, because many times 

those decisions are being made in situations in which the individual is stressed. They might be very emotional. 

In some cases, they are cognitively impaired. It is hard to expect 

people in those situations to respond appropriately to price signals. 

Moreover, in many cases, the decisions need to be made quickly, 

making it difficult to shop or make the decision that we might 

think is appropriate in retrospect. 

Finally, there are a series of institutional details about health 

care markets, including the role of physicians, and including the restrictions placed on patients sometimes by insurers that may mute 

their response to price signals. I’d like to talk for a moment about 

the evidence examining cost-sharing in health care markets. 

The first thing, and I say this is soothing to me as an economist, 

if you charge people more, they consume less. That’s true of almost 

all markets. What is more disturbing in health care is I think there 

is a large and growing body of research that suggests that when 

you charge people more for their health care, they cut back on appropriate treatment to the same extent as they cut back on inappropriate treatment. 

There is evidence on that point dating back decades from a randomized trial, perhaps the strongest design suggesting that that is 

true. There is a growing body of evidence now, looking at how people managed their chronic disease, particularly pharmaceuticals, 

that suggests that when you charge people more for their services 

they consume them less often. 

Some particular results: In one study, 21 percent of patients 

when charged a modest co-pay dropped their use of cholesterol 


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27 

medications, compared to 11 percent in a control group. One study 

suggested a doubling of co-pays, reduced use of hypertensive medications by 10 percent amongst individuals with hypertension; and 

there’s a long list of studies of this nature. 

Moreover, we are very interested in quality. A lot of resources 

have been devoted to measuring quality. Some studies that we 

have done, as well as others suggest that when patients are 

charged they perform worse on the indicators of quality that we 

have developed—things like mammograms. 

And finally, and perhaps not surprisingly, in the study we have 

recently published we have found that low income individuals are 

more sensitive to price than higher income individuals. In our 

study, people with diabetes were three times more sensitive to 

price when taking their blood pressure medications if they lived in 

a low income area compared to other individuals. 

The solution, incidentally, I don’t believe, is to abandon caution 

cost sharing completely. What I think is true is that we need to 

simply have smarter cost sharing. My colleagues and I have been 

advocating an idea called ‘‘value-based insurance design,’’ which 

advocates keeping co-pays low on high value services. 

There is a number of employers, (Pitney Bowes, the University 

of Michigan), insurers (Aetna and their Active Health Management 

subsidiary), employee benefit consulting firms, (Hewitt and Associates), that have been at the vanguard of designing these more sophisticated cost-sharing plans. In order to make these things work, 

I need to emphasize we need more and better clinical research such 

as embodied by comparative effectiveness research. We need more 

and better health services research to understand the ways individuals responsd to information and price signals. We need to know 

more so we can be more sophisticated in designing programs that 

will help us meet our objectives. 

So in summary let me say just because there are areas where 

cost-sharing works, and I believe there are, that doesn’t imply that 

it works for everybody more broadly. Similarly, just because there 

is an area where cost-sharing does not work doesn’t imply that 

cost-sharing can never work. In the future I think we need to be 

more sophisticated and strive to avoid financial barriers to high 

quality care and successful treatment for patients with chronic disease. 

So thank you very much for your time and I welcome your questions. 

[The prepared statement of Michael Chernew follows:] 

Prepared Statement of Michael E. Chernew, Ph.D., Professor of Health 

Care Policy, Harvard Medical School, Boston, Massachusetts 

Thank you, Chairman Stark, Ranking Member Camp, and Members of the Subcommittee for inviting me to testify on the impact of cost sharing on outcomes in 

health care markets. Rising health care costs represent perhaps the most important 

long-run challenge facing the American health care system and even the economy 

overall. At the same time, we worry that too often the quality of care delivered by 

the health care system is below the level we would desire. I believe many of you 

share my goal of finding ways to reform the health care system to control costs and 

improve quality. 

Today I am going to talk about the role that patient cost sharing at the point of 

service may play in achieving those goals. Requiring patients to pay more when they 

receive care is among the solutions purchasers have adopted to address the fiscal 

pressure represented by rising costs. Relatively new health insurance packages, 


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such as high deductible plans that may be accompanied by Health Savings Accounts, exemplify this trend. Yet the movement towards greater cost sharing by patients at the point of services extends much more broadly. Patient copayment rates 

and deductibles have been rising even in more conventional plans. 

I will make two basic points. First, patient cost sharing is neither good nor bad. 

Its merits depend on the context. In some cases cost sharing can promote efficiency 

and quality. In other cases it can lead to inefficiency and poor health outcomes. Second, a greater investment in clinical and behavioral research is needed to help us 

design systems that can use cost sharing and other tools to achieve our health care 

goals. 

I would like to preface my remarks by noting that, as an economist, I believe that 

market mechanisms are, in general, the best way to achieve efficient allocations of 

resources. In most settings consumers should determine what goods and services 

they desire and act accordingly in the market place. Over the course of our history 

reliance on free markets and consumer sovereignty has served us very well. However, my general appreciation of markets does not imply a belief that they always 

work well. There is a growing body of evidence in economics documenting deviations 

between consumer behavior and standard economic theory. For example, contrary 

to standard economic models, evidence suggests that consumers are much more likely to participate in retirement savings programs if they are automatically enrolled, 

with the option of opting out, than if they must actively choose to participate.1 Similarly, in contrast with standard economic models, evidence suggests that when consumers are given a wide choice of products (e.g. different varieties of jelly) they are 

less likely to purchase any product than when they are given only a few choices.2

These paradoxes do not negate the merits of markets, but they do enrich our understanding of individual behavior and can suggest that policy interventions may improve welfare. 

Having studied health care markets for about two decades I believe that, despite 

my general faith in markets, health care markets are an instance in which we 

should be cautious about blindly relying on market principles. There are a number 

of reasons health care markets are unique. Perhaps most importantly, the outcomes 

associated with poor consumer decisionmaking can be more serious, including death, 

than in other markets. Furthermore, institutional details of decisionmaking, including the complexity of information, increase the potential for undesired outcomes. It 

seems unreasonable to expect a patient to choose between bare metal and drug eluding stents when the medical evidence is conflicting. Even the choice of hospital or 

physician may be difficult because of the many attributes of different providers and 

because of complex provider-plan relationships. For example, physician privileges 

may be limited to certain hospitals, plan provider networks often limit access to certain doctors and hospitals, and physician practices may be closed to new patients. 

These institutional details will limit the ability of consumers to respond to price signals. These decisions are even more difficult when patients are cognitively impaired, 

very emotional or stressed, or when they need to make decisions quickly. One would 

not expect, for example, a patient suffering chest pain will be able to weigh tradeoffs 

between institutions prior to seeking care. The role of physicians complicates the 

ability of patients to weigh options. Certainly patients have a say in their care, but 

in many situations they are heavily influenced by physicians and it may be unlikely 

(perhaps appropriately in some cases) that they would respond to market signals 

if those signals conflicted with their physicians advice. Finally, consumers desire 

protection against the financial risk of illness. In situations in which cost sharing 

does not alter patient behavior, greater cost sharing does nothing to change overall 

spending and has no beneficial incentive effects. It simply represents a tax on sick 

patients. In these instances, greater cost sharing has no beneficial incentive effects 

and just represents a tax on patients. For these reasons, policymakers and private 

purchasers must consider the potential for unintended outcomes when promoting 

interventions such as greater consumer cost sharing. 

Cost sharing reduces utilization and expenditures 

As with any good, the demand for health care services is responsive to price. 

When patients are charged more for care, they will consume fewer health care services. Estimates from a randomized trial suggest that when patients were required 

to pay 95% of their care (up to an out-of-pocket maximum that was based on their 

income) they reduced spending by over 30%.3 The responsiveness may be even higher as cost sharing requirements grow as a share of income. To proponents of high 

cost sharing, this response is desirable. They could rightly note that considerable 

evidence suggests that greater use of health care services is not consistently related 

to better outcomes and that it is likely we could reduce utilization and spending 

without adversely affecting the health of Americans. In this view of the world, conVerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 E:\HR\OC\50037.XXX 50037

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sumers, when faced with the correct incentives, would drive the system to efficiency 

as we believe they do in most other markets. 

When facing higher cost sharing in health care consumers forgo important 

services 

As much as it pains me to admit it, important aspects of standard economic models appear to be often violated in health care markets. Specifically, economists often 

assume that if prices charged to consumers rise, individuals will forgo less valuable 

services and continue to consume services of high value. Extensive evidence suggests that in health care markets this assumption may be incorrect in many instances. For example, the RAND health insurance experiment, which documented 

patient response to cost sharing, found that patients reduced utilization of services 

deemed clinically appropriate by the same amount as they reduced the use of services deemed clinically inappropriate.4

Similarly, more recent research has documented that relatively modest increases 

in cost sharing reduces utilization of important medications for managing chronic 

disease.5 11 For example, Goldman and colleagues report that a doubling of copayments reduced use of anti-diabetes medications by patients with diabetes by 23% 

and reduced use of anti-hypertension medications by patients with hypertension by 

10%.7 Huskamp and colleagues report that when an employer increased cost sharing requirements by about $10 to $20 per prescription (depending on the exact medication), that 21% of patients stopped taking their medication for high cholesterol (compared to 11% in a control group).8 Reducing copayment rates seems to have the opposite effect. Research that my colleagues and I published in January found that 

reduction in copayments of about $10 per prescription increased patient adherence 

to treatment regimes for chronic disease.12 Recent reviews of the literature confirm 

these conclusions.6,13

Interestingly, while a lot of attention has been devoted to measuring the quality 

of care in this country, we seldom appreciate the impact that greater cost sharing 

may have on quality of care measures. For example, the Healthcare Effectiveness 

Data and Information Set (HEDIS) is a list of quality indicators maintained by the 

National Committee of Quality Assurance (NCQA). Forthcoming work that my colleagues and I have done, examining a subset of those measures, suggests that higher cost sharing will reduce quality.14 Other research that Trivedi and colleagues 

published supports that finding.15 If we care about quality, and I truly hope we do, 

we must be concerned about the impact of cost sharing. 

Not surprisingly, cost sharing may affect disparities in health care related to income. We have recently published a study suggesting that the impact of higher cost 

sharing is greater among lower income individuals.16 Specifically, we found that individuals living in low income areas were much more sensitive to price than individuals in high income areas. For example, patients with diabetes in low income areas 

were over three times more sensitive to costs when using blood pressure medication, 

a very important component of diabetes care, than patients in high income areas. 

This is consistent with results from the Rand Health Insurance experiment that 

found the adverse health effects related to cost sharing were limited to patients with 

specific chronic diseases (hypertension and vision) and greater among low income 

individuals.17

It is important to assess how these results relate to health outcomes. In theory 

we should expect to see adverse consequences of reduced use of high value services. 

Evidence on this point is still developing, and conflicting evidence can be found, but 

I believe the best evidence suggests adverse consequences of higher cost sharing. 

Hsu et al. report that higher cost sharing for prescription drugs had worse physiological outcomes (e.g. blood pressure), more visits to the emergency room, and even 

greater mortality.18 The savings associated with reduced drug spending were almost 

completely offset by the higher non-drug spending. Chandra et al. report offsets of 

lesser magnitudes, but the basic message, that high cost sharing can lead to worse 

compliance with important health care services and, in turn, result in worse health 

outcomes, is supported.19

Proponents of cost sharing might argue that this evidence underscores the importance of patient education. Certainly patient education is important (though I might 

add not costless). While I believe education interventions can improve compliance 

with important services, I am skeptical that it can substantially reduce the price 

sensitivity of patients to higher cost sharing. Our study of copay reductions that I 

referred to earlier, which demonstrated how patients responded to lower copayment 

rates, was conducted in a setting that already had a sophisticated care management 

intervention in which patients and physicians were contacted about their care and 

the results suggested the responsiveness to cost sharing was similar to that in other 

studies.12


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It is important to recognize that the fact that consumers market poor decisions 

in health care markets does not mean that there are not settings where markets 

in health care work well, particularly in situations that are relatively straightforward and consumers have time to decide. Moreover, some consumers are undoubtedly more capable of successfully navigating markets than others. Certainly 

when the stakes are high, some consumers can do a better job of making decisions 

than others. Identification of patients or situations in which markets work well does 

not imply that market mechanisms should be used without modification in health 

care any more than identification of patients or situations in which markets cannot 

work implies markets should never be used. 

Towards smarter cost sharing 

The fundamental question is how we can design our system to recognize the failures of markets and heterogeneity of patients and treatments. Purchasers and policymakers must strive to design benefit packages that recognize the variation in 

value that health care services offer and attempt to avoid creating financial barriers 

for access to high value services. The paradigm of Value Based Insurance Design 

(VBID) reflects this approach, arguing that copays should be kept low for high value 

services.20

Several employers, insurers and benefit consulting firms have begun to adopt 

VBID style benefit packages. For example, Pitney Bowes reduced cost sharing requirements for important chronic disease medications and reported very favorable 

results. The University of Michigan designed a benefit package for employees and 

dependents with diabetes that focused on minimizing financial barriers to access for 

important services. Insurers such as Aetna have developed a range of initiatives related to VBID, with ActiveHealth Management (a subsidiary of Aetna) using its sophisticated care manage information system as a platform to support VBID. Hewitt 

Associates, a large employee benefit consulting firm has begun consulting with clients for such programs. These are only a few examples, but they demonstrate the 

feasibility of such a clinically sensitive approach to cost sharing. 

VBID programs are just in their infancy and are no panacea for all of the challenges facing the health care system. Yet to the extent that consumerism, and more 

specifically cost sharing, is a part of the solution, VBID can help mitigate adverse 

effects. Moreover, VBID programs can support quality improvement initiatives by 

removing barriers to the services being promoted. 

The potential of sophisticated cost sharing programs such as VBID depends on 

our ability to support the health services research upon which these programs rely. 

Not only do we need the type of research that is encompassed by comparative effectiveness research, but we also need greater investment in the social science research 

that helps us understand patient behavior. Funding of such work will enable us to 

provide answers to the central questions concerning how we can design a better 

health care system capable of controlling costs, maintaining (or even improving) the 

quality of care, and providing patients with the autonomy to make decisions central 

to their well-being. 

Summary 

Greater patient responsibility for the costs of their care will undoubtedly be an 

important part of the healthcare system in the future. However, details of the 

health care market suggest that cost sharing may have both beneficial and detrimental effects. Proponents of cost sharing focus on situations in which there is overconsumption of care or consumers can be expected (but fail in practice) to shop for 

the provider offering the best price/quality combination. In these cases, cost sharing 

can encourage efficient consumption of care. However, in other cases, when care is 

appropriate or when consumers cannot respond to market signals, cost sharing can 

lead to worse outcomes. Evidence suggests that in many situations cost sharing will 

reduce the likelihood that patients will consume appropriate services. This could 

lead to hospitalization, emergency room visits, and even death. Even if the cost 

sharing does not alter patient behavior, the associated cost shifting reduces wellbeing. Specifically, consumers’ desire to mitigate some of the financial risk associated with illness suggests that it is difficult to rely on the price mechanism to allocate resources in the same manner as in other markets. If we charge patients the 

full cost when they need health care services, we would be transferring a substantial risk to patients that is generally not considered by economists to be optimal. 

More sophisticated cost sharing programs, supported by rigorous clinical and health 

services research are needed to balance our need to control spending with our desire 

to get the most from our health care system. 

Thank you very much for the opportunity to speak with you today and I welcome 

your questions. 


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References 

1. Choi JJ, Laibson D, Madrian B, and Metrick A, Optimal Defaults and Active 

Decisions. 2005. NBER Working Paper #11074. 

2. Iyengar SS and Lepper MR, When Choice Is Demotivating: Can One Desire 

Too Much of a Good Thing? Journal of Personality and Social Psychology, 2000. 

79(6): p. 995–1006. 

3. Manning WG, Newhouse JP, Duan N, Keeler EB, and Liebowitz A, Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment. The American Economic Review, 1987. 77(3): p. 251–257. 

4. Siu AL, Sonnenberg FA, Manning WG, Goldberg GA, Bloomfield ES, 

Newhouse JP, et al., Inappropriate use of hospitals in a randomized trial of health 

insurance plans. New England Journal of Medicine, 1986. 315(20): p. 1259–66. 

5. Gibson TB, McLaughlin CG, and Smith DG, A Copayment Increase for Prescription Drugs: the Long-term and Short-term Effects on Use and Expenditures. Inquiry, 2005. 42(3): p. 293–310. 

6. Gibson TB, Ozminkowski RJ, and Goetzel RZ, The Effects of Prescription Drug 

Cost Sharing: A Review of the Evidence. American Journal of Managed Care, 2005. 

11(11): p. 730–740. 

7. Goldman DP, Joyce GF, Escarce JJ, Pace JE, Soloman MD, and Laouri M, 

Pharmacy Benefits and the Use of Drugs by the Chronically Ill. The Journal of the 

American Medical Association, 2004. 291(19): p. 2344–50. 

8. Huskamp HP, Deverka PA, Epstein AM, Esptein RS, McGuigan KA, and 

Frank RG, The Effect of Incentive-Based Formularies on Prescription-Drug Utilization and Spending. New England Journal of Medicine, 2003. 349(23): p. 2224–232. 

9. Landsman PB, Yu W, Liu X, Teutsch SM, and Berger ML, Impact of 3-tier 

Pharmacy Benefit Design and Increased Consumer Cost-Sharing on Drug Utilization. The American Journal of Managed Care, 2005. 11(10): p. 621–8. 

10. Soumerai SB, McLaughlin TJ, Ross-Degnan D, Casteris CS, and Bollini P, Effects of a limit on Medicaid drug-reimbursement benefits on the use of psychotropic 

agents and acute mental health services by patients with schizophrenia. New England Journal of Medicine, 1994. 331(10): p. 650–5. 

11. Tamblyn R, Laprise R, Hanley JA, Abrahamowicz M, Scott S, Mayo N, et al., 

Adverse events associated with prescription drug cost-sharing among poor and elderly persons. The Journal of the American Medical Association, 2001. 285(4): p. 421– 

9. 

12. Chernew ME, Shah MR, Wegh A, Rosenberg SN, Juster IA, Rosen AB, et al., 

Impact of Decreasing Copayments on Medication Adherence Within a Disease Management Environment. Health Affairs, 2008. 27(1): p. 103–112. 

13. Goldman DP, Joyce GF, and Zheng Y, Prescription Drug Cost Sharing. Associations with Medical Utilization and Spending and Health. The Journal of the 

American Medical Association, 2007. 298(1): p. 61–27. 

14. Chernew ME and Gibson TB, Cost Sharing and HEDIS Performance. Medical 

Care Research and Review, Fourthcoming 2008. 

15. Trivedi AN, Rakowski W, and Ayanian JZ, Effect of cost-sharing on screening 

mammography in Medicare Health Plans. New England Journal of Medicine, 2008. 

358(4): p. 375–383. 

16. Chernew ME, Gibson TB, Yu-Isenberg K, Sokol MC, Rosen AB, and Fendrick 

AM, Effects of Increased Patient Cost Sharing on Socioeconomic Disparities in 

Health Care. Journal of General Internal Medicine, 2008. 

17. Newhouse JP, Free for All. Lessons from the RAND Health Insurance Experiment. 1996, Cambridge, MA.: Harvard University Press. 

18. Hsu J, Price M, Huang J, Brand R, Fung V, Hui R, et al., Unintended consequences of caps on Medicare drug benefits. New England Journal of Medicine, 

2006. 354(22): p. 2349–59. 

19. Chandra A, Gruber J, and McKnight R, Patient Cost-Sharing, Hospitalization 

Offsets, and the Design of Optimal Health Insurance for the Elderly. 2007. NBER 

Working Paper No. W12972. 

20. Chernew ME, Rosen AB, and Fendrick AM, Value-Based Insurance Design. 

Health Affairs, 2007. 26(2): p. w195–w203. 

f 

Chairman STARK. Thank you. 

Dr. Blumberg, would you like to proceed please? 


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STATEMENT OF LINDA J. BLUMBERG, PH.D., PRINCIPAL 

RESEARCH ASSOCIATE, THE URBAN INSTITUTE 

Ms. BLUMBERG. Mr. Chairman, Mr. Camp and distinguished 

Members of the Subcommittee, thank you for inviting me to share 

my views on health savings accounts and their implications for 

cost-containment and the distribution of health care financing burdens. 

The views I express are mine alone and should not be attributed 

to the Urban Institute, its trustees or its funders. In brief, my main 

points are the following. 

The related issues of a large and growing number of uninsured 

Americans and the escalating cost of medical care create problems 

of limited access to necessary medical care for millions of Americans; financial hardship for many households, and severe budgetary pressures on the public health care safety net as well as on 

Federal and State government. However, HSAs are not the solutions to these pressing national concerns. 

HSAs provide additional subsidies to the people most likely to 

purchase health insurance—even in the absence of no subsidy at 

all—those with high incomes. As income and marginal tax rates increase, the value of the tax exemption increases as well, and the 

interest, dividends and capital gains earned on HSA balances 

grows in addition. Because most of the uninsured have low incomes 

and get little to no value from tax exemptions, the subsidies are 

very poorly targeted for expanding coverage. 

Because of the highly skewed nature of health care spending, the 

highest spending 10 percent of the population accounts for 70 percent of total health expenditures, cost containment strategies that 

do not deal substantially with the high users of health care services 

will not have a significant effect on overall spending. 

The cost saving potential of HSAs is on the spending before the 

deductible is reached, and most of health care spending occurs by 

high users of services after the deductibles are met. This significantly limits the ability of HSAs to lower systemwide health care 

spending. But, to the extent that the high deductible plans raise 

costs for high cost users, their use of medical services may fall, but 

there are no provisions to help these patients choose the services 

most important to their health. So reductions in care could lead to 

expensive, catastrophic health consequences in the long run. Because high deductible plans with or without HSAs place greater financial burdens on frequent users of medical care than do comprehensive policies, they tend to attract healthier enrollees. This 

selection can raise costs for the less healthy. Unless the costs of the 

high users of care are spread more broadly by manipulating premiums across plan types or through regulation or subsidization, 

this dynamic will make coverage less affordable for those with the 

greatest medical needs. 

Despite lower premiums compared with comprehensive plans, 

high deductible HSA plans have so far failed to attract many lowincome, uninsured individuals and families. In addition to the fact 

that they get little tax benefit, they often do not have assets to 

cover the high deductibles. The one size fits all high deductible policy under the HSA legislation is flawed, since for example the 

$2200 deductible could be financially ruinous for a low income famVerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\50037.XXX 50037

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ily, while the same deductible could have virtually no cost containment impact for a high income family. 

Roughly half of those with HSA-compatible, high deductible policies do not open HSAs despite the tax advantages. Two-thirds of 

employers offering single coverage through high-deductible/HSA 

combinations report making no contribution to the HSAs of their 

workers. As a consequence, low income or high health care-need 

workers with no choice of coverage, but a high deductible/HSA plan 

are likely to be exposed to much larger out-of-pocket financial burdens than they would be under a comprehensive policy. 

At present, the legal use of HSAs is far more tax-favored than 

is any other health or retirement account. Contributions, earnings, 

and withdrawals for HSAs can be tax free, if spending is healthrelated. However, there is no mechanism in place other than being 

subjected to a general tax audit to verify that spending out of HSA 

balances is actually being done for medical purposes. 

Conversely, Medical Flexible Spending Accounts do have 

verification mechanisms in place that add very little to the costs of 

the plans. Having verification requirements would prevent the 

legal use of HSAs as a general tool of tax evasion. 

Effective expansions of health insurance coverage will require 

subsidies targeted to those with modest incomes, and possibly those 

with high medical care needs as well, a guaranteed source for obtaining adequate, affordable coverage, and ideally a requirement or 

guarantee that all individuals have insurance coverage. Effective 

cost containment will require research and investment in a number 

of promising strategies including evaluation of cost-effectiveness of 

new and existing technologies combined with strategies to target 

resources to cost-effective care, increasing the cost of preventive 

care, the use of preventive care; identifying and increasing the use 

of cost-effective preventive care and high cost case management 

strategies. 

Payment reform and development of purchasing strategies that 

promote the consistent delivery of care in efficient and appropriate 

settings; and administrative cost saving strategies, including development of effective information technology infrastructure. HSAs 

and high deductible are not the easy answer to what ails the U.S. 

health care system. Unfortunately, there is no easy answer, but 

there are promising strategies that are worth devoting our attention and resources to. 

Thank you very much and I welcome your questions. 

[The prepared statement of Linda Blumberg follows:] 

Prepared Statement of Linda J. Blumberg, Ph.D., Principal Research 

Associate, The Urban Institute 

Mr. Chairman, Mr. Camp, and distinguished Members of the Subcommittee: 

Thank you for inviting me to share my views on Health Savings Accounts (HSAs) 

and their implications for cost containment and the distribution of health care financing burdens. The views I express are mine alone and should not be attributed 

to the Urban Institute, its trustees, or its funders. 

In brief, my main points are the following: 

• The related issues of a large and growing number of uninsured Americans and 

the escalating cost of medical care create problems of limited access to necessary medical care for millions of Americans, financial hardship for many 

households, and severe budgetary pressures on the public health care safety net 


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34 

as well as on Federal and State government. However, HSAs are not the solutions to these pressing national concerns. • HSAs provide additional subsidies to the people most likely to purchase health 

insurance even in the absence of no subsidy at all—those with high incomes. 

As income and marginal tax rates increase, the value of the tax exemption associated with contributions to HSAs and the interest, dividends, and capital gains 

earned on HSA balances grows as well. Because most of the uninsured have low 

incomes and get little or no value from tax exemptions, the subsidies are very 

poorly targeted for expanding coverage. • Because of the highly skewed nature of health care spending—the highestspending 10 percent of the population accounts for 70 percent of total health 

expenditures—cost containment strategies that do not deal substantially with 

the high users of health care services will not have a significant effect on overall 

spending. The cost saving potential of HSAs is on spending before the deductible is reached, and most of health care spending occurs by high users of services, after the deductibles are reached. This significantly limits the ability of 

HSAs to lower systemwide health care spending. • To the extent that high-deductible plans raise costs for higher-cost users, their 

use of medical services may fall. But there are no provisions to help these patients choose the services most important to their health, so reductions in care 

could lead to expensive, catastrophic health consequences in the long run. Moreover, patients’ ability to compare health care providers on the basis of cost and 

quality is extremely limited. As a consequence, high-deductible plans and HSAs 

have a limited ability to make patients better value shoppers. 

• Because high-deductible plans with or without HSAs place greater financial 

burdens on frequent users of medical care than do comprehensive policies (policies with lower out-of-pocket maximums and possibly broader sets of covered 

benefits), they tend to attract healthier enrollees. This selection can raise costs 

for the less healthy. The higher-cost insured population remaining in comprehensive coverage will tend to see their premiums rise as the healthy peel 

off into high-deductible/HSA plans. Unless the costs of these high users of care 

are spread more broadly by manipulating premiums across plan types or 

through regulation or subsidization, this dynamic will make coverage less affordable for those with the greatest medical needs. 

• Despite lower premiums compared with comprehensive plans, high-deductible/ 

HSA plans have so far failed to attract many low-income uninsured individuals 

and families. In addition to the fact that they get little tax benefit, they often 

do not have assets to cover the high deductibles—and have decided that they 

are better off remaining uninsured. The ‘‘one size fits all’’ high-deductible policy 

under the HSA legislation is flawed since, for example, a $2,200 deductible 

could be financially ruinous for a low-income family, while the same deductible 

could have virtually no cost-containment impact for a high-income family. 

• Roughly half of those with HSA-compatible, high-deductible policies do not open 

HSAs (GAO 2008), despite the tax advantages of doing so. Two-thirds of employers offering single coverage through high-deductible/HSA combinations report making no contribution to the HSAs of their workers (Kaiser Family Foundation/Health Research and Education Trust 2007). As a consequence, low-income or high health-care-need workers with no choice of coverage but a highdeductible/HSA plan are likely to be exposed to much larger out-of-pocket financial burdens than they would be under a comprehensive policy, since employers 

are not, by and large, offsetting these higher deductibles with cash contributions to HSAs. Presented with the option of making varying contributions to 

HSAs as a function of worker income or health status, employers are highly unlikely to do so. 

• At present, the legal use of HSAs is far more tax favored than is any other 

health or retirement account. Contributions, earnings, and withdrawals for 

HSAs can be tax free, if spending is health related. However, there is no mechanism in place, other than being subjected to a general tax audit, to verify that 

spending out of HSA balances is actually being done for medical purposes. Medical Flexible Spending Accounts (FSAs), a much more widely used tax-advantaged account for paying out-of-pocket medical costs, do have verification mechanisms in place that add very little to the costs of the plans. H.R. 5917 would 

prevent the illegal use of HSAs as a general tool of tax evasion. 

Background 

Between 2000 and 2006, employer-based health insurance premiums grew by 86 

percent, compared with 20 percent for worker earnings and 18 percent for overall 

inflation (Kaiser Family Foundation and Health Research and Educational Trust 


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2006). By 2006, the number of uninsured had increased to 18 percent of the total 

non-elderly population in the United States, and a third of the non-elderly population with incomes below 200 percent of the Federal poverty level were uninsured 

(Holahan and Cook 2007). Health Savings Accounts have been one approach some 

policymakers have embraced to addressing these dual and growing problems. 

While high-deductible plans have been available in the nongroup market for many 

years, the 2003 Medicare Prescription Drug, Improvement, and Modernization Act 

(MMA) included provisions to provide a generous tax incentive for certain individuals to seek out high-deductible health insurance policies with particular characteristics. In 2008, the minimum annual deductibles for these policies are $1,100 for single and $2,200 for family policies. Annual out-of-pocket maximums for these plans 

are capped at $5,600 for single policies and $11,200 for family policies, with the limits applying only to the types of services included in the coverage of the plan. 

Individuals (and families) buying these policies either through their employers or 

independently in the private nongroup insurance market can make tax-deductible 

contributions into an HSA. Funds deposited into the accounts are deducted from income for tax purposes, and any earnings on the funds accrue tax free, and are not 

taxed as long as they are used to cover medical costs. Contributions can be made 

by employers, individuals, or both. In 2006, Congress removed the requirement that 

annual deposits into HSAs be capped at the level of the plan’s deductible, and instead provided a fixed statutory limit for annual contributions. In 2008, these limits 

are $2,900 for single policies and $5,800 for family policies. 

HSAs were intended to encourage more cost-conscious spending by placing more 

of the health care financing burden on the users of services, as opposed to having 

them incorporated in the shared financing inherent in insurance coverage. 

What Makes HSAs Attractive? 

As a consequence of the structure of the tax subsidy and the shift of health care 

spending to out-of-pocket costs, these accounts are most attractive to high-income 

people and those with low expected health care expenses. The tax subsidy provided 

for HSA participants is greatest for those in the highest marginal tax bracket and 

is of little or no value to those who do not owe income tax. Clemans-Cope (forthcoming) demonstrated that 70 percent of the non-elderly uninsured have family incomes below 200 percent of the Federal poverty level, and that only 16 percent of 

uninsured adults fall into the 20 percent or greater marginal tax bracket. A $5,800 

HSA contribution, the maximum permitted under the law, would generate a tax reduction of $2,030 to a household in the top income tax bracket. The value of the 

tax benefit would be less than half as much for a moderate-income family. And it 

would be worth much less if the family could not afford to contribute very much 

into the account. For those whose incomes are so low that they have no income tax 

liability, the subsidy is worth nothing. However, HSA contributions made by an employer, as opposed to by an individual, will decrease even a low-income worker’s 

payroll tax liability, resulting in a modest tax savings. 

Higher-income individuals are also better able to cover the costs of a high deductible, should significant medical expenses be incurred. Jacobs and Claxton (2008) 

showed that uninsured households have substantially lower assets than do the insured. As a consequence, high-deductible policies are unlikely to provide the uninsured with sufficient financial access to medical care in the event of illness or injury. 

Additionally, those who do not expect to have much in the way of health expenses 

will be attracted to HSAs by the ability to accrue funds tax free that they can use 

for a broad array of health-related expenses that are not reimbursable by insurance 

(e.g., non-prescription medications, eyeglasses, cosmetic surgery). Those without 

substantial health care needs may also be attracted to HSAs because they can be 

effectively used as an additional IRA, with no penalty applied if the funds are spent 

for non-health-related purposes after age 65. Young, healthy individuals may even 

choose to use employer contributions to their HSAs for current non-health-related 

expenses, after paying a 10 percent penalty and income taxes on the funds—a perk 

unavailable to those enrolled in traditional comprehensive insurance plans. 

These expectations have been borne out in the enrollment experience of HSAs 

(United States General Accountability Office [US GAO] 2008). The GAO analysis 

found that the average adjusted gross income of HSA participants was about 

$139,000 in 2005, compared with $57,000 for all other tax filers. They also found 

that average contributions to HSAs were more than double the average withdrawals, suggesting that either HSA participants were not high users of medical 

services or they used these accounts purely as investment vehicles—or both. 

The incentive structure and the findings strongly indicate that HSAs and their 

associated tax subsidies are health care spending vehicles that are poorly targeted 


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to the population most in need—the low-income and those with above average medical needs. 

The Cost Containment Implications of the Health Care Spending Distribution 

The distribution of health care spending is highly skewed, meaning a small percentage of the population accounts for a large share of total health care spending. 

The top 10 percent of health care spenders spend 70 percent of health care dollars, 

while the bottom 50 percent of spenders account for only 3 percent of those dollars 

(Berk and Monheit 2001). As a consequence, significantly decreasing health care 

spending will require substantially lowering the spending associated with high users 

of medical services, ideally, while not decreasing quality of care. However, the highdeductible/HSA plan approach is not well designed for lowering the spending of the 

high-cost population in a manner that does not negatively affect their health. 

Cost savings can be manifest through two mechanisms: a decline in the amount 

of services per episode of care due to an increase in marginal price, or through a 

decline in the number of episodes of care due to an increase in the average price. 

For those who are generally healthy and would not have annual spending that exceeded the high deductibles associated with HSA compatible plans, the increased 

marginal price of out-of-pocket medical care could have some impact on their use 

(Newhouse 1993, 2004). Incentives to curtail unnecessary services are strongest for 

these individuals. However, our analysis of the Medical Expenditure Panel Survey— 

Household Component showed that only 3 percent of total health care spending is 

attributable to those who spend below the minimum required deductibles. Consequently, there is little room for systemwide cost savings among this population 

since their spending accounts for so little of the overall expenditures. 

For those who are unhealthy and who, with comprehensive insurance coverage, 

would spend above these higher deductibles, a number of scenarios are possible. 

Those who do not face significantly higher out-of-pocket maximums relative to their 

previous plan would not have any additional cost containment incentives. Those who 

face significantly higher out-of-pocket maximums under the new high-deductible/ 

HSA plans would face a higher average price of medical care, and could reduce their 

spending as a consequence. However, research has demonstrated that the reductions 

in their spending would occur as a consequence of their reducing the number of episodes of their care, as opposed to reducing the cost of an episode once initiated 

(Newhouse 1993, 2004). In other words, they would decide not to initiate a contact 

with a medical professional for financial reasons, with potentially serious consequences for their health and for the long-term costs of their care. Two studies 

(Fronstin and Collins 2005; Davis et al. 2005) have found that HSA participants 

were more likely to report missed or delayed health services and not filling prescriptions due to cost. These problems were greater for those with lower incomes or 

worse health. 

Paradoxically, high-cost individuals are not likely to curtail unnecessary services 

before reaching the high deductible, as might be desired. That is because the lion’s 

share (80 percent) of health care spending for high-cost users of care is attributable 

to their spending that is incurred once those higher deductible levels are surpassed 

(Clemans-Cope forthcoming). 

Since most of the current system’s spending results from high-cost users spending 

above the HSA-compatible deductible levels, the cost-saving incentives can only affect a small segment of total health care dollars. That is unless the increased cost 

sharing is so much higher as to strongly dissuade the unhealthy from seeking much 

of the services that they would use under other circumstances. The health consequences of the latter could be extraordinarily grave, and the long-term cost consequences of allowing conditions to worsen substantially before care is sought may 

offset the cost saving from decreasing their early care. 

While a number of studies have found that modest one-time savings of between 

4 to 15 percent might be anticipated from conversion to high-deductible/HSA plans, 

they do not imply that such a change would have a significant impact on the rate 

of growth of medical spending. This is because medical spending growth is driven 

largely by the increased use of, and intensity of, technologies and services for people 

with high health care needs (Newhouse 2004). So while increased cost sharing can 

be used to lower the frequency of health care provider visits, it does not lower the 

costs per episode once an episode of care occurs. 

Other, more promising avenues exist for achieving significant cost savings in our 

health care system. These include, among others, 

• coordinated approaches to evaluation of cost-effectiveness and efficacy of new 

and existing technologies/procedures/medications combined with new regulatory 

and pricing strategies to target resources to the most cost-effective options; 


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• increasing the use of preventive care and chronic-care or high-cost case management strategies; 

• payment reform and development of purchasing strategies that promote the 

consistent delivery of care in the most efficient and appropriate setting; 

• administrative cost-saving strategies, including development of effective information technology infrastructure. 

While many of these avenues require significant upfront investment in infrastructure, research, analysis, or experimentation, they are substantially more likely to 

yield systemwide savings without compromising access to and quality of care for the 

high-need population. 

Implications of HSAs for the High Medical Need Population 

The most significant premium savings accruing to high-deductible/HSA plan enrollees likely occurs by altering the mix of individuals who purchase coverage of different types. By providing incentives for healthy individuals and groups to purchase 

HSA-compatible plans, insurance risk pools can be further segmented by health status. The average medical costs of those purchasing the HSA plans will be substantially lower if the high-risk population is left in more traditional comprehensive 

plans. As the average cost of those in the comprehensive plans increases, so does 

the premium associated with the coverage. In the extreme risk segmentation circumstance, premiums for comprehensive coverage may increase so much that maintaining that type of coverage is no longer financially viable. 

Such a circumstance can be avoided in the employment context if both high-deductible and comprehensive options are offered and employers set premiums for 

each plan independent of the health care risk of those enrolling in each. In other 

words, premiums for the high-deductible/HSA plan could be set such that they are 

lower than the comprehensive plan, but only due to the difference in actuarial value 

across the plans, not due to the differential health care risk of those enrolling in 

each plan. In essence, each plan’s premium would be set as if all employees were 

enrolled in each plan. Then, a portion of premium collections for the high-deductible/ 

HSA plan could be transferred to the comprehensive plan to subsidize premiums for 

that higher-cost group. In the nongroup market context, however, the transfer of financial support from the healthy to the less healthy will only occur through regulation or through direct government subsidization. 

Without some type of intervention, by government or employers to spread health 

care risk more broadly, the practical effect of high-deductible/HSA plans is that the 

most vulnerable populations (the sick and low-income) are left bearing a greater 

burden of their health expenses. The extent to which this is a preferred societal outcome should be explicitly debated, as it is the primary impact of a move toward 

high-deductible/HSA plans. 

The Ability of Patients to Be Good Value Shoppers 

Theoretically, placing a greater share of the health care financing burden on the 

individual users of health care should create incentives for greater price/quality 

comparisons and more cost effective medical decisions. However, the ability of the 

patients to engage in such comparison shopping is extremely limited in the current 

private insurance context. As Ginsburg (2007) describes, effective comparison of 

services on price occur only in the context of non-emergency care, services that are 

not complex, bundled prices for services, consistent quality across providers, and 

only after an appropriate diagnosis has been made. Situations that meet such criteria eliminate a great deal of the medical care within the system. In addition, confidentiality agreements between providers and insurers prevent the providers from 

being able to give patients actual prices, as opposed to ranges that are generally 

not useful for comparison purposes. Traditionally, patients have relied upon their 

insurers to guide their provider decisions by choosing an efficient provider network 

on their behalf. 

Enforcement of HSA Legal Requirements 

As noted earlier, spending by those under 65 years of age out of HSA accounts 

is tax advantaged only if that spending is for medical purposes. If HSA funds are 

used for nonmedical purposes, a non-elderly individual would be required to pay 

taxes on the withdrawal in addition to a 10 percent penalty. However, currently, 

there is no administrative mechanism in place to verify that spending from HSAs 

is in fact being used for medical purposes. Unless an individual HSA participant is 

subjected to an IRS audit, there are no checks on the type of spending being done. 

Given that any individual’s likelihood of an audit is very low, this lack of 

verification creates an easy mechanism for evading taxes. This problem is amplified 


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1From personal communication with third party administrators providing administrative 

services for FSAs and consumer-directed health plans. 

by the increase in allowable annual contributions to HSAs and the fact that such 

contributions can now exceed the associated insurance plan’s annual deductible. 

Flexible spending accounts (FSAs) are employment-related accounts that allow 

users to deposit pretax dollars into accounts that can then be drawn down during 

the year to pay for medical expenses. The permissible medical expenses are defined 

broadly, including out-of-pocket costs for care that is or is not part of the accountholder’s insurance policy, just like HSAs. There are a number of differences between 

FSAs and HSAs (e.g., unused FSA balances are forfeited at the end of the year, they 

do not earn income, and they do not require health insurance plan participation), 

but the only relevant difference for this discussion is that withdrawals from FSAs 

are verified by the account administrators to be medical-related expenses that comply with the FSA law. This is precisely the type of verification that should be required of HSA withdrawals, and would be under H.R. 5917. 

The insurance industry complains that imposing such verification on HSAs would 

eliminate their cost saving potential by imposing new and onerous administrative 

costs. However, the administrative costs of FSAs, which would be directly comparable with that of HSAs for this purpose, are actually very low. In fact, overall 

FSA administrative costs, which include payment of claims (a function which HSAs 

already perform and is included in their current administrative costs) as well as 

verification of the appropriateness of claims, are about $5.25 per member per month 

($63 per member per year).1 However, much of the administrative tasks associated 

with FSAs are not applicable to HSAs, and the cost of adding adjudication of claims 

to the HSAs would be about $2 per member per month according to the third party 

administrator of such plans that we contacted. If an additional cost of $24 per member would substantially reduce or eliminate the cost savings associated with HSAs, 

as some contend, then that is clear evidence that there is currently little to no cost 

savings associated with participating in those plans today. 

Such an increment to administrative costs associated with these plans is clearly 

a very small price to pay to ensure that the law is being complied with and individuals are not using HSAs merely as a personal tax dodge. 

Conclusion 

HSAs are a highly tax-advantaged savings vehicle that is most attractive to people with high incomes and those with low expected use of health care services. As 

such, they are unlikely to significantly decrease the number of uninsured, who often 

have low incomes and neither benefit significantly from the tax advantages nor have 

the assets necessary to cover the large deductibles associated with the plans. Their 

ability to reduce systemwide spending is also very limited. The plans have the potential to increase segmentation of health care risk in private insurance markets, 

unless employers set premiums to offset the healthier selection into the plans or 

government subsidizes the higher costs associated with the remaining comprehensive coverage market. 

To date, HSAs have been less popular than their advocates envisioned, making 

up only about 2 percent of the health insurance market (US GAO 2008). Thus, their 

negative ramifications on populations with high medical needs have probably been 

limited. However, efforts to expand enrollment in these plans through further tax 

incentives, for example, could place growing financial burdens on those least able 

to absorb them, leading to increasing effective barriers to medical care for the low 

income and the sick and potentially increasing the net number of uninsured. 

References 

Berk, Marc and Alan Monheit. 2001. ‘‘The Concentration of Health Expenditures 

Revisited,’’ Health Affairs, 20:204–213. 

Clemans-Cope, Lisa. Forthcoming. ‘‘Short- and Long-term Effects of Health Savings Accounts.’’ Working paper prepared for The Urban Institute—Brookings Institution Tax Policy Center. 

Davis, K., Doty, M.M. and Ho, A. 2005. ‘‘How High Is Too High? Implications of 

High-Deductible Health Plans.’’ The Commonwealth Fund, April. 

Fronstin, Paul and S.R. Collins. 2005. ‘‘Early Experience with High-Deductible 

and Consumer-Driven Health Plans: Findings from the EBRI/Commonwealth Fund 

Consumerism in Health Care Survey,’’ Employee Benefit Research Institute and the 

Commonwealth Fund, December. 

Ginsburg, Paul B. 2007. ‘‘Shopping For Price In Medical Care.’’ Health Affairs, March/April; 26(2): w208–w216. 


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Holahan, John and Allison Cook. 2007. ‘‘Health Insurance Coverage in America: 

2006 Data Update.’’ Henry J. Kaiser Family Foundation. http://www.kff.org/uninsured/upload/2006_DATA%20_UPDATE.pdf, accessed May 12, 2008. 

Jacobs, Paul D. and Gary Claxton. 2008. ‘‘Comparing the Assets of Uninsured 

Households to Cost Sharing Under High-Deductible Health Plans.’’ Health Affairs. Web exclusive, April 15, 2008, pp. w214–w221. 

Henry J. Kaiser Family Foundation/Health Research and Educational Trust (Kaiser/HRET) Survey of Employer-Sponsored Health Benefits, 2006. See http:// 

www.kff.org/insurance/ehbs-archives.cfm. 

Henry J. Kaiser Family Foundation/Health Research and Educational Trust (Kaiser/HRET) Survey of Employer-Sponsored Health Benefits, 2007. See http:// 

www.kff.org/insurance/ehbs-archives.cfm. 

Newhouse, J.P., 2004. ‘‘Consumer-Directed Health Plans and the RAND Health 

Insurance Experiment.’’ Health Affairs. Volume 23(6): 107–113. 

Newhouse, J.P. and the Insurance Experiment Group. 1993. Free for All? Lessons 

from the Rand Health Insurance Experiment. Cambridge, MA: Harvard University 

Press. 

United States Government Accountability Office (US GAO). 2008. Health Savings 

Accounts: Participation Increased and Was More Common Among Individuals with 

Higher Incomes. April 1. GAO–08–474R. 

f 

Chairman STARK. Thank you very much. 

Ms. Waxman, would you like to proceed? 

STATEMENT OF JUDY WAXMAN, VICE PRESIDENT AND DIRECTOR OF HEALTH AND REPRODUCTIVE RIGHTS, NATIONAL 

WOMEN’S LAW CENTER 

Ms. WAXMAN. Yes, good morning, Mr. Stark, Mr. Camp, and 

other Members of the Committee. Thank you for having me testify 

this morning. 

The National Women’s Law Center supports health reforms that 

will provide high quality, comprehensive and affordable health care 

for all. We are afraid, however, that health savings accounts and 

consumer-driven health care will do little to expand meaningful 

health insurance. 

I want to start my testimony this morning by advising you to pay 

attention to what women have to tell you in this health reform discussion, and that is because women are the health care deciders in 

this country. Women make approximately 80 percent of the health 

care decisions for their families and six in ten women report that 

they assume the primary responsibility for picking the health plan 

for their families. So ignore us at your peril. 

Other interesting things that you need to know about women’s 

health care needs that affect this deliberation is that women do require more health care throughout their lives than men do, including regular visits to their reproductive health care providers. They 

have more trouble affording care because in general, they have 

lower incomes than men. Today, women with and without insurance have an ‘‘affordability gap.’’ They have more medical debt already. 

Now, let’s look specifically at consumer-driven health care plans. 

I have seven reasons why I think that they will not expand meaningful health care coverage to women and their families: one, cost 

sharing under these plans is not really affordable for the women 

that do have lower incomes which is a large number of women. 

Premiums, even though they are obviously lower for the high deductible health plans, account for just a fraction of the cost of the 


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insurance. The deductibles and the other out-of-pocket costs can 

counteract those lower premiums. A survey of non-group policies 

that we saw recently said that the average deductibles for HSA-eligible health plans are really considerably higher than the Federal 

minimums that are required. 

Number two: Lower income women cannot fund their HSAs and 

employers may not do it either. Lower income women who by the 

way are disproportionately represented among the uninsured 

women are simply not likely to have the cash resources to adequately fund the account. And we’ve heard this already. This morning, employer surveys estimate that only about a half of firms that 

offer these plans do actually contribute anything to the HSA. 

Number three, low income women will not benefit from the tax 

advantages of HSA. They don’t have high enough tax liabilities to 

benefit from this kind of tax treatment. 

Number four, consumer-driven health care plan premiums are 

often higher for women, particularly in the individual health care 

market. Forty States and the District of Columbia do allow insurers to charge premiums that take gender into account. 

We looked at the individual market in both your district, Mr. 

Stark, and yours, Mr. Camp, and we found that in the California 

district nearly half the plans charged significantly more for women, 

simply because they were women. And, in the Michigan district, all 

did. 

You may say, well that’s because women are going to have maternity care coverage; and, yet, as you already mentioned, Mr. 

Stark, no. That’s not really it. Only four of the plans we looked at 

even offered maternity coverage in the California group and none 

in the Michigan group offered maternity coverage. 

Number five: Women are more likely than men to have chronic 

health care needs and therefore are at greater risk under a consumer-driven health care plan. 

Number six: Consumer-driven health care, interestingly, sometimes provides incentives for women to use less cost-effective care 

and preventive care. We have already heard that some preventive 

care is excluded from the deductible, but excluding preventative 

services is only an option for the health plans. 

The IRS defines what is preventive care for this purpose and it’s 

really quite limited in its definition. So, for example, prescription 

drugs are almost all subject to the deductible even if they do operate in a preventive way: For instance, cholesterol reducing drugs 

do not count as preventative treatment. 

A vast majority of American women use a form of contraception 

that can only be accessed with a prescription; and, so, during the 

high deductible period, almost all women in this country would actually be subject to paying the entire cost of contraceptives out-ofpocket. That obviously creates a barrier for lower income women. 

Number seven, and we have touched on this, women who need 

pregnancy-related care will face significant challenges under this 

kind of plan. Most, if not all, of the individual market plans that 

are consumer-driven health care plans do not even cover maternity 

care at all. But, even if a plan does cover maternity care, it is almost always excluded from the deductible. 


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Now, a pregnancy takes 9 months, which means you’re most likely crossing over 2 years and having to deal with 2 years of 

deductibles, compounding the issue. The costs are significant and 

may even force some women to forego prenatal care. 

In conclusion, health savings accounts and consumer-driven 

health care are the wrong answer to the nation’s health care crisis. 

Thank you. I welcome your questions. 

[The prepared statement of Judy Waxman follows:] 

Prepared Statement of Judy Waxman, Vice President and Director of 

Health and Reproductive Rights, National Women’s Law Center 

The Center supports health reforms that provide high quality, comprehensive and 

affordable health coverage for all. Health Savings Accounts (HSAs) and Consumer 

Driven Health Care, however, do little to expand meaningful health insurance. They 

are the wrong answer to the country’s health care crisis, and they will not benefit 

women. 

Health Reform Matters for Women 

When designing health reforms, women’s concerns should be taken seriously for 

a number of reasons: 

• Women make approximately 80 percent of health care decisions for their families; 

• Six in ten women report that they assume primary responsibility for decisions 

about health insurance plans for their families; 

• Women are more likely than men to require health care throughout their lives, 

including regular visits to reproductive health care providers; 

• Women are more likely to have chronic conditions that necessitate continuous 

health care treatment; 

• Women use more prescription drugs on average, and certain mental health 

problems affect twice as many women as men; 

• Women have more trouble affording health care since they are generally poorer 

than men; and 

• Women—regardless of whether they are insured or uninsured—are already 

more likely than men to report problems with accessing health care due to cost. 

Consumer-Driven Health Care Won’t Expand Meaningful Health Coverage 

to Women and Their Families 

• Cost-sharing under consumer-driven health care is not affordable for lower-income women and their families. 

• Lower-income women cannot fund their HSAs, and employers may not do it either. 

• Lower-income women will not benefit from the tax advantages of HSAs. 

• Consumer-driven health plan premiums are often higher for women in the individual health insurance market. 

• Women, who are more likely than men to have greater-than-average health care 

needs, are at greater financial risk under a consumer-driven health plan. 

• Consumer-driven health care provides an incentive for women to use less costeffective and preventive care, especially if that care is not exempt from the deductible. 

• Women who need pregnancy-related care will face significant challenges under 

a consumer-driven health care model. 

Consumer-Driven Health Care Is the Wrong Solution for America’s Health 

Care Crisis 

• Consumer-driven health care is unlikely to reduce the number of uninsured 

Americans. 

• Consumer-driven health care will do little to contain rising health care costs. 

Chairman Stark, Ranking Member Camp, and Members of the Subcommittee on 

Health, thank you for the opportunity to testify today on behalf of the National 

Women’s Law Center. For over 35 years the Center has worked to both advance and 

protect laws and public policies that benefit women and their families. As part of 

these efforts, the Center supports health reforms that provide high quality, comprehensive and affordable health coverage for all. Health Savings Accounts (HSAs) 

and Consumer Driven Health Care, however, do little to expand meaningful health 


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1Department of Labor, General Facts on Women and Job Based Health (2008), available at 

http://www.dol.gov/ebsa/newsroom/fshlth5.html (last visited May 12, 2008). 2 Alina Salganicoff et al., Women’s Health in the United States: Health Coverage and Access 

to Care (2002), The Henry J Kaiser Family Foundation, available at http://www.kff.org/ 

womenshealth/20020507a-index.cfm (last visited May 12, 2008). 3 Alina Salganicoff et al., Women and Health Care: A National Profile (2005), The Henry J 

Kaiser Family Foundation, available at http://www.kff.org/womenshealth/upload/Women-andHealth-Care-A-National-Profile-Key-Findings-from-the-Kaiser-Women-s-Health-Survey.pdf (last 

visited May 12, 2008). [Hereafter ‘‘A National Profile (2005)’’]. 4 Ibid. 5 A National Profile (2005), supra note 3. 6 Elizabeth Patchias and Judy Waxman, Women and Health Coverage: The Affordability Gap 

(2007), National Women’s Law Center. An issue brief prepared for the Commonwealth Fund, 

available at http://www.nwlc.org/pdf/NWLCCommonwealthHealthInsuranceIssueBrief2007.pdf 

(last visited May 12, 2008). [Hereafter ‘‘The Affordability Gap (2007)’’]. 7 National Women’s Law Center and Oregon Health and Science University, Making the 

Grade on Women’s Health: A National and State-by-State Report Card (2004). 8 National Women’s Law Center calculations based on U.S. Census Bureau, ‘‘Table POV01: 

Age and Sex of All People, Family Members and Unrelated Individuals Iterated by Income-toPoverty Ratio and Race: 2005, Below 100% of Poverty—All Races.’’ Current Population Survey 

Annual Demographic Survey March Supplement, (2006), available at: http://pubdb3.census.gov/ 

macro/032006/pov/new01_100_01.htm (last visited May 12, 2008). 9 National Women’s Law Center calculations based on U.S. Census Bureau Current Population 

Survey 2004 Poverty Tables, available at http://pubdb3.census.gov/macro/032005/pov/toc.htm 

(last visited May 12, 2008). 10The Affordability Gap (2007), supra note 7. 11 Ibid. 12 Ibid. 

insurance. They are the wrong answer to the country’s health care crisis, and they 

will not benefit women. 

Health Reform Matters for Women 

When designing health reforms, women’s concerns should be taken seriously for 

a number of reasons. First, women have a major stake in decisions about health 

care for their entire families and they often play a significant role in the care that 

their children, spouses, or parents receive. According to the Department of Labor, 

women make approximately 80 percent of health care decisions for their families.1

Also, six in ten women report that they assume primary responsibility for decisions 

about health insurance plans for their families.2 An even greater proportion, nearly 

80 percent, chooses their child’s doctor.3 More women than men care for a family 

member—most often a parent—who is chronically ill, disabled, or elderly and in this 

role they typically provide assistance with medical finances such as bills or insurance paperwork and with making decisions about medical care.4

Women’s characteristics and distinct health care needs—which are different from 

men’s—should be taken into account when developing strategies to change the 

health care system. Women are more likely than men to require health care 

throughout their lives, including regular visits to reproductive health care providers. 

They are more likely to have chronic conditions that necessitate continuous health 

care treatment.5 They also use more prescription drugs on average, and certain 

mental health problems affect twice as many women as men.6,7

Women have more trouble affording health care since they are poorer than men, 

in general. Roughly 57 percent of the adults living in poverty (i.e. with incomes 

below 100 percent of the Federal poverty level) are women.8 In 2004, the median 

earnings of female workers (aged 15 and older) were $22,224, compared to $32,486 

for men. Among full-time workers, women earn only 76.5 cents for every dollar men 

earn.9

Greater health care needs, combined with a disadvantaged economic status, make 

it particularly difficult for many women to afford health services. Women—regardless of whether they are insured or uninsured—are already more likely than men 

to report problems with accessing health care due to cost.10 They spend a greater 

share of their income on out-of-pocket medical costs than men, and are more likely 

to avoid needed health care because of cost. In 2005, for example, nearly a third 

of non-elderly women reported that they did not fill a prescription because of cost, 

compared to just 18 percent of men.11 Finally, uninsured and insured women alike 

are significantly more likely than their male counterparts to have medical bill and 

debt problems.12 It is clear that many women, both the uninsured and the insured, 

are already struggling to afford the health care that they need. Health coverage 

plans that shift more of the costs of medical care to women and their families will 

only make this situation worse. 


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13 U.S. White House, State of the Union: Affordable and Accessible Health Care (2006), available at http://www.whitehouse.gov/news/releases/2006/01/20060131-7.html (last visited May 6, 

2008). 14 U.S. Department of Treasury, Health Savings Accounts (2008), available at http:// 

www.ustreas.gov/offices/public-affairs/hsa/pdf/HSA-Tri-fold-english-07.pdf (last visited May 6, 

2008). 15 Ibid. 16 America’s Health Insurance Plans, Individual Health Insurance 2006–2007: A Comprehensive Survey of Premiums, Availability, and Benefits (2007), available at http://www.ahip 

research.org/pdfs/Individual_Market_Survey_December_2007.pdf (last visited May 12, 2008). 17The Affordability Gap, 2007, supra note 7. 18 Cathy Schoen, Michelle M Doty, Sara R Collins, and Alyssa L Holmgren, Insured But Not 

Protected: How Many Adults Are Underinsured?, Health Affairs Web Exclusive (2005). W5-289– 

W5-302. Underinsured adults include continuously insured individuals who satisfied one of 

three conditions: annual out-of-pocket medical expenses amounting to 10 percent or more of income among low-income adults, out-of-pocket medical expenses amount to 5 percent or more of 

income or health plan deductibles equal or exceeding 5 percent of income. 19 U.S. Government Accountability Office, Health Savings Accounts: Participation Increased 

and Was More Common among Individuals with Higher Incomes (2008). GAO–08–474R. 20 Ibid. 

Consumer-Driven Health Care Won’t Expand Meaningful Health Coverage 

to Women and Their Families 

Cost-sharing under consumer-driven health care is not affordable for 

lower-income women and their families. Women have lower incomes than men 

and they typically need and use more health services. If health coverage is to be 

meaningful for women, it must be affordable. Consumer-driven health plans, however, require levels of cost-sharing that are prohibitively high for many women and 

their families. It is true that premiums for the HSA-eligible high-deductible health 

plans (HDHPs) are typically lower than premiums for traditional coverage, leading 

HSA supporters to claim that consumer-driven health plans will be more affordable 

for the low-income uninsured.13,14 But, premiums account for just a fraction of the 

cost of insurance, and higher deductibles and other forms of out-of-pocket spending 

invariably counteract lower HDHP premiums. To open an HSA in 2008, individuals 

must be enrolled in a HDHP with an annual deductible of at least $1,100 for an 

individual or $2,200 for a family.15 Policies sold in the insurance market tend to 

have even higher deductibles than the regulations specify. A survey of nongroup 

policies found that the average deductibles for HSA- and medical savings account 

(MSA)-qualified plans in 2006–07 were $2,905 for individual and $5,329 for family 

coverage.16 Moreover, out-of-pocket spending does not stop at the deductible even 

after a high deductible is met, health insurance policies typically require additional 

cost-sharing in the form of co-payments and coinsurance. 

Because women’s greater health care needs and rates of use, combined with lower 

income, lead them to have higher out-of-pocket costs as a share of their income, 

more women than men are already ‘‘underinsured’’ (16 percent versus 9 percent).17

The underinsured are those who are enrolled in an insurance plan that provides inadequate financial protection against catastrophic healthcare expenses. In 2003, 

about 12 percent of Americans were underinsured, and were almost as likely as the 

uninsured to go without needed medical care and incur medical debt.18 Consumerdriven health care, by exposing the insured to even greater out-of-pocket medical 

costs, has the potential to contribute to the growing problem of underinsurance 

among Americans, particularly low-income women and their families. 

Lower-income women cannot fund their HSAs, and employers may not do 

it either. In theory, out-of-pocket medical costs can be paid from a woman’s taxadvantaged HSA, but lower-income women (who are disproportionately represented 

among uninsured women) are not likely to have the cash resources to adequately 

fund the account. In fact, many women enrolled in a consumer-driven health plan 

have to forgo opening an HSA altogether. In the years 2005 through 2007, close to 

half of all HSA-eligible plan enrollees did not even open an HSA.19 In other words, 

these individuals and families had the high deductible, but not the tax-advantaged 

account that is supposed to help make that high deductible affordable. While employer HSA contributions could help spread the burden of out-of-pocket medical 

costs, employer surveys estimate that roughly half of small and large firms offering 

HSA-eligible health plans for families do not contribute anything to their employees’ 

HSAs.20

Lower-income women will not benefit from the tax advantages of HSAs. 

Most lower-income women and families do not face high enough tax liability to benefit in any significant way from the HSA tax arrangement. HSA tax breaks selectively reward richer Americans, and a very poor family with no taxable income 

would not benefit from a tax deduction at all. Deposits to an HSA account reduce 


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21 Ibid. 22 Edwin Park and Robert Greenstein, GAO Study Confirms Health Savings Accounts Primarily Benefit High-Income Individuals (2006). Center on Budget and Policy Priorities, available 

at http://www.cbpp.org/9-20-06health.htm (last visited May 12, 2008). 23 Independent analyses carried out by National Women’s Law Center (2008), using information from www.ehealthinsurance.com on HSA-qualified health plans for women residing in zip 

codes 94538 (Fremont/Alameda, California) and 48640 (Midland, Michigan). 24Paul Fronstin and Sara R Collins, Issue Brief No. 315: Findings From the 2007 EBRI/Commonwealth Fund Consumerism in Health Care Survey (2008), The Employee Benefits Research 

Institute, available at http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3897 

(last visited May 12, 2008). [Hereafter ‘‘2007 Consumerism in Health Care Survey’’]. 25 A survey of insurers offering consumer-driven health plans found that less than 6 percent 

of these plans included coverage for prescription drugs as a preventive, exempt benefit. See: Association for Health Insurance Plans, A Survey of Preventive Benefits in Health Savings Aca participant’s taxable income by the amount of the contribution—since tax rates 

increase as income increases, the deduction is a better deal for the more affluent. 

Reports on the income level of HSA accountholders support this notion non-elderly 

tax filers who reported HSA activity in 2005 had an average adjusted gross income 

of about $139,000, compared to about $57,000 for other filers.21 Furthermore, 

though HSAs were designed to be used as a tax-saving method to accumulate funds 

for health care expenses in retirement, some evidence suggests that these accounts 

are more often being used as tax shelters by higher-income individuals.22

Consumer-driven health plan premiums are often higher for women in the 

individual health insurance market. If a woman decides to purchase a consumer-driven health plan in the non-group insurance market, she will likely encounter an additional barrier to affordability. Many women who purchase an HSA-qualified health plan in this market are charged a higher monthly premium than their 

male counterparts for the exact same benefit package, solely because they are female. Indeed, insurers are allowed to consider gender when setting non-group 

health insurance rates in 40 States and the District of Columbia, including the 

home States of both Chairman Stark and Ranking Member Camp. Our research indicates that a 34-year-old female constituent in the California’s 13th District (represented by Chairman Stark) who is seeking a non-group HSA-qualified health plan 

would be charged between 4 and 45 percent more than a male peer for nearly half 

of the plans available to her. If she were living in Michigan’s 4th District (represented by Ranking Member Camp), that same woman would be charged more 

than a male peer for every non-group plan available to her—she would pay between 

15 and 48 percent more for the exact same benefit plan. One might assume that 

these premium disparities are based on the fact that, unlike their male counterparts, women of childbearing age can make insurance claims for maternity care. 

However, most non-group HDHP policies do not cover maternity benefits at all. Of 

the 18 HDHP plans available to a 34-year-old woman in the California district, just 

four offered some type of maternity coverage, and none of the 34 plans available in 

the Michigan district covered pregnancy-related care.23

Women, who are more likely than men to have greater-than-average health 

care needs, are at greater financial risk under a consumer-driven health 

plan. Women are more likely than men to have a chronic condition that requires 

ongoing treatment, and even healthy women use more health care than men. If 

health insurance is to be meaningful for women, it must cover the services that they 

need without exposing them to significant financial risk. However, those who need 

the most health care—including women with disabilities and chronic conditions—are 

most likely to struggle to meet increased cost-sharing requirements of high-deductible health plans. These individuals often experience higher medical costs and are 

more likely to spend amounts up to their deductible each year. Healthy people with 

very low medical expenses, on the other hand, are especially advantaged under an 

HSA arrangement since their HDHP premiums are lower than under traditional insurance plans and they pay trivial out-of-pocket amounts. 

Consumer-driven health care provides an incentive for women to use less 

cost-effective and preventive care, especially if that care is not exempt from 

the deductible. Consumer-driven health care also has implications for women’s 

preventive health service use. Because consumer-driven health plans shift more 

costs to the insured, they provide an incentive to use less (and therefore spend less) 

on health care. HSA guidelines do permit certain preventive services to be exempt 

from the deductible, but this is a voluntary option for health plans. In a 2007 survey, more than 50 percent of individuals enrolled in an HSA-qualified health plan 

reported that their deductible applied to all health care services, including preventive care.24 Moreover, prescription drugs—even those that serve a preventive rather 

than treatment purpose—are generally not exempt from a deductible.25


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count (HSA) Plans, July 2007 (2007), available at http://www.ahipresearch.org/pdfs/ 

HSA_Preventive_Survey_Final.pdf (last visited May 12, 2008). 26William D. Mosher, et al., ‘‘Use of Contraception and Use of Family Planning Services in 

the United States: 1982–2002,’’ Advance Data From Vital & Health Statistics No. 350, at 15 

(2004). 27 2007 Consumerism in Health Care Survey, supra note 25. 28 Joseph P Newhouse, Free for All? Lessons from the Rand Health Experiment, Insurance 

Experiment Group (Cambridge, MA: Harvard University Press 1993). 29 Amal Trivedi, William Rakowski and John Z Ayanian, Effect of Cost Sharing on Screening 

Mammography in Medicare Health Plans (2008), New England Journal of Medicine 358(4):375– 

83. 30Karen Pollitz et al. Maternity Care and Consumer-Driven Health Plans (2007), a Report for 

the Henry J Kaiser Family Foundation, available at http://www.kff.org/womenshealth/upload/ 

7636.pdf (last visited May 12, 2008). 

The majority of American women use a form of contraception that can only be 

accessed with a prescription. In the year 2002, for example, 82 percent of women 

aged 15–44 who had ever had sexual intercourse reported that they had used the 

oral contraceptive pill.26 Women who use a prescription drug for family planning 

would be responsible for the full cost of their birth control under a consumer-driven 

health plan. This presents a cost-related barrier to service use, especially for lowerincome women. 

Participating in an HSA/HDHP could have a negative impact on women’s health 

if they delay or go without necessary care because they cannot afford to meet the 

high deductible. Poor women and their families, who have less income to contribute 

to an HSA and may not have enough funds in their accounts to cover their health 

care needs in a given year, would be particularly vulnerable to this harmful consequence. A recent survey found that, compared to those enrolled in more comprehensive plans, consumer-driven health plan enrollees were significantly more 

likely to avoid, skip or delay necessary health care or medications because of the 

cost.27 Indeed, this type of plan aims to discourage utilization of unnecessary health 

care, but increased cost-sharing has the potential to discourage the use of cost-effective and necessary preventive care at the same time. The landmark RAND Health 

Insurance Experiment demonstrated that greater out-of-pocket spending requirements reduced costs by encouraging patients to use less health care—including necessary care that is strongly supported by evidence.28 A more recent study of rates 

of biennial breast-cancer screenings in Medicare plans with different levels of costsharing for mammography demonstrated that even nominal copayments were associated with significantly lower screening rates compared to plans with full coverage. 

These effects of cost-sharing were magnified among women living in lower-income 

areas.29

Women who need pregnancy-related care will face significant challenges 

under a consumer-driven health care model. In particular, consumer-driven 

health care has specific consequences for maternity care, one of the most common 

and costly medical interventions that women of reproductive age will experience. 

Pregnant women enrolled in a consumer-driven plan might be exposed to high outof-pocket costs, particularly when complications arise. As demonstrated in our research on the health plans available in two districts in California and Michigan, 

most individual HDHP policies exclude coverage for normal maternity care altogether, so that expenses for these services would not even count towards the deductible. For plans that do cover maternity care, unlike other preventive services such 

as well child-care, prenatal care is typically subject to a HSA-qualified deductible, 

and this significant cost-sharing might keep some women from obtaining prenatal 

care services. Nine-month pregnancies tend to span two insurance plan contract 

years and so may be subject to two annual deductibles, compounding the issue. A 

2007 study demonstrated the range in out-of-pocket maternity care costs that 

women could face under several different consumer-driven health plan options— 

from a low of $3,000 for an uncomplicated pregnancy with vaginal delivery to a high 

of $21,194 for a complicated pregnancy with a Cesarean section delivery.30

Consumer-Driven Health Care Is the Wrong Solution for America’s Health 

Care Crisis 

In addition to the problems that HDHP/HSA arrangements pose for individual 

women and their families, this strategy is unlikely to deliver on its promise to help 

solve America’s health care crisis. 

Consumer-driven health care will do little to contain rising health care 

costs. Most of America’s health care costs are incurred by only a small percentage 

of very sick or injured individuals, for expensive treatments related to major illnesses or end-of-life care. The cost of this care exceeds the high deductibles required 


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31Linda Blumberg and Leonard Burman, Most Household’s Medical Expenses Exceed HSA 

Deductibles (2004), Tax Notes. 32 2007 Consumerism in Health Care Survey, supra note 25. 33 Jack Burke and Rob Pipich, Consumer-Driven Impact Study (2008), a Milliman Research 

Report, available at http://www.milliman.com/expertise/healthcare/publications/rr/consumer-driven-impact-study-RR04-01-08.php (last visited May 12, 2008). 34 Edwin Park and Robert Greenstein, Proposal for New HSA Tax Deduction Found Likely to 

Increase the Ranks of the Uninsured (2004), Center on Budget and Policy Priorities, available 

at http://www.cbpp.org/5-10-04health.htm (last visited May 12, 2008). 35 Henry J Kaiser Family Foundation, Distribution of the Nonelderly Uninsured by Federal 

Poverty Level, 2006 (2008), available at www.statehealthfacts.org (last visited May 11, 2008). 36Paul D Jacobs and Gary Claxton, Comparing the Assets of Uninsured Households to Cost 

Sharing Under High-Deductible Health Plans (2008), Health Affairs web exclusive, available at 

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.3.w214 (last visited May 6, 2008). 37 2007 Consumerism in Health Care Survey, supra note 25. 

under HSAs and would still be paid for by the health plans. Simply put, HSA arrangements won’t contain those high-end expenditures. For example, one study 

found that only 21 percent of total health spending falls below the minimum deductible level for an HSA-eligible health plan.31 Additionally, if consumer-driven plans 

disproportionately attract healthier and wealthier individuals—as research demonstrates they have done 32—sicker and poorer Americans will be concentrated in 

traditional, comprehensive insurance plans. This segments the pool of insured lives, 

so that risk is no longer spread between those with high and low medical expenditures—as a result, premiums for those in traditional plans will be driven even higher. A recent actuarial study of six large employers who offered both consumer-driven 

and more traditional health plan options to their workforce found that, indeed, a 

disproportionately younger and healthier population selected the consumer-driven 

option. Notably, most of the reduction in health costs that these employers experienced under the consumer-driven health plan option could be attributed to the more 

favorable risk profile of the workers enrolled in that type of plan.33

Consumer-driven health care is also unlikely to reduce the number of uninsured Americans. A 2004 analysis indicated that HSAs would be used predominately by people who are already insured, and that gains in coverage would be offset 

by the loss due to employers canceling insurance on the assumption that the availability of new subsidies makes employment-based coverage unnecessary. Analysts 

estimate that HSAs could in fact increase the number of Americans lacking health 

insurance.34 Additionally, in 2006 nearly two-thirds of the non-elderly uninsured 

were poor or near-poor, with incomes at or below 200 percent of the Federal poverty 

level (which was $40,000 for a family of four in that year).35 These lower-income 

families are unlikely to have the resources to participate in a health plan with high 

levels of cost-sharing. A recent study found that among households with at least one 

uninsured member, less than half had sufficient gross financial assets to meet the 

minimum HSA-related deductible.36 Furthermore, since many lower-income families 

earn too little to have any tax liability, coverage proposals which rely on tax deductions—such as the HSA initiative—will have little impact on the low-income uninsured. So far, research on consumer-driven plans confirms this notion, since surveys 

of plan enrollees in both 2006 and 2007 found that adults in this type of plan were 

no more likely to have been uninsured prior to enrollment in their plans than those 

enrolled in traditional coverage plans.37

Conclusion 

As a growing number of national and state leaders move forward to address the 

failing health care system, there have never been so many opportunities to ensure 

that women have access to the health care they need. In order to address the challenges that women face in getting health care for themselves and for their family 

members, health reform strategies must include policies that will help women and 

their families obtain meaningful health insurance. Coverage that provides the most 

comprehensive benefits at the most affordable cost will go the farthest to improve 

women’s health and financial security, but consumer-driven health care plans do not 

fit this description. Instead, the mechanics of HSA/HDHP arrangements shift much 

of the risk of needing expensive care from employers and insurers to women and 

their families. This can deter financially concerned enrollees from getting medically 

necessary care when they need it, and those with higher-than-average medical expenditures—including women—may take on significant financial risk. Moreover, 

contrary to the claims of their proponents, strategies that rely on consumer-driven 

health care do little to address two major and interrelated problems with the American health care system—the increasing ranks of the uninsured and rising health 

care costs. Health Savings Accounts, and consumer-driven health care in general, 

are not an acceptable answer to the nation’s health care crisis. 


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Thank you for this opportunity to testify. I welcome your questions. 

f 

Chairman STARK. Thank you. 

Mr. Sensor. 

STATEMENT OF WAYNE SENSOR, CEO, ALEGENT HEALTH, 

OMAHA, NEBRASKA 

Mr. SENSOR. Good morning, Mr. Chairman, and Members of the 

Committee. 

I, too, thank you for this opportunity to share our story, the story 

of Alegent Health and our journey to engage people more readily 

in their health care. 

I will acknowledge as I start my testimony today that certainly 

some of the other panelists and some Members of this very Committee have expressed concerns about consumer-driven health care 

and particularly high deductible plans. And I would quickly say in 

a few minutes that I will chat with you formally today. 

I will attempt to create the construct that it’s not just about the 

high deductible vehicle, the HSA or HRA, but far more powerful is 

the benefit plan and the construct, the environment that encourages the right behavior that we choose to wrap around those vehicles. 

I also testified to you today in an unusual position in that I represent both a provider and a very large employer, which gives me 

the opportunity to assure that we have an environment where information is readily available and people can and do make informed decisions. Alegent Health in a nutshell is a not-for-profit 

faith-based provider of health care with nine acute-care hospitals. 

We provide care at 101 cites across eastern Nebraska and western 

Iowa. We have 1,300 physicians and just shy of 9,000 employees in 

our current configuration. 

Three years ago, we began a journey, a journey to engage people 

more readily in their health and their health care decisions and we 

decided that the natural starting point for that journey was our 

own workforce, the 9,000 men and women of Alegent Health. And 

so we began to design a plan, which took largely the better part 

of a year, and to communicate that plan, and to educate our workforce as to a new way to look at health care. 

The results I’ll tease you with have been nothing short of exceptional. Fully loaded, our costs have increased an average of 5.1 percent over each of the last 2 years, 37 percent less than the national 

average. Voluntarily, 92 percent of my workforce that currently 

uses our insurance program uses one of our four consumer-driven 

health plans, 92 percent. 

Let me speak quickly to the journey that brought us to this point 

in time and then more granularly as to our results. As we began 

to think about a new way of looking at health care we began to 

populate our Petri dish, if you will, with our own workforce. It became apparent that this is indeed a very complex issue we’re facing 

and that it would take the right incentives that would be a right 

benefit plan; that it would take the right tools that would be meaningful quality and cost information. 


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What other good or service do we buy in this country where you 

do so in a complete vacuum relative to cost and quality? 

And, thirdly, that it would require new and creative access points 

that are cost efficient, convenient, and predictable. I’ll speak briefly 

to each of those points. Our new benefit plan to HSAs and to HRAs 

now including 92 percent of our workforce has two constructs that 

are really the meat, if you will, around the plan. 

The first is if it’s preventative care and indicated for your age cohort it is free—no deductible—no co-pay—everything from annual 

physicals, mammographies, colonoscopies, child immunizations. We 

want our workforce to utilize those services. 

Secondly, we have a program called healthy rewards, which directly incentivizes individuals to make lifestyle changes the single, 

greatest determinant as to how much health care you’ll consume in 

your life. Everything from managing your chronic illness to weight 

loss to smoking cessation, incentivizing people with direct dollars 

to make lifestyle changes to live healthier and consume less health 

care. 

The second major construct that I would say change is required 

and in the air is people must simply have tools to make decisions 

about their health care. Three years ago, we began publishing our 

quality scores that were alluded to in Congressman Camp’s opening remarks. We also have a cost-estimating tool on-line so you can 

see what it will actually cost you for your care. 

The third and final leg of this stool to really look at health care 

differently is access. People need choices. People need choices that 

are cost-efficient, that are high quality, and that are predictable. 

We have opened our seventh walk-in clinic and grocery stores—10- 

minute turn-around time—$24 to $52. 

Sixteen percent of the people that attend or go to that site for 

care express that they have no health insurance. The results on our 

HSAs, relative to our workforce, have been phenomenal. While I 

shared the aggregate results a moment ago relative to our HSAs 

during the last 2 years, we have seen a full 15-percent decline in 

the cost of care for those individuals. 

In the HSA, we are now spending 9 percent of our total dollars 

on prevention versus 2.3 percent as a national average. Ninety-six 

percent of the people participating in our HSA now use generic 

drugs as their choice when they are available. Ninety-eight percent 

of our HSA participants regularly contribute to their HSA via payroll deduction. Thirty-two percent have already fully funded their 

deductible as part of their HSA. And, even more piercing, people 

earning $25,000 or less are funding an average of $1,400 into their 

HSA. 

I would conclude, Mr. Chairman and Committee Members, HSAs 

and HRAs are a wonderful tool. They will single-handedly not fix 

health care in America. I believe that people given choice, people 

given relevant information, and people incentivized to make the 

right decision can and will do so and it will raise the quality of 

their care and will indeed reduce costs. 

Thank you very much and I welcome your questions. 

[The prepared statement of Wayne Sensor follows:] 


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Chairman STARK. Thank you all very much. 

I guess, Dr. Chernew, help me with this one. From an economist’s view, if you were ill, very ill, and knew it, diabetes or something that required constant and probably expensive medical care, 

and you’ve had a chance to buy a plan with a $700 deductible, but 

your premium was only reduced by $480, you’d be inclined to not 

take, wouldn’t you? 

Mr. CHERNEW. Generally speaking, that would be right. 

Chairman STARK. Yeah. Now I think that Mr. Sensor’s plans 

are almost even, as much information as we can get on them, that 

your decrease in premium about matches the increase in the deductible. So I don’t know what you’d do there. I mean I imagine 

that it’s more a matter of convenience, if you just leave the savings 

account thing aside, if you’re just trying to save money by getting 

a higher deductible if you knew you were going to need a lot of 

treatment and could make that decision rationally, I don’t know 

what you do where it’s a match. I guess there again it would be 

convenience, and what you were used to doing if you were the kind 

of person who could save money and have it available, or if it was 

helpful for you to pay monthly. 

Another thing that I think it was Dr. Blumberg who suggested 

that 10 percent of the population spends 70 percent of the costs 

that we spend on medical care. And I used to think of it as 20 percent and 80 percent of the cost; but either way. 

But help me with this. I’m an employer and I got 100 employees. 

And let’s just say for the hell of it that I was to going to get them 

a high deductible plan, a $3,000 deductible, let’s say. And it would 

be the same premium whether they signed up for a savings account 

or not. It’s just a high deductible plan. Well, if I put 3,000 bucks 

in every employee’s health savings account, and I had 100 employees—I did this with my shoes and socks on, I want you to know— 

I’d spend 300,000 bucks over and above the premium, right? 

Ms. BLUMBERG. That’s right. 

Chairman STARK. But if I self-insured, when I said to you as 

my employee, ‘‘I’ll pay for any covered benefit. I’ll pay the deductible until you get up, and I take the risk.’’ I’m fussing around here, 

and with your numbers, I don’t see I get much above $100,000 if 

everything turned against me. 

Ms. BLUMBERG. I’m sorry. I didn’t follow where the $100,000 

is that you’d end up spending on the ill you’re talking about. 

Chairman STARK. Yeah. Because if 10 percent of my employees 

use up 70 percent of the cost, that leaves 90 percent of my employees with the rest of it, I can’t get that number to get much above 

100 grand. Now my stockholders would be disappointed in me, I 

suspect, if I gave all these hardworking folks the $3,000, when I 

could get away giving them the same benefits by only spending a 

little more than $100,000. Does that make some sense to you? 

Ms. BLUMBERG. That is essentially the difference between the 

HSAs and the HRAs, in that with the HRAs the money is really 

held by the employer; it doesn’t become—— 

Chairman STARK. Well, even if it’s not even held, just the employer self-insures for the deductible. And then gets the savings of 

the high deductible. And it would depend on whether you got an 

old workforce or a young workforce. But I have always been puzVerDate Nov 24 2008 01:30 Jul 15, 2009 Jkt 050037 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 E:\HR\OC\50037.XXX 50037

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zled—and you know, I’d sure hate to go to the auto dealer who’s 

loading up, paying 100 percent of the savings accounts, when the 

dealer down the street has got my plan. I get a better deal on my 

Ford or Chevy or Toyota, I’ll bet you. But that’s just a matter that 

I’ve always been puzzled by as a person who used to hire people, 

which is what we did. We just paid the deductible and it seemed 

to be a good plan, and saved us a lot of money. 

Mr. Dicken, do you have any indication of what’s currently going 

on in terms of how many of the high-deductible plans also get savings accounts? 

Mr. DICKEN. Right. As has been reported as of January 2008, 

there are about 6 million Americans that have the high-deductible 

health plan. But—— 

Chairman STARK. How many? This is 2008? 

Mr. DICKEN. As of January 2008 it’s been reported by an insurance carrier survey. But—— 

Chairman STARK. How many, 6 million have it? 

Mr. DICKEN. Six million have the high-deductible plan, but not 

all of those have the savings account that’s associated with it. Blue 

Cross studies, a nationally representative study as of 2007, indicated about 49 percent of those with high-deductible health plans 

did not have the associated savings account. 

Chairman STARK. Okay. So a higher percentage if you take 

those figures now have a savings account associated with the plan 

that had in 2005. 

Mr. DICKEN. Yeah. Blue Cross has shown a small increase. It’s 

ranged from about 40 or 50 percent that they’ve found from 2005 

through 2007. 

Chairman STARK. And did you have any figures on how many 

of those were self-funded and how many were employer-funded? 

Mr. DICKEN. There has been a change. From 2005 through 

2007, a larger share of the high-deductible health plans are employer-based or group-based, rather than individual. There is still 

data that not all employers are contributing to the health savings 

account. Some industry estimates and employer surveys indicate 

that among the large employers, maybe about two-thirds of employers are contributing and less among smaller employers. 

Chairman STARK. And that’s a higher number than you had in 

2005? 

Mr. DICKEN. Those data among the employer benefit surveys 

have been generally in the same ballpark. 

Chairman STARK. Mr. Camp? 

Mr. CAMP. All right. Thank you, Mr. Chairman. 

Mr. Sensor, you mentioned that you have 9,000 employees at 

Alegent, and they have a choice of whether to stay in their PPO 

or enroll in an HSA. And I believe I heard your testimony that 92 

percent of your employees elected an HSA. Can you tell me something about your employees, what percentage are women? Do you 

know their average income? And why might 92 percent of your employees made that choice? 

Mr. SENSOR. Thank you very much. A couple thoughts. First of 

all, I think 92 percent chose because we spent a year communicating and educating around an exceptionally well-planned benefit plan. I think people chose it because it makes sense for them. 


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The breakdown of 17 percent are in HSA, 75 percent are in HRAs, 

and 8 percent remain in the PPO. 

Mr. CAMP. What percentage are women, do you know? 

Mr. SENSOR. Eighty-two point five percent of our workforce are 

women, and there is no stratification relative to which plans. It’s 

about equal. They don’t have a preference. 

Mr. CAMP. Do you know the average income of your employees 

of that group that’s chosen? 

Mr. SENSOR. I mean there are some interesting anomalies when 

you look at the dispersement or stratification by income. A full 50 

percent of the individuals that have chosen the HSA, arguably that 

which puts the most risk on the employee, 50 percent of those individuals earn $50,000 or less. In addition to that I might add quickly that of the individuals making $25,000 or less, they’re actually 

contributing quite handsomely to their HSA at about $1,400 a year. Mr. CAMP. At incomes of $25,000 and less, about $1,400 a year. 

What’s the difference in the premium cost between the high deductible plan and the PPO that you offer your employees? 

Mr. SENSOR. It’s a substantial difference, as Chairman commented on his opening remarks. Again, we planned our benefit 

very, very carefully to incent the right behaviors. And so the punch 

line is: You can largely entirely fund your HSA out of your premium savings. Plus, of course, you get free preventative care and 

incentives to live a healthier lifestyle or manage your chronic care. 

The specific answer is a family plan PPO would have premiums of $426 a month. The highest-risk HSA would have premiums of 

$24 a month, and the more moderate HSA about $200 a month. So 

the more moderate HSA is half of what the PPO would be for family coverage. 

Mr. CAMP. Now can you just talk about some criticism of—high 

deductible plans certainly don’t take into account all the extra initiatives you offer in your plan, including the incentives for changing health behaviors and wellness. Can you just talk about those? 

And if you believe if other plans offered those, that that might address some of the criticisms we’ve heard? 

Mr. SENSOR. Well, I’m obviously a very strong proponent in preventative care. The research is replete and clear. We don’t do 

enough of it in this country, and we ought to incentivize Americans 

to practice more preventative care. 

The second item that you referenced was what we affectionately 

call ‘‘healthy rewards,’’ that directly incentivizes individuals to address high-risk factors. That could be everything from the obvious. 

That would be weight loss, smoking, use of tobacco, or it could be 

less obvious, and that would be managing your chronic health care 

problem outside of acute episodes, your diabetes, your chronic asthma, et cetera. 

We have a whole plethora of resources that are brought to bear 

to assist those individuals. All of those resources are free, from 

Weight Watchers, the patches, and the gum, all the way to personal health coaches, who telephonically assist you in completing 

a program that will reduce your risk factor. 

And then at the conclusion of one of those programs, two, three, 

four, or five hundred additionally will drop into your HSA on top 

of the amount that the employer has already contributed. 


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Mr. CAMP. Now you offer both high deductible plans and a PPO. 

Now typically services related to normal pregnancy and childbirth 

are not covered in the individual market, are they? Unless mandated by the State? 

Mr. SENSOR. I think that would be typically, yes. 

Mr. CAMP. So that in that sense, high deductible plans in the 

individual market aren’t any different than other individual market plans? 

Mr. SENSOR. I think that would be a fair conclusion. 

Mr. CAMP. All right. 

I’d also like to submit to the record testimony from the March 

of Dimes Foundation to that effect, without objection. 

Chairman STARK. Without objection. 

Mr. CAMP. Now again, I just want to comment—I see my time’s 

running out—that again some of the official testimony we’ve had 

the second year a program worth only 1 million filers, used as a 

benchmark, comparing HSA filers to all tax filers, not tax filers 

with insurance. And I would ask Mr. Dicken, if you could get to me 

a comparison of HSA filers with other filers with insurance, I think 

that information might be helpful to the Committee. It may be different; it may not. 

And also again your analysis left out HSA holders without any 

account activity. So with that, I see my time’s expired. Thank you, 

Mr. Chairman. 

Mr. BECERRA. Thank you, Mr. Camp. 

I’m going to go ahead and inquire—and hopefully by the time I 

complete my questioning, Chairman Stark will be back, and if not 

I’ll stay until he is back. And I’m not sure if Mr. McCrery has already voted. 

Have you voted yet? Okay. So we’ll see where we head with 

Members. But I suspect Chairman Stark will be back by the time 

I finish my inquiry. 

Let me begin by asking Mr. Dicken a question. I believe, Dr. 

Blumberg, you mentioned that the accountability for HSAs is somewhat suspect. We have no real way to track how people are using 

HSA moneys other than what they provide to us, to the IRS to 

prove how they ended up using dollars deposited into the health 

savings account. 

Mr. Dicken, can you tell us what IRS does to try to ensure that 

the money that’s placed in an HSA and is therefore tax-deferred, 

is used for health activities? 

Mr. DICKEN. Well, thank you. The information that is reported 

to IRS is self-reported by HSA accountholders as to whether 

they’ve used any withdrawals from their health savings account for 

qualified medical expenses or otherwise. We found in 2005 that tax 

filers reported that 93 percent of what they were reporting were for 

qualified medical expenses. 

To the extent to which IRS can confirm that, depends on the extent to which they are conducting audits. 

Mr. BECERRA. Are you aware of what the audit rate is for tax 

filers who have HSA accounts? 

Mr. DICKEN. We don’t know the specific amount; certainly for 

general audits, that’s a fairly small share of tax filers and less than 

1 percent of tax filers in 2005 were reporting HSA activity. 


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Mr. BECERRA. Are you aware of any activity on the part of IRS 

where they are intending to try to monitor the use in filing or recording purposes on HSAs by tax filers? 

Mr. DICKEN. To the extent that IRS has done more targeted 

rather than general audits, we’re not aware as to whether that’s 

occurring or not. Mr. BECERRA. So right now we know there is some $240 billion 

or more I think in taxes that are not paid by Americans and corporations, because for the most part it’s based on self-attestation, 

or self-reporting by a number of individuals and corporations to 

pay their taxes. This HSA program right now relies on that same 

type of self-declaration on the part of the taxpayer who has an 

HSA account. 

It is also correct that once you reach the age of 65, any money 

that you may have deposited into an HSA over the years as a taxpayer then becomes yours, tax-free, whether or not you use it for 

health-related activities? 

Mr. DICKEN. Once you’re 65 you can withdraw it without the 

penalty that otherwise accrues. Otherwise, if you’re under 65 and 

taking out moneys for non-qualified medical expenses, then there 

would be a 10 percent penalty. So that 10 penalty doesn’t apply; 

although it would be taxed as income otherwise, if it were—— 

Mr. BECERRA. This is sounding more and more like a really 

good tax shelter if you happen to have a good amount of money 

that you’ve already maxed out on your 401(k), you’ve maxed out on 

your IRA, you’ve maxed out on every other municipal bond that 

you could decide to invest in. And all of a sudden you now find that 

you have a pot of $5,800, or however much it will be in the future, 

that you could put money aside in, in an HSA, and so long as you 

stay healthy—and so far I’ve been pretty healthy—if I reach 65 and 

hardly use any of that money, I then after that point can use that 

money for unrelated health care purposes, and never paid Uncle 

Sam money that most average working Americans would not have 

been able to do. 

Is there any way to track that type of activity by someone who 

is—and I think we’ve heard testimony that the wealthier you are, 

the more inclined you are to use an HSA, which means that we’re 

placing folks who have the ability to pay for health insurance coverage in a pool where they get to save at the same time that 

they’re the ones that are least likely to not want to have health insurance. It sounds to me like a Ponzi scheme here. 

Mr. DICKEN. Well, the reliance right now is on the self-reporting by individuals of what they’re using the funds for. 

Mr. BECERRA. Okay. So that wasn’t an answer that clarified 

how this isn’t a really good way to try to shelter money from the 

IRS, where the average working American has to rely on an employer to provide health insurance. 

Dr. Blumberg, let me ask you this. Do you have confidence? Is 

there a way for you to have confidence that the HSAs are being 

used for what they’re intended to be used by all people? 

Ms. BLUMBERG. I don’t think there’s any way we can have confidence in that, because there is no adjudication of the claims that 

are being drawn down out of the accounts. I mean we can rely on 

most people being honest, but other than that, we—— 


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Mr. BECERRA. Are you aware of any process or system that the 

IRS is implementing to try to give us that confidence that HSAs 

won’t be used as a tax shelter by those who can afford it? This 

sounds like trickle-down health care. 

Ms. BLUMBERG. I don’t know of any approaches that they’re 

taking. What I do know is the approach that’s taken for other taxadvantaged medical spending accounts that could be applied. 

Mr. BECERRA. Like? 

Ms. BLUMBERG. In the case of medical flexible spending accounts, which are a different type of structure in that they have 

some different rules. The dollars don’t roll over from year to year. 

But they do have some of the same tax advantages within a given 

year for deposits. The claims on the medical flexible spending accounts are verified by third-party administrators who run those 

types of plans to verify that they’ve been used for medical purposes 

before the claims are paid out. 

Mr. BECERRA. Mr. Sensor, Dr. Blumberg raised a good point. 

There are some plans that do require more reporting. My understanding is that most of your employees have applied for the HRA 

accounts. Do you with your HSA accounts require a reporting? 

Mr. SENSOR. We do not require a reporting. We have debit 

cards that we use to pay our medical expenses, which of course creates a paper trail. Or you pay with a check. And parenthetically 

I might add, as I was filing my own personal income taxes this 

year, my accountant acknowledged that I had a rather large dispersement for medical bills. I got to use some of my own health 

care. And indeed, she asked if I could document using my debit 

card or my checks, what I’d use those expenses for. When I told her 

‘‘Yes,’’ she responded that upon audit I would be required to do so, 

and that that was between me and the IRS. I do feel like with my 

employees that we do have adequate documentation, should they 

be audited. 

Mr. BECERRA. Yeah. And the operative word there is ‘‘should 

you be audited?’’ And the chances of being audited, given, as Mr. 

Dicken said, that there is a very small pool at this stage of folks, 

of tax filers who are using HSAs, and whether or not they would 

be audited is another question. 

Again, I think all of us want to see Americans be covered; but 

from everything I’m hearing today, the pool of Americans who are 

uninsured, that 47 million universe of Americans, probably doesn’t 

have enough money in their accounts or in their regular checking 

or the regular paycheck to be able to afford to put much money into 

any type of health savings account in the first place. 

In the second place, when you do open one, we rely on people’s 

good faith to report accurately what they use their money for, 

which is wow, as I said, I’d love to collect the, what is it?—it’s either $240 or $340 billion that we know annually we don’t collect 

in taxes, because people aren’t reporting properly. And this just 

seems to be another avenue for those who have decided not to report properly to continue to do that. That type of trickle-down 

health care seems to be taking us in the wrong direction. 

But I thank all of you for your wise testimony and appreciate 

your being here. Thank you, Mr. Chairman. 


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Chairman STARK. Thank you. I got all this time while everybody else goes to vote. 

Let me come back, Mr. Sensor, just a couple of questions. I think 

you said 75 percent in an HRA. How much in an HSA? How many? 

Mr. SENSOR. Seventeen percent. 

Chairman STARK. Seventeen? And 8 percent in your PPO? 

Mr. SENSOR. Correct. 

Chairman STARK. But your PPO is frozen? 

Mr. SENSOR. It’s currently frozen, yes. 

Chairman STARK. Why? 

Mr. SENSOR. A couple reasons I would submit to you. First of 

all, we chose when we rolled out the plan not to force our employees into HSAs or HRAs, but rather to present the benefits and let 

them make their own choice. And as you can see, not very many 

chose the PPO. 

We’ve seen decline in the latter 2 years, and determined that at 

such a small enrollment, 8 percent of my population, that it didn’t 

make sense to continue to trickle a very few people when most people were abandoning. In fact, we’ve seen 10 percent migration into 

our HSA each of the last 2 years. 

A couple other quick items relative to the efficacy of that 8 percent in our PPO. If it’s risk that is the issue to the employee, our 

two HRA plans, which allow for Alegent to contribute either $1,000 

or $2,000—and first dollar coverage comes directly out of therefore 

our money, not the employees—really blunt the level of risk, if 

that’s the reason that an individual chose that option. 

And lastly, but from a total out-of-pocket expense, we’ve done 

some analysis of all in, including premiums, including your co-pays, 

including your deductibles, where are my employees better off? And 

indeed that PPO option they spend considerably more dollars out 

of pocket in total than our HSAs. In fact, the gap is about $4,710 

total cost out of pocket for a PPO participant versus $2,709 for the 

HSA. 

Thank you. 

Chairman STARK. Thank you. Is there a fixed dollar amount 

that you contribute to the HSA? 

Mr. SENSOR. Yes. Our contribution is $100 to open the account. 

Chairman STARK. $100 a year? 

Mr. SENSOR. $100 a year, yes. 

Chairman STARK. Wow. Give the store away with that, aren’t 

you? Okay. And in the HRA, let me see if I understand what that— 

that sounds like the plan that I would have proposed. But basically, unused funds. Each employee has an account, right? How 

much goes into that account roughly each year? 

Mr. SENSOR. If it’s an HRA we’re speaking to, it’s between 1- 

to $2,000, depending on whether it’s family coverage or not. 

Chairman STARK. And that money can only be spent for covered 

benefits or proven health care? 

Mr. SENSOR. Correct. 

Chairman STARK. Okay. And the employee never gets their 

hands on it? Basically that’s a bookkeeping entry that you control 

the funds and the dispersement thereof? 


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Mr. SENSOR. No. I would look at that a little differently. They 

have control over dispersement of those funds. They can’t spend 

them personally. 

Chairman STARK. Uh-uh. Right. 

Mr. SENSOR. They choose, however—— 

Chairman STARK. And they can’t buy a mutual fund with them, 

or—— 

Mr. SENSOR. Correct. 

Chairman STARK. Okay. And you watch those a lot more closely 

than you watch the government money, don’t you? That’s interesting. 

So and then when the employee leaves or dies or retires, anything that’s left in that HRA account comes back to the company? 

Mr. SENSOR. That would be correct. Since the company contributed those funds, the proceeds would return to Alegent. 

Chairman STARK. Okay. So it’s really kind of a self-insuring by 

your company for the deductible, isn’t it? 

With a cap. 

Mr. SENSOR. Yeah. If I may, Mr. Chairman, I would position it 

as it’s a transitional vehicle that’s between a PPO and an HSA in 

that it gives people the ability to control how those dollars are 

spent. We still fund prevention, we still fund change of lifestyles, 

and reduction of risk, all of which flow into that account, all of 

which they determine how they’ll use them. But the first—— 

Chairman STARK. But unlike an HSA, they can’t spend it for 

college or keep it for retirement and spend it? That’s your money. 

Mr. SENSOR. Right. 

Chairman STARK. And you’re at risk for it. 

Mr. SENSOR. Correct. 

Chairman STARK. And somehow I think I’m going to get Dr. 

Chernew to suggest even if it is—I’m too greedy to make this discussion—but when it’s my money, I am much more interested in 

how it’s invested and how it gets used than if it’s your money, and 

I’m off to Rite Aid, or whoever I want to go see, the cosmetic surgeon to get cleaned up a little around the edges. You know, what 

the hell? If it’s not mine, I don’t care; if it’s mine I’m going to watch 

it much more carefully. 

Okay. Could you talk to me, Dr. Chernew, about cost sharing 

under high deductible plans and health care quality? And I’m going 

to ask Dr. Blumberg to talk about this, too. 

One of the things that I recall from my dim, dark past is that 

Kaiser, who is always half the people in my district belong to Kaiser—and they’ve always had a variety of fixed-rate $5, $10 co-pays 

for prescriptions or a visit to the—in some plans, and they vary 

from union to union—but they’ve always been in the neighborhood 

of $5 or $10. And I think that they said that they could deter overutilization, abuse of the plan just as well as the $5 or $10 amount, 

and the minute they went above that, all they found was that people were somewhat more reluctant to get needed medical care. In 

other words, for some very small amount you can get the hypochondriacs and sort them out. But once you get above that very 

much or go higher, you start to get people who make the decision 

not to get the prescription or the service. 


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So I’m going to ask—that’s just something that I wonder if it still 

holds, but I’d like your thoughts, Professor Chernew, on what cost 

sharing, what effect you see that can have on quality. 

Mr. CHERNEW. Thank you, Mr. Chairman. I guess my opinion 

is there is probably overuse of care along the entire spectrum, and 

if you charge people money, you’ll reduce the amount of overuse. 

I think there’s also needed care all along the spectrum, and if you 

charge people money, you will have them not consume care that’s 

needed. 

It’s difficult to figure out exactly how you want to justify charging patients with diabetes for their blood pressure medication, or 

their diabetes medication, that is care that you know is needed. 

We’ve heard today that certain plans have incentives to prevent 

that type of thing, and I would support those incentives. 

I think the challenge is to recognize that there is a lot of heterogeneity in the types of plans. So we need to think through when 

we look at the different plans how those plans really set up their 

cost-sharing for things that look like quality. 

I think if we look broadly, the evidence is overwhelming that if 

we look at either standard measures of quality to ‘‘HEDIS’’ measures, or other measures of quality that people have thought of, like 

how well people are managing their chronic disease; that in situations where people have to pay more—and it’s not always a ton 

more, a lot of the studies, $15 to $20, not a lot more—people don’t 

take their blood pressure medication, they don’t take their diabetes 

medication, they don’t get some of the checkups that you think 

they might get if they have different illnesses. 

So if we use our standard quality metrics, I think we would find, 

on average, not in all plans or for all people, but on average we 

would see worse quality if people were systematically charged 

more. 

And I think that’s a difficult argument to refute, based on sort 

of the broad peer reviewed literature. 

Chairman STARK. Thank you. Sam, did you inquire? 

Mr. MCCRERY. Not yet, no. 

Chairman STARK. I don’t what the—go ahead. Mr. McCrery, 

would you—— 

Mr. MCCRERY. I’ll give Mr. Joseph a few minutes to gather his 

thoughts, since he just got back. 

Chairman STARK. Okay. 

Mr. MCCRERY. Thank you, Mr. Chairman. 

I appreciate you’re letting me inquire even though I’m not a 

Member of the Subcommittee. I guess I am ex-officio. 

Chairman STARK. You certainly are. 

Mr. MCCRERY. Dr.—and I’m sorry, I wasn’t here for introductions—is it Chernew? 

Mr. CHERNEW. Anyway you pronounce it’s fine with me. 

[Laughter.] 

But yes. 

Mr. MCCRERY. How do you pronounce it? 

Mr. CHERNEW. Chernew. 

Mr. MCCRERY. Chernew. 

Mr. CHERNEW. Just as long as it’s not Blumberg. 


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Mr. MCCRERY. Can you give us a list of the peer-reviewed literature on which you just based your generalization? That would 

be helpful. 

Mr. CHERNEW. There’s a great review of some of the studies. 

The drug studies were reviewed. I think they reviewed 923 articles 

and they found 132 that met their criteria. It’s all summarized in 

a paper by Dana Goldman. It was in JAMA in 2007. 

Mr. MCCRERY. Is that in your materials? 

Mr. CHERNEW. It’s referenced in my testimony. The article 

itself isn’t in my testimony. There have been other reviews. I edit 

a journal called the American Journal of Managed Care. I would 

be happy to make it available to anyone in this room, actually for 

free, if they contact me. 

But we get a series of submissions. We’ve published a peer review article by—the lead author is a woman named Theresa Gibson, that’s also looked at this literature. There’s a summary of results published in a book by Joe Newhouse called Free for All, looking at the results of the Rand Health Insurance experiment, that 

has some discussions of the role of cost-sharing. And they randomized individuals. And it’s somewhat dated now; the study was done 

a few decades ago. 

Mr. MCCRERY. Mm-hmm. 

Mr. CHERNEW. And I can certainly tell you the studies that we 

have done. Our study on the impact of cost-sharing on disparities 

is coming out in the Journal of General Internal Medicine. It’s online now. 

So there’s a lot of people. I apologize, I may not have cited some 

of Linda’s work. 

But I think the bottom line from all of this work is overwhelmingly people do cut back on care, as proponents of higher cost-sharing plans would want, as an economist would expect when you 

charge them more. The challenge has been in most cases they seem 

to cut back on appropriate and inappropriate care similarly. 

Mr. MCCRERY. Well, I remember reading a summary of the 

Rand study some time ago, and I’d have to admit it’s been quite 

some time since I’ve looked at it. But seemed to me they reached 

a contrary conclusion that in terms of health outcomes, the health 

outcomes didn’t seem to be that adversely affected. 

Mr. CHERNEW. So that is right. And I should say just for—— 

Mr. MCCRERY. That is right? 

Mr. CHERNEW. Well, I should say that is—— 

Mr. MCCRERY. That is correct? 

Mr. CHERNEW. First let me say that the lead author is a colleague of mine, Joe Newhouse, and I have spoken with him some 

about this point, in part prior to this. They found that on average 

there were not large health effects in those plans. They found that 

there was reductions in the use of needed care, and there were 

some adverse health consequences, particularly in people with 

chronic disease and people that were low income. They believe that 

some of the care that was cut out was care that was unnecessary, 

perhaps harmful, and so that was useful. And they believe some of 

the care that was cut out was care that really was needed care, and 

created problems. 


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I think the challenge is to understand particularly as we live in 

a world now where there’s a lot greater chronic illness, a lot more 

medications for treating chronic illness, a lot of services that 

weren’t available in the era of the Rand Health Insurance experiment to understand exactly how these things follow through. 

And in studies that you’ve seen more recently, you do find a lot 

of evidence that in some of these particularly chronic care areas 

that people aren’t doing the things that we want them to do, and 

we do believe there are adverse health consequences. 

Let me add by saying, as I said in my testimony, as an economist, I am not philosophically opposed to cost sharing, and I believe their situations with cost sharing can work. I believe there 

are people that can manage it better than other people. I believe 

there are individuals and companies that can design it better than 

other individuals and companies. 

So I am not inherently opposed in any way to this. That being 

said, I think there are areas where a general across-the-board HSA 

type plan or high-deductible type plan will cause real harm to some 

individuals in the way in which they manage the markets because 

of challenges for a whole slew of reasons in how folks manage their 

illness. And it seems that when they’re faced with a higher price, 

not all of them, but some of them do a substantially worse job. And 

I think it’s—— 

Mr. MCCRERY. I think that’s a fair statement. 

Mr. CHERNEW. And I think it’s a challenge of trying to 

work—— 

Mr. MCCRERY. But I did want to get the other conclusion on the 

record, though, Mr. Chairman, that the Rand study in fact concluded generally that there wasn’t a very distinct diminution in 

health outcomes as a result of increased cost sharing. 

Chairman STARK. That was the Rand study done in the 1970s? 

Mr. MCCRERY. I don’t recall the date, it was several decades 

old. 

Mr. CHERNEW. The data was collected in the mid-1970s. There 

were many publications, so there’s probably still some going on. I’m 

not familiar with them, but the publications—— 

Mr. MCCRERY. But I don’t think human has changed significantly since the 1970s. 

Mr. CHERNEW. But the medical technology for which they need 

access to has. 

Mr. MCCRERY. But we could get into a whole philosophical discussion about new medical technology and availability and affordability. I don’t think this is the time or place for that. But it would 

be a nice discussion for us to have. And we’re going to have to have 

that discussion at some point, Mr. Chairman. 

Chairman STARK. All right. 

Ms. Tubbs-Jones, would you like to inquire? 

Ms. TUBBS-JONES. Yes, Mr. Chairman. Thank you very much. 

Good morning, ladies and gentlemen. How are you? 

Mr. Sensor, can you tell me the racial makeup of your company? 

Mr. SENSOR. I do not know that off the top of my head. I am 

so sorry. But I would be glad to send that to you electronically in 

followup. 


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Ms. TUBBS-JONES. It would be interesting, because you do 

know that there are health care disparities that fall among races. 

Mr. SENSOR. Absolutely. 

Ms. TUBBS-JONES. And for you to be able to really give me a 

clear sense of how well your company is going with that program, 

that is a factor that really would be useful for us. 

And over this year of training or education that you did with 

your workers, it seemed to me that that might also be something 

that ought to be factored in the process of training. Can you tell 

me the income of the people that you have in your company? Mr. SENSOR. The average hourly income is about $24.50. And 

that would be an aggregate number for all of our 9,000 employees. 

Ms. TUBBS-JONES. And that’s a pretty—that’s a decent wage 

for—and so it would be safe to say that your folks are skilled? 

Mr. SENSOR. We have a mixture of skilled and less skilled. 

Ms. TUBBS-JONES. Mm-hmm. Thank you very much. I’d be interested in the information, particularly because health disparities, 

especially as it affects racial and ethnic minorities, is an important 

issue for me, as I try and make some decisions, or am involved in 

policymaking around health savings account and health—these accounts. 

Mr. SENSOR. Absolutely. If I may, just one followup. 

Ms. TUBBS-JONES. Oh, sure. 

Mr. SENSOR. Thank you. We will provide that information in 

followup. 

The personal health coaches that are made available free to all 

of our employees to deal with the risk factors would be able to 

speak more specifically to the unique health challenges of the different populace. 

Ms. TUBBS-JONES. I mean because much of the studies have 

clearly shown that low-income and racial minorities tend to the 

ones that spend the least amount of health care, and come to the 

health care system with chronic and acute illnesses as a result of 

lack of preventive care. So I’d be interested in hearing that information. 

Thank you. 

Ms. Waxman, on behalf of the National Women’s Lawyers Association. A former member, glad to have you here. I’m interested in 

what your studies have shown with regard to—well, we all know 

that most of the research around women’s health didn’t happen 

until women jumped up and down and acted crazy enough for them 

to begin to do some research around our issues. 

But I’m interested in the impact that these types of savings accounts have on women’s health, and when we affect women’s 

health, we affect children’s health as well. So I’m interested. 

Ms. WAXMAN. Absolutely. There haven’t been that many studies on the actual impact because they haven’t really been in existence that long. 

Ms. TUBBS-JONES. Maybe I should rephrase and say women’s 

access to necessary health care. 

Ms. WAXMAN. Yes. Well, the one issue I raised, and has come 

up a couple times, I think would be great to clarify about maternity 

care. Because yes, as I mentioned, it is not generally covered in the 

individual markets, certainly not in the HSA individual markets. 


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But even if it is covered in the plans, in the small group plans or 

the other plans, it is generally subjected to the deductible. So in 

other words, if you’re in a traditional plan, maternity care’s covered, you get it, your doctors—— 

Ms. TUBBS-JONES. I think if men had to have babies, it would 

be covered. 

Ms. WAXMAN. Well, I mean the plan can choose to have the maternity care covered, called preventive care. But if it isn’t, and most 

aren’t, then you have to go through the deductible. So as I mentioned, 9 months often spans two insurance calendar years, and 

you have to meet the deductible twice. So a Kaiser study of last 

year concluded that women were going to be facing between 3- and 

$21,000 for their maternity care, even if it’s covered. But you have 

to get through the deductible first. And that is obviously a significant problem for women trying to get their prenatal care, and may 

deter some women from doing so. 

Ms. TUBBS-JONES. Sounds like the basis of a great lawsuit to 

me. And you know, let’s think about whether or not we need to be 

looking at this discriminatory practice against women in the health 

care system. I know—— 

Ms. WAXMAN. There are a number of other issues we could discuss, which maybe we should do another time. 

Ms. TUBBS-JONES. Less I be viewed as being a litigious Member of Congress. 

Thank you very, very much. 

Mr. Sensor, my staffer has given me one more thing. Do you contract out or directly employ your support staff, Mr. Sensor? 

Mr. SENSOR. To the best of my knowledge, they are employed 

staff. 

Ms. TUBBS-JONES. Okay. 

Thank you very much, Mr. Chairman. Just for the record, I’d like 

to welcome my health LA to the Committee. Her name is Athena 

Abdullah. I’m looking forward to having her work with us. 

Thank you very much—— 

Chairman STARK. I hope you’ll explain to her that I’m exempt 

from lawsuits under these situations. 

Ms. TUBBS-JONES. Well, you know, I’m not talking about you, 

Mr. Chairman. I’m talking about it’s a real issue for women across 

this country, and sooner or later we’re going to get our appropriate 

dues, since we take care of you men all the time. 

Chairman STARK. Ah, and we appreciate it. 

Mr. Johnson, would you like to inquire? 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Dicken, health savings accounts were created in the 2003 

Medicare bill. Do you know the year the product was first made 

available on the insurance market? 

Mr. DICKEN. Yes. They were first available as of January 2004. 

Mr. JOHNSON. 2004? So your 2008 report used the 2005 return 

information for your findings, is that correct? 

Mr. DICKEN. The IRS data was for 2005, as the most recent 

data from the IRS. 

Mr. JOHNSON. So the report only looked at the scope of the 

product during its first year on the market? 


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Mr. DICKEN. IRS data was for the first 2 years. We were also 

able to supplement that with other information from other industry 

sources and benefit surveys for 2006 and 2007. 

Mr. JOHNSON. Okay. So you agree there’s over 6 million individuals in the country with an HSA today? 

Mr. DICKEN. There are over 6 million individuals with a high 

deductible health plan. There’s a smaller group of those that have 

the health savings account. 

Mr. JOHNSON. Okay. And 56 percent of them, I’m told, were 

opened in the last 18 months; 45 percent of HSA accountholders 

now have incomes less than $50,000. Is that true? 

Mr. DICKEN. I think that’s consistent with AHIP survey results, 

yes. 

Mr. JOHNSON. Okay. Then do you believe your GAO report adequately describes the current situation? 

Mr. DICKEN. I think we use the most recent and credible information, and so recognizing that the IRS data was just for the second year, tried to supplement that with other surveys for more recent years. But certainly it is a dynamic market in the early years 

of—— 

Mr. JOHNSON. Changes every day, doesn’t it? 

Mr. Sensor, in 2005, you decided to provide HSA as an option to 

your employees. Can you tell us again how many of your employees 

have chosen to enroll in the HSA option? 

Mr. SENSOR. Seventeen percent of our employees are using that 

option. 

Mr. JOHNSON. Do you have an HSA personally? 

Mr. SENSOR. I do. 

Mr. JOHNSON. Wonderful. Some have argued that the high deductible health plans do not offer any advantages for the low-income workers, because they don’t have the resources to fund an 

HSA. What steps have you taken to provide additional help for 

your low-income workers? 

Mr. SENSOR. As a faith-based, not-for profit, we are exceptionally sensitive to the lower income employees, who I could argue are 

an important backbone in health care these days. If an individual 

earns less than $14.42 an hour, we subsidize their premium. In essence, we pay for their insurance. Secondarily, we have an incredibly gracious charity care policy. We extend our charity care policy 

to 400 percent of the national poverty guidelines, using the HUD 

guidelines. And certainly that would relate to my employees as well 

if they were unable to pay their portion of that payment. 

And last but not least, I mentioned walk-in clinics as yet one 

more solution from an access standpoint; $24 to $52 and 16 percent 

of the individuals that walk through those doors indicate they have 

no health insurance, and I think some of my employees find that 

as a viable alternative as well. 

Mr. JOHNSON. Yeah. That’s great. Thank you. 

Ms. Blumberg, in your testimony you state you don’t believe 

HSAs will help reduce the number of uninsured; however, in 2006 

a survey actually showed that 31 percent of HSA accountholders in 

the individual insurance market were previously uninsured, and 33 

percent of the policies sold to firms in the small group market previously had not offered insurance to their employees. I don’t know 


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anyone in the room believes HSAs will single-handedly solve the 

uninsured problem, but they obviously are playing a roll in fulfilling the current insurance gap. 

Based on those survey results, would you agree? 

Ms. BLUMBERG. No, I would not, sir. Part of what we need to 

recognize is that a significant share of new business in insurance 

is always coming from employers that had not previously insured; 

so, the difference between those statistics and what’s common for 

all insurance plans is likely not to be statistically significant. So 

that’s common with all new business in the insurance industry. 

We do know that the probability of employer offers and worker 

take-up among the low income population is falling precipitously. 

We see the biggest change in health insurance coverage is for the 

modest-income population. Seventy percent of the uninsured, nonelderly population has incomes below 200 percent of the Federal 

poverty level. They really have very little ability to purchase health 

insurance coverage, high deductible plans or otherwise, without 

significant subsidization. 

So, no sir, I don’t think that these are mechanisms that are particularly attractive to the low-income population. I appreciate the 

efforts made by the other witness to assist with his low-income 

workers; however, that does not necessarily translate to what other 

employers are doing or are able to do, or what’s going on with the 

vast majority of the uninsured population who have no access to 

employer-sponsored insurance whatsoever, either through their 

own employer or through a spouse. 

Mr. JOHNSON. Well, my experience with other employers is 

they’re doing the same thing. 

So thank you very much. Thank you, Mr. Chairman. 

Mr. Becerra, would you like to—— 

Chairman STARK. Mr. Becerra, would you like to inquire? 

Mr. BECERRA. I would, Mr. Chairman, and thank you for the 

second round of opportunities to ask questions. And thank you all 

for bearing with us. I want to make sure I fully develop this point 

about the tax deductibility and how we make sure that people are 

making not just the good use, but the right use of these tax-deducted dollars. 

Tell me if—and I probably should direct my questions at Dr. 

Blumberg and Mr. Dicken since the two of you deal on a monitoring or oversight basis with a lot of these programs and activities. I take out an HSA and a high-deductible health plan. 

I continue to pay, put in the maximum amount to my HSA for 

many, many years. I rarely use my health plan. Before I turn 65, 

say when I’m 62, I then decide to take advantage of my employer’s 

health plan, and enroll in that health plan. And I stop making contributions into an HSA and no longer have that high-deductible 

health plan, since I can no longer have it since I have my employer’s-based health insurance program. 

I have accrued a great amount of money in this HSA that now 

I don’t need to use, because I now have my employer’s health insurance to help cover me. Three years later I hit 65, or even while 

I’m 63, 64, before I turn 65, I get to now make use of that HSA 

money for non-HSA purposes—can I not? 


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Mr. DICKEN. At 65, you can use the money. If it’s for qualified 

medical expenses, it’s still tax-free. If it’s for non-qualified expenses, it would be taxed as income, but perhaps at a lower rate 

if the individual is now at a lower rate and not subject to the 10 

percent penalty that individuals under 65 would have. 

Mr. BECERRA. And so I avoid any type of penalty, and all those 

years that I will have been contributing all that money, which the 

average American would be taxed on, has not been taxed. And so 

now when I’m in my later life, 20 years, 30 years after I started 

putting that money into the HSA only now am I being taxed on 

that money. 

So I have been able to defer tax payments on all those dollars 

that the average American is ineligible to defer taxes on. So once 

again, correct me if I’m wrong, but I see the images of a nice tax 

shelter rising up again. 

Mr. DICKEN. If the individual puts in their maximum amount 

and let accrue an investment income over time, and didn’t withdraw it, they could accrue that money for later years. 

Mr. BECERRA. Now you may not have these numbers off the top 

of your head, and I asked my staff to pull these out for me. It, in 

2000, I think it’s 2008, let’s see—in 2004, the maximum amount of 

money contributed in—or the number—let’s see—the percentage of 

those making a contribution at the maximum dollar amount allowed under the internal revenue for a 401(k) retirement plan, employer retirement plan, rose from, I’m sorry, declined from 6.3 percent of those who have access to 401(k)’s to only 3 percent, slightly 

over 3 percent of people—strike that, let me read this to you correctly. 

In 1996, 3 percent of workers who had access through their employer to a 401(k), or through their employment, to a—for a— 

through their employment had access to a 401(k) retirement plan, 

3 percent of workers who had access put money into that 401(k). 

In 2004, the number of American workers who had access to a 

401(k) retirement plan, and put money into that plan, rose to 6.3 

percent. 

So as recently as 2004, 6 percent of Americans who had access 

to a retirement plan through 401(k) where they could defer their 

tax payments on money that they invest into a retirement, put 

money in there. The similar types of numbers are reflected for 

IRA’s, individual retirement accounts, which individuals who don’t 

have access to 401(k)’s can use to help build up a nest egg for retirement. 

So very low percentages of Americans who have access to these 

types of retirement vehicles, or tax-shelter vehicles, use them, and 

most of them don’t max out. And so now we have another vehicle 

that will be available to tax defer or tax shelter your money, which 

without the protections and the accountability, leads me to believe 

that once again what we are doing is creating another shell for 

folks who already have maxed out on their 401(k), already have 

maxed out on their IRA—need another vehicle to try to shelter 

some of their tax dollars that they’re earning—can now use the 

HSA’s. Whereas the vast majority of working Americans who never 

max out on the IRA, never max out on the 401(k) and rarely ever 

use, if they’ll ever use, an HSA are left in the dust. And I’m trying 


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to figure out where the logic is in trying to now advance on an accelerated basis an HSA plan, which doesn’t have the accountability 

we would want and doesn’t target the people who are uninsured, 

or least insured. 

And I hope perhaps, since my time has expired, Mr. Dicken or 

Dr. Blumberg, you will provide some responses—further elaboration in writing if you think necessary, beyond what you have already provided in testimony—to help at least me understand better 

why HSAs are a good deal for all Americans, and not just for 

wealthier Americans. 

I thank you Mr. Chairman. 

Chairman STARK. Before—I am going to recognize Mr. Camp— 

but I just wanted to ask Mr. Dicken, if you don’t have the numbers 

handy, well, Mr. Camp is inquiring you to look them up. But I understand that there is information on—how many Federal employees are there? Ten million, I don’t know. 

Mr. DICKEN. About 8 million are covered in the Federal Employees Health Benefits Program. 

Chairman STARK. And where they are in signing up for HSAs 

I haven’t polled the Committee because I didn’t want to raise that 

issue, but I suspect we wouldn’t be much different. But we have 

current information on that, as to their income levels and their age 

levels, do we not? 

Mr. DICKEN. Part of the work that we’ve done is to look at the 

Federal employees health program and—— 

Chairman STARK. We’ll come back. 

Mr. DICKEN. Okay. 

Chairman STARK. Mr. Camp? 

Mr. CAMP. Well, I do want to just complete your answer on the 

non-qualified withdrawals. If there are senior citizens, they still 

have to pay taxes on that withdrawal. And there wouldn’t be a penalty as there would be a penalty and taxes if you’re under 65, but 

there still would be taxes paid. 

Mr. BECERRA. Mr. Camp, would you build on that? 

Mr. CAMP. Well, if I have time at the end. I mean, this is—I do 

want to understand a little bit more. I think the characterization 

I just heard isn’t really accurate. But you know, what I’d like to 

understand is some of the other things that these plans, these 

high-deductible health plans, HDHP’s, can offer and particularly 

the Alegent efforts in the whole area of price transparency. 

I mean, one of the problems we have in health care is that people 

don’t know the cost, they don’t have any investment in the cost. 

And one of the things we are trying to get at is certainly making 

more options available to consumers of health care. And in order 

to have options available, you have to have some price transparency. Can you kind of describe to me some of the efforts that 

Alegent has gone to in that regard? 

Mr. SENSOR. Absolutely. The construct that we shared earlier 

was that for this to work in aggregate, you really have to have 

great benefit plans, you really need to offer alternative access 

points. But also to have an engaged consumer, you need to treat 

them as a consumer, and that means give them relevant quality 

and cost information. 


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Specifically answering your question, we have a web-based cost 

tool that I’m happy to report is patent-pending, although we are 

sharing it readily with any other interested party. It literally validates what specific insurance plan you have and because it’s bouncing off a third party insurance database, it also can determine not 

only just what plan you have, and therefore what benefits, but it 

also can estimate your out-of-pocket expense based on your co-pays 

and deductibles. It’s a searchable database of some 500 existing 

procedures and tests. 

And of course, hit the print button at the end, because this is 

based on your self-assessment most often, and you might not have 

the right procedure at all. But it begins to engage them in the relevance of cost. 

Mr. CAMP. I mean, that is truly an innovative approach. And 

you know, I do want to—first of all, I appreciate all of our witnesses coming, even though I may not necessarily agree with everything I have heard from all of our witnesses. 

I do want to say though, I think Mr. Sensor, the fact that you— 

and actually have thousands of employees that you are providing 

an alternative for is something real world that none of the other 

witnesses have contributed today. And I very much appreciate your 

coming forward and doing that, being the only person with your 

point of view in this panel of five. I wish we could have had more 

with that point of view, I think we would have had frankly, a better debate. 

Again, I think we’re getting part of the information. I am not 

afraid of a full and open debate on this subject. Frankly, I think 

that’s something that would be helpful to this Committee. 

But I very much appreciate the fact that you’ve come forward 

and shared the experience that you have had at Alegent in a real 

world, with real employees who have real health care needs. And 

you are providing not only the wellness portion of this in a way, 

and incentivizing that as you have described in your testimony, but 

also the price transparency side, so that people can actually make 

a better choice. 

We are not just at the whim of the provider in terms of what 

costs and what procedures we may engage in. So I thank you for 

coming forward. And again, I have some time, so I would be happy 

to yield to the gentleman. 

Mr. BECERRA. I appreciate that, Mr. Camp. My point isn’t that 

they don’t pay taxes on the money that they subsequently use for 

non-health-related purposes, it’s that for years they’ve been able to 

defer the accrual of those monies and the interest that’s been 

gained and not pay taxes, at least not at the rates that they would 

have paid while they were working. 

If you are now 65, and retired, your income probably has dropped 

dramatically, and you are paying taxes on income based on your retirement income, not your income that you earned while you were 

working. So all those years of amassing these dollars in these accounts can now be used at a far less expensive rate, tax-wise, for 

people who could afford money into these HSAs. 

Whereas, I think the average American would not have that opportunity to do so—that’s my point here. 


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Mr. CAMP. Yeah. And that may be a theoretical point, that—but 

we don’t have current data in terms of what is happening now. In 

fact, we had testimony that not enough people are putting cash in 

their accounts. So I don’t know that’s you know a solution without 

a problem maybe—— 

Mr. BECERRA. I could tell you—— 

Mr. CAMP [continuing]. But I tell you that—— 

Mr. BECERRA. I tell you that’s the theory that Wall Street 

would love to bank on, and could probably sell lots of policies on. 

Mr. CAMP. I think over time, if people have saved for their 

health care needs, I don’t consider that the negative that you 

do—— 

Mr. BECERRA. Oh, I—— 

Mr. CAMP [continuing]. Because they are then responsible for 

their health care. And if they don’t have coverage in a particular 

area, that comes out of pocket. 

Mr. BECERRA. I concur with you on that point. 

Mr. CAMP. So you know, I don’t know that I see the real negative within accumulation of an asset. Now one of the things is that 

it is also transferable, and that is an important part of this as well, 

to give an incentive to then provide for your own care. 

That also is, as we have a broader debate on Medicare and the 

inadequacies of that program and the unsustainability of that program, I think having more seniors with a health care nest egg is 

a good thing. 

Mr. BECERRA. I agree. 

Mr. CAMP. So that’s just a different point of view. But I understand the point you are making. And yes, they may have an income 

tax rated at a slightly lower rate, but they are responsible for their 

health care. Thank you. 

Mr. BECERRA. Mr. Chairman, we really have an opportunity to 

indulge in this type of conversation and questioning of the witnesses, and I am not sure if the chairman is going to gavel the 

hearing to an end. But to the degree that we still have an opportunity with the experts that are sitting here to continue the conversation, I’d love to do so. 

I mean, usually I’m in a rush as well, but this is one of those 

occasions where if I had some lunch I could share with you I would. 

Could we continue this colloquy and—— 

Chairman STARK. Sure. I just want, I want to get in on this, 

just because I’m, it’s interesting. I want to get back. I am going to 

come back to have Mr. Dicken tell us about what the, what happens to 8 million Federal employees. But I have felt for some 

time—and I guess I have some credentials—I taught up marketing 

up the river for you, in the—School a thousand years—before you 

were born probably. 

But nonetheless—and I also sold used cars once after I flunked 

out of MIT for a brief period. So I understand about peddling 

things to people they don’t need, and some of the questions. And 

I had some trouble, Mr. Sensor, in—for example, I just don’t think 

that we can purchase medical care the way we could purchase a 

flat-screen TV. 

I can’t go to Consumer Reports. I could maybe go to U.S. News 

& World Report and look up hospitals that are in your group, and 


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see where you rank in various procedures. But if I don’t—well, if— 

isn’t my son, and like his daddy I don’t travel to Omaha on business—you don’t know what I’m talking about, do you? You never 

read—and the animals? 

Okay. Well, read—and the anteater, that’s—or the—at any 

rate—but if we go online to you and my costs for example—and I’ve 

come to Omaha and I decide I’ve been, I haven’t had my 

colonoscopy, all I can get from you is that my responsibility, this 

is for self-pay, is somewhere between $1,761.60, and $2,826.40. 

Now that’s a pretty big spread, isn’t it. And worse—one of my 

staff brought this one up—I can’t pronounce it, but she just had it, 

and she is now negotiating with her orthopod, so this may be helpful. If you want to have a cruciate ligament repair, you would suggest that it’s between $16,338.40 and $23,850.40. 

Hardly—and a cardiac catheter is between 12,000 and 16,000. 

But the problem is you get in to have it, and you don’t know 

whether you are going to have to spend the night in the hospital 

and have—I mean, I guess what I’m saying is that unless these are 

amounts that as the economists would say, are below your indifference level. 

You know, if you are really thinking about—you are making 45, 

50 grand a year, and you look at this 12- to 16,000, that’s pretty— 

and you only got in your account, I’ve only got 10. Okay. So I am 

looking at two, to six out of pocket. It, it isn’t very helpful. 

And that’s—I would love to see what your outcomes are on these 

procedures, 5 years or 10 years later, if we had that kind of—which 

we don’t have. But just to load me up with my limited knowledge 

with these numbers, which are large, doesn’t seem to be very helpful in how I’m going to save any money doing it. How does— 

that’s—how does that help us? 

Mr. SENSOR. Chairman Stark, I appreciate the question, and 

I’m flattered that staff took a look at our Web site. 

Chairman STARK. Well, they were confused by it, I’ll tell you 

that. And in Medicare, you can’t get any information, so—go ahead. 

Mr. SENSOR. You know, the intention of My Cost is to open the 

conversation with consumers about what the darn thing costs. 

And the reality is the industry has not readily come forward with 

cost estimates, because it is a complicated question. How many 

days in the stay, what peripherals are, what tests are going to be 

ordered, et cetera, et cetera, et cetera? 

Another construct that I might just throw out there for consideration is the individual who has just been encouraged to get an 

MRI, and they’re told by their physician that MRI is optional, that 

they could wait 3 days and see what the results are. 

There would be no downside of doing so. And you know, they 

might want to find out how much that MRI is going to cost. 

They might want to take a look at their monthly statement, 

which they are provided through our health plan, and determine 

whether that’s the right use of their funds. So I would submit to 

you that although those complex procedures that were cited have 

a wide variance in cost, that’s by definition and nature there’s a 

lot of unknowns until you and your doctor decide your course of 

cure. 

But on outpatient and other costs, it’s more precise. 


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Chairman STARK. Some of my colleagues here in Washington 

argue that disclosing prices will actually increase them, because 

it’ll undermine incentives to provide deep discounts. 

Now, has releasing your prices affected your competitive position 

in your market? 

Mr. SENSOR. I don’t believe that sharing our prices has changed 

our competitive position, nor was it intended to. 

Chairman STARK. Okay. 

Mr. SENSOR. I think my competitors are now asked as to what 

their prices are on a more regular basis. 

Chairman STARK. Would you agree for example, in the—however purchasing outpatient prescription drugs, particularly under 

part D, where transparent data could actually affect behavior, and 

could lead to lower overall spending. 

Would you agree that prescription drug costs should be transparent? 

Mr. SENSOR. Absolutely. 

Chairman STARK. Right on. Thank you. Mr. Dicken, could you 

enlighten us as to what the 8 million bureaucrats and elected officials have done with regard to health savings accounts. 

Mr. DICKEN. Certainly, I can give information on that. As you 

indicate, there are about 8 million people enrolled, both Federal 

employees, retirees, and their dependents, in the Federal Employees Health Benefits Program. 

This year, out of more than 200 different plan options, over 30 

have health savings account, or other CDHP option available. 

The enrollment in those—we can certainly give for the record the 

actual number—but it’s in the few hundred thousands of the 8 million that are enrolled in the HSAs. 

Chairman STARK. Let me, let me translate. You are saying less 

than 500,000 out of the 8 million are in these? 

Mr. DICKEN. Yes, I believe that’s right. And we can get the actual enrollment if that’s helpful. In 2006, we were able to look at 

some of the HSAs offered through FEHBP, and also looked at the 

premiums, looked at the enrollment, looked at the income of Federal employees. And we were able, in contrast to our IRS data, to 

compare people that were insured through HSAs with those that 

were insured through other health plans in FEHBP. 

And we consistently found that Federal employees had higher 

Federal incomes in the HSA plans than in the other FEHBP options. 

Chairman STARK. And you’re going to quantify some of that and 

submit it to use, both for my information and the record, could 

you? 

Mr. DICKEN. I certainly can. 

Chairman STARK. Okay. How about age? 

Mr. DICKEN. When we’ve looked at age in the Federal employees program, we looked at age across a number of different programs and have found different stories. Within the Federal employees health program, people enrolling in the health savings accounts 

were I believe somewhat younger than all Federal employees in 

other plans. 

But when we took out retirees, much of that was because these 

new HSAs were not covering retirees. So the difference was much 


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less when we did not look at the retirees covered through the 

FEHBP. 

Chairman STARK. All right. Would you stipulate that Federal 

employees are the best guardhouse lawyers on the face of the 

Earth, and that they play these benefits like a 6-dollar harp? And 

for example, if they plan a pregnancy, they know which plan has 

better maternity benefits. 

And with our plan, we can switch, really without penalty every 

year, so that you can plan your medical necessity and get the best 

plan at the best price at that time. 

And that generally isn’t available I think, to other employees in 

this country. 

Mr. DICKEN. Certainly one of the signature characteristics of 

the Federal employees health program is the choice of plans, with 

an annual open enrollment period. 

Chairman STARK. I want to thank all of you. Sure you can. Mr. 

Becerra? 

Mr. BECERRA. Thank you. And I’ll try to be brief, because I 

know we have stretched this out. Actually, first to Mr. Camp’s 

point. I think it would be wonderful if we found a way to help 

working Americans save up money, build up a nest egg, not just 

for the retirement, but for their health care cost, because as we 

have heard, the greatest portion of those health care costs come at 

the end stage of life. 

And so I think that’s something that we should all work forward, 

work toward on a bipartisan basis. My difficulty is that my parents 

wouldn’t get the benefit from this plan that we are discussing right 

now, because their income would have been way too low to ever be 

able to deposit money into a health savings account, and to be able 

to afford a high-deductible health plan. 

And so they would have been left out. Fortunately, my father, 

who worked as a laborer for most of his life, got health insurance 

through his union. And so we were covered. So with one occasion, 

when my mother almost died as a result of hemorrhaging, we were 

covered. 

But I know that this plan wouldn’t be available to my parents 

were they not covered through their union health plan. And that’s 

a concern, providing assistance to those who can afford to get 

health care, period, and really leaving out those who are most in 

need of trying to either keep what they’ve got or find it, the tens 

of millions of Americans. 

And Mr. Dicken, I want to go back to a point. I asked my staff 

to pull up some numbers, because I was concerned again about the 

oddity of these HSAs and what might happen if we don’t do a good 

job of trying to monitor them, since they don’t have the type of 

oversight that other types of tax-deferred programs have. 

The numbers I get back are that there are about 140 million tax 

filers in America, people who file their taxes on an annual basis. 

That’s the number for 2007, probably a little bit more for this year, 

2008, but we’ll see. The audit rate in 2007 was 1 percent, a little 

over a million tax filers had their filings audited, 1 percent. 

And here we have a program that has less oversight than does 

Medicare. Medicare requires providers to provide documentation 

for reimbursement. We have other plans, flexible spending accounts 


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require documentation in order to be able to take advantage of the 

tax advantages in the FSA’s. 

But here we have almost nothing, except voluntary action on the 

part of those who have these HSAs to submit documentation. Now 

let me ask this, say I have back problems, or I say I have back 

problems. I go to a chiropractor once, and I have documentation 

that I have back problems. 

I could then go and get massage services for the rest of my life 

and submit that as documentation of a health care, that I received 

massage services from whatever place that does massaging that I 

want to go to. And there’s a good chance that would qualify if I one, 

was among the 1 percent who ever got audited by the IRS, and 

whether or not I used those HSA tax-deferred dollars the right 

way; is that correct? 

Mr. DICKEN. It’s a very small share that are audited, a very 

small share of tax filers are filing it, and the qualified medical expenses as defined by IRS are fairly comprehensive in what’s included. 

Mr. BECERRA. So if I went in and got massage services that 

could qualify as a health expense. 

Mr. DICKEN. I don’t know the specific tax rules on that provision, but there are a wide range of medical expenses that can qualify. 

Mr. CAMP. Would the gentleman yield briefly? 

Mr. BECERRA. Certainly. 

Mr. CAMP. Just to say that—I know we are focusing on HSAs, 

but charitable contributions I think, for the purpose of the record, 

don’t require any up-front receipts. And those contributions dwarf 

anything HSAs account for—245 billion in charitable contributions 

are not substantiated, or require any up-front receipt as well. 

Mr. BECERRA. I think Mr. Camp raises another good point. There are some $32 billion that we as Americans forgo in tax receipts as a result of the $295 billion that are contributed to charitable organizations. That is $32 billion that we could use to pay 

health care for seniors under Medicare, or for modest-income families to have help, get access to health care. 

And we again trust that Americans actually made a contribution 

to a charitable organization, because again we don’t monitor this, 

do the oversight necessary. It would be very difficult, given the 

number of Americans who do make charitable contributions. We 

take on good faith, that people aren’t ripping off the government. 

And to some degree, there’s no way we would have police, IRS 

police go into every home and asking ‘‘please prove to us that you 

actually gave this money to a charitable organization.’’ That is precisely my point. And so we know for a fact that there are people, 

I think the exact, more accurate number is $340 billion in uncollected tax revenues on an annual basis. 

So we know a lot of folks are taking advantage of every type of 

tax shelter, including charitable deductions, to not pay their fair 

share of taxes, which means all those other Americans who are 

paying taxes end up having to pay more to make up for those who 

are getting off the hook. 

And so my concern with HSAs is not that we shouldn’t provide 

this to people so they have access to health care. Absolutely, if we 


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could figure out a way to do this. But I’m not interested in having 

folks who already have access, because their wealth allows them to 

have access to health insurance, who probably are healthier than 

most, and therefore unlikely to have to use health care services. 

And then get to cheat the government out of paying their taxes 

the way most working Americans do, simply so we can claim that 

we are trying to increase the number of people who will have 

health care. And in some cases, perhaps it works well. But I’m not 

interested in having it work well in some cases. When someone in 

my district pays taxes, or in any of your districts pays taxes, they 

expect us to make the best use of the money. 

And if we don’t do our job of oversight to make sure that this 

is a good program that is working well for all Americans, then we 

are not doing our job. And I just think at this stage, HSAs are not 

a proven commodity. They haven’t proven how they work. We can’t 

document that they work well. 

And at this time when we have these massive budget deficits, it 

seems to me that to not do more oversight, not put more requirements for oddity, simply is telling the American people we are not 

interested in taking care of the tax money they have entrusted to 

us to spend well. So with that I yield back Mr. Chairman. 

And one more thing, I apologize that I confused the numbers on 

IRA’s and 401(k)’s, and I’ll submit for the record the document that 

gives the numbers. So that way it’s not, it doesn’t seem so muddled 

in the record. 

I yield back. 

[The information follows:] 


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1 AHIP, January 2008 Census Shows 6.1 Million People Covered by HSA/High-Deductible 

Health Plans, April 2008. 

Chairman STARK. I want to thank the witnesses for their intelligence and their patience. It’s been very informative. I wanted to 

not only take up Mr. Chernew’s offer to read, to get his journal, if 

I can get that past the Ethics Committee, and for any of the rest 

of you. Mr. Sensor, your information that would otherwise be public 

on your plans, would be appreciated. 

Any of the rest of you, you have gathered what the tenor of our 

interest is today from the Members’ questions. If you want to send 

it to me, I will certainly reproduce it and distribute it to all Members of the Subcommittee. Much of this information will be helpful 

to us, and it will change, and we’ll appreciate your input. 

Thank you all very much, and the hearing is adjourned. 

[Whereupon, at 12:39 p.m., the Subcommittee was adjourned.] 

[Submissions for the record follow:] 

Statement of America’s Health Insurance Plans (AHIP) 

I. INTRODUCTION 

America’s Health Insurance Plans (AHIP) is the national association representing 

approximately 1,300 health insurance plans that provide coverage to more than 200 

million Americans. Our members offer a broad range of health insurance products 

in the commercial marketplace and also have demonstrated a strong commitment 

to participation in public programs. The innovative products offered by our members 

include high-deductible health plans (HDHPs) that are compatible with Health Savings Accounts (HSAs). 

We appreciate this opportunity to comment on HSAs and their role in providing 

more Americans with access to high quality, affordable health care coverage. This 

innovative approach to health care financing is helping a substantial number of previously uninsured consumers purchase coverage, receive preventive health care 

services, accumulate savings for their future medical needs, and take a more active 

role in making decisions about their health care. 

Our statement focuses on three broad topics: 

• The current state of the HSA marketplace, including the findings of a census 

we conducted in January 2008 and other data showing the value HSA products 

offer to consumers; 

• Legislative issues, including opportunities for further improving HSAs and our 

concerns about pending legislation that would impose duplicative requirements 

on individuals and families who have HSAs; and 

• The importance of promoting transparency in health care prices and quality to 

help HSA accountholders and other consumers make informed health care decisions. 

II. AN OVERVIEW OF THE HSA MARKET 

To learn more about consumers’ experiences with HSAs, AHIP has conducted a 

comprehensive census of the HSA market several times over the past 5 years. The 

most recent census,1 conducted in January 2008, was based on responses from 97 

health insurance companies, including 66 companies that offer HSA/HDHP plans in 

the individual market, 88 companies offering plans in the small group market, and 

89 companies offering plans in the large group market. 

We found that HSA-compatible HDHPs covered more than 6.1 million Americans 

in January 2008, a 35 percent increase since last year. This increase was strongest 

in the small employer group market. Previous AHIP censuses found that 4.5 million 

were enrolled in January 2007, 3.2 million in January 2006, and 1.0 million in 

March 2005. This growth represents a strong start for a relatively new health care 

option that was unknown to most Americans just a few years ago. 

A closer look at AHIP’s January 2008 census data reveals a number of significant 

findings: 

• Thirty percent of individuals covered by HSA plans were in the small group 

market, 45 percent were in the large group market, and the remaining 25 percent were in the individual market. 


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2 AHIP, A Survey of Preventive Benefits in Health Savings Account (HSA) Plans, July 2007. 3 CIGNA Choice Fund Experience Study, October 2007. 

• HSA products accounted for 31 percent of new coverage issued in the small 

group market and, additionally, for 27 percent of newly purchased policies in 

the individual health insurance market. • In 2007, the average balance in HSA accounts was approximately $1,380 and 

the average amount spent from HSA accounts was $1,080. Throughout 2007, 83 

percent of HSA accounts had an average balance of $2,500 or less. These findings are based on responses from 30 health insurance companies that had information on the HSA accounts established by their policyholders. • The average premium for an HSA plan, for single coverage, was $1,519 for persons age 20–29, $2,278 for persons age 30–54, and $3,724 for persons age 55– 

64. For family coverage, the average premium was $3,825 for persons age 20– 

29, $5,125 for persons age 30–54, and $7,170 for persons age 55–64. • Forty-six percent of all HSA plan enrollees in the individual market—including 

dependents covered under family plans—were age 40 or older. Another 29 percent were age 20–39, and the remaining 25 percent were age 19 or younger. • HSA plan enrollment as a percentage of individuals with private coverage is estimated to be the highest in Minnesota (9.2 percent), Louisiana (9.0 percent), 

the District of Columbia (8.7 percent), Vermont (7.5 percent), and Colorado (7.1 

percent). The new AHIP census includes data for all 50 States. 

Access to Preventive Care 

Other research findings by AHIP demonstrate that access to preventive care on 

‘‘day one’’ is a central component of the HSA approach to health care coverage. Last 

year, AHIP released a survey 2 showing that recommended preventive care is covered on a first-dollar basis by most HSA/HDHP products. This survey was based on 

responses from 36 companies that covered more than 1.7 million HSA/HDHP enrollees as of July 2007. Overall, this survey shows that 84 percent of HSA plans purchased in the group and individual markets provide first-dollar coverage for preventive care. Virtually all HSA plans purchased in the large group market (99 percent) 

and small group market (96 percent) provide first-dollar coverage for preventive 

care. Additionally, 59 percent of policies purchased in the individual market cover 

preventive care on a first-dollar basis. 

First-dollar coverage for preventive benefits is potentially less frequent in the individual market because premiums for individual coverage do not receive the same 

favorable tax treatment as premiums for employer-based coverage. As a result, consumers who purchase HSA/HDHP coverage in the individual market have an incentive to pay for preventive benefits through their tax-free HSA rather than through 

higher premiums. AHIP supports full tax deductibility for all health insurance premiums to create a level playing field for consumers who purchase health insurance 

coverage on their own without an employer sponsor. 

Other survey findings show that among HSA/HDHP policies offering first-dollar 

coverage for preventive care, 100 percent cover adult and child immunizations, wellbaby and well-child care, mammography, Pap tests, and annual physical exams. 

Nearly 90 percent provide first-dollar coverage for prostate cancer screenings and 

more than 80 percent offer first-dollar coverage for colonoscopies. The types of preventive screenings covered by HSA/HDHP policies include newborn screenings such 

as PKU tests; adult blood pressure and cholesterol tests; children’s vision tests; 

height, weight, and body mass index measurements; bone mineral density testing 

for women; colorectal cancer screening; prostate cancer screening for men age 50 or 

older; and adult screening for depression and substance abuse. 

Plan-Specific Research Findings 

Additional research findings have demonstrated that HSAs are having a favorable 

impact on patient health and helping consumers to make cost-effective decisions. 

A 2-year study by Cigna HealthCare,3 focusing on more than 110,000 persons 

with either HSAs or Health Reimbursement Arrangements (HRAs), found that persons with these plans were receiving 14 percent more preventive care visits by the 

second year, when compared to those with traditional coverage. This study also 

found that pharmacy costs for new HSA and HRA enrollees were 6 percent lower 

than for persons with traditional coverage, due to the use of lower cost options such 

as generic medications and mail order purchasing. 

The Cigna study also found that first-year medical costs were more than 12 percent lower for persons with HSAs or HRAs—and 5 percent lower in the second 

year—when compared to those with HMO and PPO plans. These savings were 

achieved while HSA/HRA enrollees continued to receive recommended care at the 


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4 HealthPartners, Consumer Directed Health Plans Analysis, October 2007. 5 Uniprise, Quality of Care, Executive Summary, April 2007. 6 Uniprise, The Effect of Consumer-Driven Health Plans (CDHPs) on Healthcare Costs and Utilization, April 2008. 7GAO, Health Savings Accounts: Participation Increased and Was More Common among Individuals with Higher Incomes, April 2008. 

same or higher levels as when they were enrolled in traditional plans the prior year. 

This evaluation was based on more than 300 evidence-based measures of health 

care quality. Taken together, these findings clearly indicate that the cost savings 

resulted from consumer involvement in health care decisionmaking—not because 

consumers were foregoing needed medical care. 

Another study,4 by HealthPartners, found that the cost of care for enrollees in 

HSAs and HRAs was 4.4 percent lower, after adjusting for illness burden, than for 

those with traditional coverage. These savings did not negatively impact patient 

care, as the study also concluded that the utilization of preventive services and 

medication for chronic conditions was comparable for members in consumer-driven 

health plans and traditional plans. The probable explanation for lower costs is that 

HSA/HRA plan enrollees were 13 percent more likely to use HealthPartners’ webbased tools that compare costs and quality. One such tool lists facilities that offer 

the most cost-effective service for 38 medical procedures, while another tool provides 

consumer information based on 87 measures of clinical quality and patient service. 

Additional research 5 by UnitedHealth Group shows that its Definity Health plan 

members who have HRAs receive preventive care and evidence-based care at rates 

equivalent to or better than a benchmark population of other consumers. This 2007 

study found that Definity Health plan members were 16 percent more likely than 

the benchmark population to receive both cervical cancer screening and prostate 

cancer screening. Other findings indicate that Definity Health plan members with 

diabetes, asthma, coronary artery disease, and congestive heart failure received care 

to treat or monitor their conditions at rates that were equivalent to, and for some 

measures higher than, the benchmark population. 

United’s Definity plan achieved these improvements while at the same time bringing costs under control. A more recent United study,6 published in April 2008, 

shows that overall health care costs for Definity’s members were 10–12 percent 

lower than for PPO members in 2004–2006 after being very similar in 2003. This 

study further concluded that persons with chronic conditions also were benefiting 

from slower growth in costs ‘‘while utilization was not sacrificed.’’ This study addressed a 4-year period (2003–2006) and covered more than 370,000 enrollees in the 

final year. 

HSAs Have Broad-Based Appeal 

As indicated by AHIP’s January 2008 census, HSA plans are being purchased at 

comparable rates by persons who are young, middle-aged, and near-elderly. The diversity of consumer interest in this product also is evidenced by the fact that although the small group market currently is experiencing the most rapid growth in 

HSA plan enrollment, a significant share of overall HSA plan enrollment also can 

be found in both the individual market and the large group market. 

Other research findings suggest that the broad-based appeal of HSAs also applies 

to Americans of different income categories. A report by eHealthInsurance indicates 

that 45 percent of HSA plan enrollees had annual incomes of $50,000 or less in 

2005. Another report,7 issued by the Government Accountability Office (GAO) in 

April 2008, indicates that 41 percent of HSA tax filers for 2005 had annual incomes 

below $60,000. 

The GAO also reported that tax filers who reported HSA activity in 2005 had 

higher incomes on average than other tax filers. This finding has been used by some 

critics to suggest that HSAs are benefiting only higher income persons or that HSAs 

are being used as tax shelters for the wealthy. These assertions fail to recognize several key facts: 

• The GAO analysis would have been more meaningful if it had compared all 

HSA plan enrollees to consumers who purchased other private health insurance 

coverage. Instead, the GAO comparison focused on one category of HSA plan enrollees (i.e., those who reported contributions to or distributions from an HSA) 

and compared them to all other tax filers, including those who are uninsured 

or covered by public programs. 

• The GAO analysis omitted two key categories of HSA plan enrollees: (1) those 

who did not make contributions to or distributions from their accounts in tax 

year 2005; and (2) those who purchased a HDHP, but waited until the following 

tax year to open an HSA. To the extent that these groups include lower- and 


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8Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits, 2007 Annual Survey. 

middle-income individuals and families, the GAO’s estimate is likely to overstate the number of higher-income consumers who have established HSAs. • As noted by AHIP’s most recent census, the average HSA account balance for 

2007 was approximately $1,380 and the average amount spent from HSAs in 

2007 was about $1,080. These data indicate that individuals are funding their 

accounts for current health care costs and not using them to ‘‘shelter’’ large 

amounts of income from Federal and State income taxes. • The Kaiser Family Foundation/HRET 2007 study 8 on employer health benefits 

indicates that, among employers that help to fund HSAs, the average employer 

contribution is $806 for single coverage and $1,294 for family coverage. These 

contributions are a valid approach to meeting the health care needs of employees and do not constitute any kind of tax ‘‘shelter.’’ 

III. LEGISLATIVE ISSUES 

AHIP and our members have serious concerns about pending legislation that 

would impose burdensome requirements on HSA accountholders. We also want to 

take this opportunity to offer our recommendations for future legislation to 

strengthen and improve HSAs. 

Substantiation Requirements for HSAs 

On April 15, the House approved legislation, H.R. 5719, that would require HSA 

accountholders, beginning in 2011, to follow substantiation requirements similar to 

those that currently apply to Flexible Spending Arrangements (FSAs). In addition, 

this bill would authorize the Treasury Secretary to require annual reporting by HSA 

trustees of amounts paid from HSAs that are not substantiated along with the 

names, addresses, and tax identification numbers for the account beneficiary. We 

strongly oppose these proposed requirements because they duplicate existing HSA 

requirements and would increase the cost of these accounts for consumers and employers. We urge Committee Members to carefully consider the following concerns. 

First, it is important to recognize that accountholders already must report all 

HSA activity to the Internal Revenue Service (IRS) and pay taxes and penalties on 

non-qualified expenditures. Every year, HSA accountholders are required to file 

Form 8889 with the IRS and report contributions to and expenditures from the account. If money in the HSA is used for a non-health care expense, the accountholder 

must pay taxes on the amount and an additional 10 percent penalty (the penalty 

is waived if the accountholder is age 65 or older, is disabled, or is deceased). The 

IRS can audit the accountholder if it believes the HSA is not being used properly. 

Another important consideration is that FSAs and HSAs are fundamentally different kinds of accounts and should not be treated the same. Employers determine 

how money in an FSA is spent and the employer is responsible for administering 

the account and reporting to the IRS. If the FSA is used for ‘‘non-qualified’’ health 

care expenses, the entire account can be disqualified. In contrast, an HSA belongs 

to the accountholder who can keep the money if he or she changes jobs or switches 

to a new insurance plan. The accountholder is responsible for reporting on the account and may use HSA funds for non-health care expenses as long as he or she 

pays taxes and the penalty. 

In addition, FSA-style substantiation requirements would lead to higher costs and 

increased paperwork for consumers. The majority of HSA transactions are electronic 

while many FSA transactions are paper, since the consumer must prove to the account administrator that they used the money for a health care transaction (e.g., 

a prescription drug purchased at a grocery store pharmacy). The FSA administrator 

must process and approve any expenses. Accordingly, FSA transactions cost more 

than similar transactions from an HSA. The increased costs and paperwork requirements of imposing FSA-style substantiation on HSAs likely will be passed on to the 

accountholder. 

We also are concerned that substantiation requirements will require consumers 

to give personal health information to the banks that administer these accounts to 

determine if money spent from the account was used for a qualified health care expense. As a result, accountholders would be required to give the bank information 

on the prescriptions and over-the-counter drugs they purchase, the doctors they use, 

and the health care services they receive. 

Finally, requiring substantiation of HSAs will reduce consumer and employer interest in these innovative new accounts. HSAs give consumers the ability to save 

tax-free money to pay for health care expenses and to make better health care decisions. HSAs also allow some individuals and small employers to purchase insurance 


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for the first time. Requiring substantiation will increase the administrative costs 

borne by small businesses who maintain accounts for their employees. Adding cost 

and complexity to the accounts will have a chilling effect on enrollment and cause 

some employers to drop HSAs as an option for their employees. 

Legislative Recommendations 

While HSAs are proving to be highly effective in helping many consumers meet 

their health care needs, there are a number of additional steps Congress could take. 

AHIP is recommending the following proposals to address the unique needs and circumstances of the chronically ill, early retirees, and many others for whom HSAs 

can be a valuable coverage option. 

• Allow Increased HSA Contributions for Individuals With Chronic Disease: Congress should allow employers to assist employees or their family members who 

suffer from chronic conditions by permitting increased contributions into the 

HSAs of individuals who are enrolled in disease management or care coordination programs. 

• Allow Health Plans to Include Coverage for Prescription Drugs for Chronic Conditions: High-deductible health plans should be allowed to cover certain prescription drugs used to treat chronic conditions without the patient first being 

required to satisfy the minimum annual deductible on the HDHP. This proposal 

will help patients with acute illness or injuries access prescription drugs and 

assure that they do not forego their medications due to cost concerns. 

• Allow Early Retirees to Save for Retiree Health Coverage: Early retirees—those 

in the 55–64 age category—should be allowed to use HSA funds to purchase retiree health coverage. This proposal would make transitional coverage more affordable for individuals who sometimes struggle with the high cost of health insurance in the years just before they become eligible for Medicare. 

• Allow Spouses to Have an HSA Even if Their Spouse Has an FSA: Individuals 

should be allowed to establish an HSA if their spouse has an FSA. Individuals 

currently are disqualified from setting up an HSA if they have a spouse with 

an FSA. This rule unfairly limits consumer choice, particularly in instances 

where the individual’s medical expenses are not being covered with funds from 

the spouse’s FSA. 

• Allowing Separate Deductibles for Individual Family Members: HDHPs for family HSAs should be allowed to include separate deductibles, also known as ‘‘embedded deductibles,’’ for individual family members below the family deductible 

set by the statute—but at least as high as the individual deductible set by the 

statute. Allowing lower embedded deductibles for each family member will 

make it easier for families with HSAs to meet their health care expenses. 

• Allow HSA Funds to Be Used to Purchase Medigap Coverage: Seniors should be 

allowed to use HSA funds to purchase Medigap coverage. Current law, which 

prohibits this use of HSA funds, fails to recognize the high value offered by 

Medigap policies and the fact that millions of Medicare beneficiaries are wellserved by supplementing their basic Medicare benefits with Medigap coverage. 

• Allow Employers to Coordinate HRAs and FSAs: Employers should be allowed 

to combine HSAs with FSAs or HRAs to cover medical expenses below the 

HDHP’s deductible. Currently, employers face regulatory barriers that significantly limit their ability to combine these products. 

• Contribution Limits: The HSA contribution limits should be increased to allow 

consumers to contribute an amount equal to the out-of-pocket limits of their 

HDHP. Increasing this threshold will enable HSA accountholders to meet their 

health care expenses with after-tax dollars. 

• Give Consumers More Time to Establish an HSA: The current HSA law punishes consumers who may wait to set up their HSAs by prohibiting the use of 

HSA funds for any medical costs incurred before the account was set up. Experience has shown that some individuals may wait several months to complete 

the paperwork needed to establish an account at a financial institution—thereby delaying when they can use HSA funds to pay for medical costs. Consumers 

should have until the end of the tax year (April 15) to set up the account in 

order to pay for health costs incurred during that year. 

• End the Penalty on Veterans: Veterans who use VA health care facilities should 

be allowed to contribute money to an HSA. Under current law, any veteran who 

has accessed the Veterans Administration medical system within the past 3 

months is prohibited from putting money into an HSA. This restriction hurts 

veterans—especially returning service personnel who have service-related injuries. 


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9For more information about the AQA Alliance, see http://www.aqaalliance.org/. 

IV. IMPORTANCE OF TRANSPARENCY FOR HSA ACCOUNTHOLDERS 

Because HSAs provide an opportunity for consumers to be more actively engaged 

in their personal health care decisions, greater transparency—with respect to both 

the price and quality of health care services—is critically important in helping consumers and other purchasers make informed, value-based decisions. HSA accountholders are a catalyst for transparency and our efforts are evolving to meet their 

needs. AHIP and our members are strongly committed to making price and quality 

information more widely available and more easily understood for consumers with 

all types of health coverage. 

In November 2006, AHIP’s Board of Directors endorsed a set of principles that 

serve as the cornerstones for our involvement in transparency initiatives: 

• Supporting a uniform approach for the disclosure of relevant, useful, 

actionable and understandable information to facilitate consumer decisionmaking and choice. Information should be made available to enrollees to 

permit accurate comparisons of physicians, hospitals and other practitioners. 

Additionally, information should be disclosed and displayed in a format that is 

easily accessible and understandable; consumers should be educated on how to 

use the information as appropriate. 

• Supporting efforts that advance transparency while preserving competition and basing analyses on objective, agreed-upon measures. Consumers and purchasers need accurate information to make more informed 

health care decisions. At the same time, the disclosure of this information 

should comport with antitrust guidelines to ensure that vigorous competition 

continues to thrive in the marketplace. To achieve this objective, ranges—such 

as the 25th percentile and 75th percentile of payments to hospitals which are 

disclosed by Medicare—should be the model for disclosing price information. 

• Recognizing the importance of linking quality and cost of care. Disclosure of information about the quality of care which physicians and hospitals 

provide and costs of services is important to enable consumers and purchasers 

to evaluate their health care options, and to enable practitioners to learn how 

their practices compare to their colleagues’ practices in terms of effectiveness 

and efficiency. At the same time, consumers need assistance in interpreting this 

information and using these data to make informed decisions. 

• Developing the tools to analyze high-utilization, high-cost services or 

conditions where variation exists. The nation needs to build the capacity to 

analyze certain agreed-upon episodes of care as well as certain services or procedures. Presenting data on episodes of care (e.g., pregnancy)—rather than 

merely on services (e.g., labor and delivery)—will allow consumers to make 

more comprehensive and informed assessments. The episodes of care selected 

should align with conditions which address areas where practice variation exists, have high utilization rates and are known to be cost drivers. 

• Supporting the disclosure of information for physician as well as hospital services. To promote continuity of care and prevent the proliferation of 

silos within the health care system, stakeholders should advocate for the disclosure of physician performance information as well as the disclosure of hospital 

performance information. Disclosure of information for other providers—such as 

nursing homes and home health agencies—also should be considered. 

One area where AHIP’s transparency principles can be seen in action is through 

our involvement in the AQA Alliance. AHIP and several prominent physician leaders began a vitally important collaboration 4 years ago with physician groups and 

other key stakeholders to establish the AQA Alliance.9 This coalition, which includes 

private groups like the American Academy of Family Physicians and the American 

College of Physicians, as well as the Federal Agency for Healthcare Research and 

Quality (AHRQ), has as its goal the development of uniform processes for performance measurement and reporting—a fundamental building block needed for consumer health information systems. Its processes would: (1) allow patients and purchasers to evaluate the cost, quality and efficiency of care delivered; and (2) enable 

practitioners to determine how their performance compares with their peers in similar specialties. This effort now encompasses more than 135 organizations, including 

consumer groups, physician groups, hospitals, accrediting organizations, private sector employers and business coalitions, health insurance plans and government representatives. 

To date, the AQA has approved 218 quality clinical performance measures in 32 

different ambulatory care setting areas, many of which are being incorporated into 


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health plan provider contracts. These measures represent an important step in establishing a broad range of quality measurement. The AQA has also approved a 

prioritized list of conditions for which cost of care measures should be developed, and 

the group continues to make further progress towards that goal. 

In addition to its work in the area of performance measurement, the AQA has implemented a pilot program in six sites across the country, with support from the 

Centers for Medicare & Medicaid Services (CMS) and AHRQ. These pilots, now 

known as the Better Quality Information or BQI sites, combine public and private 

sector quality data on physician performance. This program is testing various approaches to aggregating and reporting data on physician performance, while also 

testing the most effective methods for providing consumers with meaningful information they can use to make choices about which physicians best meet their needs. 

Ultimately, we anticipate that the results of this pilot program will inform a national framework for measurement and public reporting of physician performance, 

which is an important step toward advancing transparency and providing reliable 

information for consumer decisionmaking. 

On another front, many AHIP member plans have individually implemented their 

own initiatives to empower their members by supplying them with price as well as 

quality information designed to support consumer decisionmaking. While they use 

a variety of approaches, these plan initiatives—often in the form of easy-to-use tools 

that allow consumers to access secure websites—encompass providing such resources as the following: 

• Access to price data on specific physicians: Members of many health insurance plans can type in a particular physician’s name, specialty, or office address 

and view a menu of common procedures, and determine the cost of procedures, 

such as routine office visits or x-rays. 

• Access to quality data on physicians: Members of some health insurance 

plans can access information on either plan-specific or regional collaboratives’ 

websites regarding clinical quality delivered by a specific physician, including 

indicators based on adverse events, clinical processes, use of health information 

technology such as electronic medical records, as well as overall efficiency in the 

use of medical services. 

• Access to hospital price and quality information: Members in many plans 

may have access to cost ranges for common procedures at hospitals and surgery 

centers, in some instances separating out doctor fees from facility costs, as well 

as tools to ascertain the comparable value of those facilities. 

Several of AHIP’s members also are participating in regional quality 

collaboratives that are aggregating data across a given market. These data aggregation efforts combine data from multiple health plans in a region to give consumers 

a more comprehensive picture of a physician’s quality across his/her population. Still 

other AHIP members are experimenting with pilot projects allowing consumers to 

rank the cost and quality for dozens and sometimes hundreds of common medical 

procedures. All of these pioneering efforts are designed to help Americans make 

value-based health care decisions. 

V. CONCLUSION 

AHIP appreciates this opportunity to discuss the value of HSAs and opportunities 

for further strengthening this important health care option. We appreciate the support many Committee Members have demonstrated for HSAs and we look forward 

to continuing to work with you to advance solutions for further expanding access 

to high quality, affordable health care. 

f 

Statement of American Benefits Council 

The American Benefits Council (the ‘‘Council’’) appreciates the opportunity to submit this written statement to the Subcommittee regarding the increasing utilization 

and effectiveness of health savings accounts (‘‘HSAs’’) and high deductible health 

plans (‘‘HDHPs’’). The Council is a national trade association representing principally Fortune 500 companies and other organizations that either sponsor or administer health and retirement benefit plans covering more than 100 million Americans. 

HSAs are a fairly new health coverage option for American families, having been 

established by Congress in 2003 as part of the Medicare Modernization Act. Nevertheless, for millions of Americans, HSAs have already become an important tool in 

securing essential health coverage for themselves and their families. Early data 


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1 Health Savings Accounts (HSAs) and Consumer Driven Health Care: Cost Containment or 

Cost-Shift? Hearing Before the Subcomm. on Health of the H. Comm. on Ways and Means, 110th 

Cong. (2008) (statement of John E. Dicken, Director of Health Care, Government Accountability 

Office). 2 Health Savings Accounts (HSAs) and Consumer Driven Health Care: Cost Containment or 

Cost-Shift? Hearing Before the Subcomm. on Health of the H. Comm. on Ways and Means, 110th 

Cong. (2008) (statement of America’s Health Insurance Plans) (hereinafter (‘‘AHIP’’). 3See AHIP, supra. 

from the Government Accounting Office (‘‘GAO’’) and other third parties is encouraging, indicating that HSAs are working as intended for the vast majority of Americans who use them. HSA/HDHP arrangements can provide vital ‘‘first-dollar’’ medical coverage for accountholders (and their spouses and qualifying dependents), 

while utilizing important cost-sharing principles to help lower health coverage costs 

generally for individuals and employers alike. It is critical that we allow this important new health care option to fully develop and that we permit comprehensive data 

to be collected on the role it can play in providing quality health care at an affordable price. Any actions to apply new restrictions or burdens on this option would 

be premature and would risk eliminating a health care tool already being successfully used by millions of Americans. 

The following is a summary of our comments: 

• Health savings accounts have become an increasingly important tool for millions of Americans in securing lower cost, high quality medical coverage. Recent 

data compiled by GAO indicates that an estimated 6.1 million Americans were 

covered by HSA/HDHP arrangements as of January 2008. 

• Early data and testimony before the Subcommittee on May 14, 2008, indicate 

that the vast majority of HSAs include comprehensive ‘‘first-dollar’’ preventive 

care coverage and that HSAs can succeed in reducing health care costs for 

American families, while also resulting in increased wellness and quality of 

care. 

• Recent data strongly indicates that participants have sufficient HSA assets to 

meet actual out-of-pocket expenses under HDHPs, and (i) HSA withdrawals are 

being used principally for current-year qualified medical expenses, and (ii) 

HSAs, rather than being used primarily by high-income individuals as a tax 

shelter, are being used by individuals at a broad range of income levels. For 

example, one survey found that 45% of all HSA enrollees in 2005 had annual 

incomes of $50,000 or less, and there are good reasons to believe that this percentage may be even higher today. 

• Current rules regarding HSA substantiation are consistent with the treatment 

afforded other special purpose accounts and health tax provisions. As discussed 

below, there are numerous instances under the Internal Revenue Code (‘‘Code’’) 

where amounts withdrawn from a special purpose account are not subject to 

mandatory third party FSA-like substantiation rules. Similarly, the general approach toward health expenditures under Federal tax law does not require third 

party substantiation for an individual to obtain a specific income tax deduction 

or other tax-favored treatment. 

• Imposing third-party substantiation requirements on HSAs is not appropriate, 

will increase costs for HSA accountholders and limit options for health coverage 

at a time when such options should be expanded. The Council urges Members 

of the Subcommittee, and Members of Congress more generally, to oppose the 

imposition of third-party substantiation requirements on HSAs, such as the requirements included in H.R. 5719 (the ‘‘Taxpayer Assistance and Simplification 

Act of 2008’’). 

HSAs Are An Increasingly Important Component To Many American Families’ Health Coverage 

Recent data compiled by GAO indicates that the number of Americans covered by 

HSA-eligible plans increased from 438,000 in September 2004 to an estimated 6.1 

million in January 2008.1 This represents a 1,400% increase in their use in just over 

3 years. Moreover, a recent study by America’s Health Insurance Plans (‘‘AHIP’’) 

found that HSA-usage increased by 35% in the 12-month period from January 2007 

to January 2008.2 American families and workers are indisputably turning to HSAs 

in increasing numbers to help control their ever-rising health coverage costs. 

Early data also indicates that the increased use of HSAs is broad-based. Specifically, recent survey data by AHIP indicates that of those individuals covered by 

HSAs, 30% were in the small group market, 45% in the large group market, and 

25% in the individual market.3 In addition, it is very significant that the greatest 


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4See Id. 5 Health Savings Accounts (HSAs) and Consumer Driven Health Care: Cost Containment or 

Cost-Shift? Hearing Before the Subcomm. on Health of the H. Comm. on Ways and Means, 110th 

Cong. (2008) (statement of Michael E. Chernew, Ph.D., Professor of Health Care Policy, Harvard 

Medical School). 6 Health Savings Accounts (HSAs) and Consumer Driven Health Care: Cost Containment or 

Cost-Shift? Hearing Before the Subcomm. on Health of the H. Comm. on Ways and Means, 110th 

Cong. (2008) (statement of Wayne Sensor, CEO, Alegent Health). 7 Consumer Directed Health Plans Analysis, HealthPartners, October 2007. 8See AHIP, supra. 9See Id. 10 Id. 11See Id. See also Health Savings Accounts: Participation Increased and Was More Common 

among Individuals with Higher Incomes, GAO–08–474R (April 2008), at 8 (stating that in 2005, 

Continued 

growth in the HSA/HDHP market is in the small plan market, where health care 

coverage has been a constant public policy challenge.4

HSAs Can Reduce Health Costs And Improve Quality Of Care 

In this era of ever-rising health care costs—costs that continue to well outpace 

general inflation as measured by the Consumer Price Index (‘‘CPI’’)—American 

workers and their employers continue to look for ways to help rein in these costs 

without negatively affecting health standards and quality of care. As Michael 

Chernew, Professor of Health Care Policy for Harvard Medical School, testified, cost 

sharing can reduce excess utilization and health expenditures generally, and HSA/ 

HDHP coverage utilizes certain cost-sharing principles like upfront deductibles and 

copayments to help reduce excess utilization.5

Testimony from Wayne Sensor, CEO of Alegent Health, also provides a first-hand 

example of how HSA/HDHP coverage can both reduce costs and lead to increased 

health standards and quality of care. Specifically, Mr. Sensor testified that ‘‘there 

is a significantly higher level of engagement among those participants [in one of our 

HSA plans].’’ He stated that HSA participants ‘‘consume more preventive care than 

any other plan we offer,’’ and that ‘‘[m]ore than 45% of HSA participants completed 

their health risk assessments, compared to just 16% in our PPO plan.’’ On top of 

all of this, he noted that ‘‘[f]rom 2006 to 2007, the cost trend in our two HSA plans 

declined a full 15%!’’ 6

Mr. Sensor’s testimony is supported by findings from another study performed by 

HealthPartners. This study found that the cost of care for participants in HSAs and 

health reimbursement arrangements (‘‘HRAs’’) was 4.4% lower than for those individuals with traditional low-deductible coverage.7 The study also found that the cost 

savings did not impair the standard of care and that the utilization of preventive 

care services and medication for chronic illness was equivalent to that of individuals 

covered under more traditional low-deductible plans. 

Data Indicates HSA/HDHP Coverage Utilizes Important ‘‘First Dollar’’ Preventive Care Coverage 

As Mr. Sensor’s first-hand experience at Alegent Health demonstrates, HSA/ 

HDHP coverage, if structured correctly, can achieve its intended result—providing 

quality care to Americans and their families at reduced costs. One component of successful HSA/HDHP coverage appears to be the inclusion of ‘‘first-dollar’’ preventive 

care coverage. A survey by AHIP last year showed that recommended preventive 

care is covered on a ‘‘first-dollar’’ basis by the vast majority of HSA/HDHP products.8 Overall, the survey found that 84% of HSA/HDHP plans purchased in the 

group and individual markets provide ‘‘first-dollar’’ coverage for preventive care. 

Specifically, nearly all HSA plans purchased in the large group market (99%) and 

small group market (96%) provide ‘‘first-dollar’’ coverage, while 59% of HSA/HDHP 

policies sold on the individual market include such coverage.9

The AHIP survey also found that among those HSA/HDHP policies offering ‘‘firstdollar’’ coverage for preventive care, 100% provide coverage for adult and child immunizations, well-baby and well-child care, mammography, Pap tests, and annual 

physical exams. Nearly 90% of the policies provide ‘‘first-dollar’’ coverage for prostate screenings and more than 80% offer ‘‘first-dollar’’ coverage for colonoscopies.10

Early Data Strongly Indicates That Participants Have Sufficient HSA Assets To Meet Actual Out-Of-Pocket Expenses Under HDHPs 

AHIP’s most recent census data indicates that HSA enrollees had an average ac- count balance for 2007 of approximately $1,380 and withdrew on average $1,080 to 

reimburse qualified medical expenses, including those expenses not otherwise covered under their HDHP.11 Additionally, early findings indicate that many employers 


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the average HSA contribution was $2,100, with the average withdrawal being approximately 

$1,000). 12See Id at 9 (citing Kaiser Family Foundation and Health Research and Educational trust, 

Employer Health Benefits: 2007 Annual Survey (Menlo Park, Calif., and Chicago, Ill.:2007). It 

should also be noted that in a study conducted by Mercer during the same period which covered 

only large employers, the average contribution was $626. Id. at 9. 13 Id. at 6. 14See AHIP, supra (citing eHealthInsurance survey findings). 15See Id. 16See GAO, supra, at 8. 

are contributing substantial amounts to their employees’ HSAs. Specifically, GAO 

reports that of those small and large employers that made contributions to HSAs 

in 2007, the average annual contribution totaled $806.12

The Council views these early findings as very encouraging. One criticism of 

HSAs has been that accountholders cannot contribute a sufficient amount to an 

HSA on an annual basis to meet their actual out-of-pocket expenses. This is due in 

large part to the fact that the maximum HSA contribution limit is almost certainly 

significantly less than the plan’s maximum out-of-pocket limit (for example, for 

2008, the maximum HSA contribution limit was $2,800 for self-only coverage and 

$5,900 for family coverage, but the maximum out-of-pocket limit for HDHPs was 

$5,600 and $11,200, respectively). Notwithstanding this fact, the data indicates that 

American families have been able to utilize their HSAs to effectively meet their outof-pocket liability under the HDHP. This is very welcome news as it suggests that 

HSA/HDHPs meet both the cost and coverage needs of the average American family. 

Data Indicates That HSAs Are Not Being Used As Tax Shelters By High-Income Individuals 

The early data from GAO and AHIP is also encouraging for another reason. Contrary to concerns by some that HSAs would be used primarily by high-income individuals as an IRA-like retirement savings vehicle, the data indicates that HSAs are 

being used by both lower- and higher-income individuals principally to meet current 

year health costs. 

With respect to the specific income levels of those individuals who are currently 

utilizing HSAs, available data for the 2005 tax year indicates that nearly 50% of 

all HSA enrollees had annual incomes of less than $60,000. Specifically, the recent 

GAO report indicates that 41% of HSA tax filers for 2005 had annual incomes below 

$60,000.13 Similarly, a survey by eHealthInsurance, an online broker of health insurance policies, found that 45% of all HSA enrollees in 2005 had annual incomes 

of $50,000 or less.14 The same survey found that 41% of HSA purchasers were not 

covered by health insurance during the preceding 6 months.15

Notably, the findings for the 2005 tax year may fail to accurately reflect current 

trends in HSA usage and may, in fact, understate the percentage of low- and middle-income HSA enrollees. This is because, as part of the Medicare Modernization 

Act, Congress allowed participants in early HSA-like accounts, called Medical Savings Accounts (‘‘MSAs’’), to convert these accounts into HSAs. Because MSAs generally were only available to self-employed individuals and small business owners— 

persons who on average would likely have higher incomes than the average American worker—the data for 2005 may well underestimate the number of low- and 

middle-income individuals who are currently enrolled in HSA/HDHP coverage. 

Recent data from AHIP indicates that for 2007, HSA enrollees withdrew on average 80% of their annual contributions to reimburse current-year qualified medical 

expenses. Moreover, the GAO report states that ‘‘average contributions and average 

withdrawals generally increased with both income and age.’’ 16 Thus, although higher-income individuals on average contributed more to their HSAs in a given year, 

they also withdrew more contributions during the same year. These early findings, 

when taken together, are very encouraging because they indicate that that HSAs 

are not being used primarily by higher-income individuals as a retirement savings 

vehicle or tax-shelter, but rather are being used by both lower- and higher-income 

individuals to obtain essential current-year health care coverage. 

Lastly, some have pointed to the early data indicating that all HSA account balances are not ‘‘spent down’’ on an annual basis (as is frequently the case with FSAs 

given the ‘‘use-it-or-lose-it’’ rule) as evidence that HSAs are being used inappropriately as a tax savings vehicle. Such critiques fail to recognize the mechanics of HSA/ 

HDHP coverage in light of the statutory contribution limits and potential out-ofpocket expenses. As noted above, in the vast majority of instances, the HSA participant’s potential out-of-pocket exposure under the related HDHP can be as much as 

200% of the maximum HSA annual contribution. Thus, to the extent that accountholders do not withdraw all of their HSA contributions in the same year (i.e., as 


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17See Id at 9. 18 April 9, 2008 Mark-up of H.R. 5719 by the Subcomm. on Health of the H. Comm. on Ways 

and Means, 110th Cong. (2008) (comment by Thomas Reeder, Benefits Tax Council, Dept. of 

Treasury) (as reported by Congressional Quarterly). 

necessary to meet health expenditures), this should be viewed as positive from a 

public policy perspective. This is because any remaining account balance at yearend will help ensure that accountholders have sufficient HSA assets to meet potential out-of-pocket expenses under the HDHP plan in later years. 

Available Data Indicates That HSA Monies Are Being Used For Qualified 

Medical Expenses 

The early data, as compiled by GAO, suggests that amounts withdrawn from 

HSAs are being used by accountholders for qualified medical expenses. The GAO report states that ‘‘[o]f the HSA funds that were withdrawn in 2005, about 93 percent 

were claimed for qualified medical expenses.’’ 17 Moreover, recent statements by a 

Treasury Department representative before the Ways and Means Committee, indicate that 8.4% of all HSA accountholders list at least some of their HSA distributions as nonqualified taxable distributions.18

Under current rules, amounts withdrawn from HSAs that are not used for qualified medical expenses are subject to substantial negative tax consequences. Specifically, such amounts are subject to income tax at the accountholder’s marginal tax 

rate as well as an additional 10% penalty tax. To the extent that an accountholder 

fails to accurately report taxable withdrawals, he or she would likely also be subject 

to various accuracy-related penalties and additions for the underpayment of income 

tax, as well as related interest. 

The early data indicates that accountholders are using their HSAs as intended— 

primarily to reimburse qualified medical expenses not otherwise covered under the 

HDHP. Moreover, where amounts are withdrawn and are not used to reimburse 

qualified medical expenses, the data indicates that accountholders are correctly reporting such amounts as subject to income taxation under the current rules. 

Current Rules Regarding HSA Substantiation Are Consistent With Other 

Special Purpose Accounts And Health Tax Provisions 

Some persons have suggested that the treatment of HSAs under Federal tax 

law—specifically the lack of a third-party substantiation requirement—is unparalleled and otherwise unique to HSAs. Such assertions are not correct. There are numerous instances under the Code where amounts withdrawn from a special purpose 

account are not subject to mandatory third party FSA-like substantiation rules, such 

as with respect to withdrawals from 529 college savings plans or withdrawals from 

IRAs in connection with a qualifying first-time home purchase 

Under current rules, participants in 529 college savings plans are not required to 

obtain third party substantiation prior to withdrawing amounts from the 529 plan. 

However, as with HSAs, the accountholder must report in connection with his or 

her annual income tax return, the amount of withdrawals that were for qualified 

educational expenses and, as such, are eligible for tax-free reimbursement. Moreover, as with HSAs, to the extent that withdrawn amounts are not attributable to 

qualified expenses, such amounts are subject to income and penalty tax. 

This is also the case with respect to withdrawals from IRAs in connection with 

a qualifying first-time home purchase. Under current Federal tax rules, IRA owners 

generally may not make a withdrawal from their IRAs prior to attaining age 591⁄2

without otherwise being subject to a 10% penalty for early withdrawals. If, however, 

the withdrawal is made in connection with the purchase of a qualifying first home, 

the 10% penalty does not apply. As with HSAs, there is no requirement that the 

provider or administrator of the IRA first substantiate that the IRA owner has satisfied the requirements necessary to avoid the 10% penalty. Rather, all withdrawn 

amounts are generally coded by the provider or administrator on the annual information return as being subject to the 10% penalty. When the IRA owner then files 

his or her annual tax return, he or she then certifies on the return the amount of 

annual withdrawals that was used for purposes of purchasing a qualifying first 

home. Thus, no third party substantiation is required. 

With respect to the treatment of medical expenses more generally under Federal 

tax law, it is HRAs and FSAs—rather than HSAs—that are in fact the exception 

to the rule. This is because, as with HSAs, the general approach towards health expenditures under Federal tax law does not require that a taxpayer obtain third 

party substantiation of qualifying medical expenses in order to obtain a specific income tax deduction or other tax-favored treatment. 


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One example of this can be found under Code section 162(l), which allows selfemployed persons to take an above-the-line deduction for qualified medical care. In 

order to avail oneself of the deduction under this provision, the self-employed individual must certify on his or her annual income tax return the amount that he or 

she paid for qualified health insurance during the respective tax year. As with 

HSAs, no third party substantiation is required under Federal tax law, although the 

taxpayer remains subject to accuracy-related penalties and additions under Federal 

tax law. 

Another example is section 213(a) of the Code, which permits a taxpayer to deduct 

qualifying medical expenses in excess of 7.5% of their adjusted gross income. As 

with HSAs, taxpayers are not required to obtain third party substantiation of such 

expenses under Federal tax law. Taxpayers merely certify on their annual tax return the amount of qualified medical expenses that they incurred that make them 

otherwise eligible for the deduction. Taxpayers do, however, remain subject to accuracy-related penalties and additions under Federal tax law. 

Code section 72(t) is another example of the more general rule under Federal tax 

law under which taxpayers are not required to obtain third party substantiation in 

order to obtain favorable tax treatment. As noted above, in very limited circumstances, pursuant to Code section 72(t), taxpayers are excepted from the 10% 

penalty tax for early distributions from a qualified retirement plan, including an 

IRA or employer-sponsored retirement plan. In addition to withdrawals for purposes 

of a qualifying first-time home purchase, Code section 72(t) also excepts from the 

penalty withdrawals attributable to certain incurred qualified medical expenses. As 

with HSAs, Code section 72(t) does not impose third party substantiation requirements. Taxpayers do, however, remain subject to accuracy-related penalties and additions to the extent of mischaracterized or ineligible withdrawals. 

Imposing Third-party Substantiation Requirements on HSAs Will Increase 

Costs and Limit Americans’ Options for Health Care Coverage 

In light of the foregoing, the Council urges Members of the Subcommittee, and 

Members of Congress more generally, to oppose the imposition of third-party substantiation requirements on HSAs, such as the requirements included in H.R. 5719 

(the ‘‘Taxpayer Assistance and Simplification Act of 2008’’). The available data indicates that the current regime is working and that substantiation rules like those 

required with respect to flexible spending arrangements (‘‘FSAs’’) and health reimbursement arrangements (‘‘HRAs’’) are not needed at the present time. 

At a time when Americans continue to struggle to afford their health care coverage and/or secure appropriate coverage, imposing third party substantiation rules 

would impose additional costs and burdens on HSA providers and accountholders. 

These additional costs could operate to limit the attractiveness and efficacy of HSAs. 

Americans’ options for health coverage need to be expanded at this time, not limited, and imposing third party substantiation could negatively affect the use and/ 

or effectiveness of HSAs. Moreover, given the relative newness of HSAs generally 

and the encouraging early data indicating that such substantiation is unnecessary, 

the Council opposes the imposition of third party substantiation rules in connection 

with HSAs. 

Conclusion 

HSAs were never intended to be a comprehensive answer to all of America’s 

health care problems. Rather, HSAs were designed to be one important option for 

Americans families seeking lower-cost but high-quality comprehensive coverage. As 

the GAO report makes clear, for a significant percentage of American families, 

HSAs have become an integral part of their health coverage and, thus, should not 

be curtailed at this time. 

More than ever before, Americans need good health coverage options. For a significant segment of American families, HSA/HDHP coverage meets this need by providing lower-cost, high quality coverage. Moreover, as noted above, early data is encouraging and suggests that for the vast majority of HSA participants, HSA/HDHP 

coverage is operating as intended by Congress. But early data is just that—‘‘early.’’ 

It is critical, therefore, that we allow this new health care option to develop without 

additional burdens or restrictions. The Council believes that there is no justification 

for changes that could curtail the use and/or effectiveness of HSAs. Otherwise, we 

risk taking away from millions of American families a vital tool in securing affordable, quality health care coverage. 

f 


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Statement of Consumers for Health Care Choices at the Heartland Institute 

Chairman Stark, Mr. Camp, and Members of the Committee, 

I would like to set the record straight on some of what you have been told about 

Consumer Driven Health Care generally, and Health Savings Accounts specifically. 

These programs are not a panacea for our health care problems, but neither are 

they intended to be. There are no simple solutions to the problems in health care 

and we would be foolish to think there should be. H.L. Mencken was famously 

quoted as saying, ‘‘For every complex problem, there is a solution that is simple, 

neat, and wrong.’’ There is hardly a problem more complex than health care, so solutions will be equally complex. 

But HSAs and Consumer Driven Health Care (CDHC) are significant steps in the 

right direction. They are beginning to address some of the most intractable problems 

in the system. In particular— 

1. Patient behavior is changing—people are being more cautious about needless 

use of services. 

2. Consumers are more compliant with treatment regimens, especially those with 

chronic conditions. 

3. The rate of increase in health care costs is down substantially for people and 

groups in these plans. 

4. The demand for information, transparent prices, and patient support services 

is high. 

5. The adoption rate in the benefits market is sizzling. 

6. The transformation of service delivery is beginning, though still very formative. 

Early indicators include the growth of retail clinics, concierge medicine practices, and medical tourism. 

These changes are not mere speculation. They are taking place among real people 

in real life, and have been verified by actual results reported on by employers, consulting firms, and health plans. 

Most of what you have been told in the testimony to date is either mistaken, 

based on suppositions or surveys of uninformed people, or simply irrelevant to 

CDHC. For example— 

• You were told that lower-income people cannot afford the out-of-pocket responsibility that comes with an HSA. You were not told how those same people could 

afford the higher premiums that are required to avoid that cost. In fact, money 

that is paid to an insurance company for first-dollar coverage is money that is 

lost forever. Lowering the premium and using that saving to pay directly for 

services gives the low-income consumer a chance to save money that would otherwise be lost. 

• You were told that the tax break associated with HSAs is unprecedented and 

a boon to the ‘‘wealthy.’’ In fact, the tax treatment of HSAs is precisely the 

same tax treatment afforded to employer-sponsored health insurance. Premiums 

are untaxed and benefits are untaxed. It is true that the ‘‘wealthy’’ get a larger 

tax benefit than the unwealthy, but that is the case for employer-sponsored 

comprehensive coverage as well as for HSAs. Further, the opportunity to save, 

say, $2,000 a year that would otherwise go to an insurance company is of far 

greater benefit to the low-income worker who earns $20,000 a year than to the 

wealthy executive who makes $200,000, regardless of the tax treatment. 

• You were told that ‘‘the sick’’ do not benefit from HSAs because of the higher 

out-of-pocket responsibility. In fact, both the healthy and the sick have less outof-pocket exposure with an HSA, a point that was well documented in a recent 

Health Affairs article. In fact, HSAs limit a patient’s out-of-pocket exposure, 

something that is not true for the Medicare program, for instance. 

• You were told that most health care spending takes place above the deductible 

associated with an HSA, so they will not have ‘‘a significant effect on overall 

spending.’’ This is probably true, but irrelevant. HSAs are having a profound 

effect on lower-cost routine spending and that is significant by itself. Other 

strategies are needed for high-cost services with or without an HSA. 

• You were told that many people with a high-deductible health plan do not open 

up an HSA. That, too, is true but irrelevant. The HSA itself is attractive for 

those people who are able to get a tax benefit from passing their direct payments through the account. Other people, especially those who pay no income 

taxes, may find it more suitable to simply pay cash at the time of services or 

to keep their funds in some other, non-HSA, account. Further, there is likely 

to be a lag time between the point of enrollment and opening up that account. 

This is not a problem. 


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• You were told that some people who have to pay directly for care or for prescription drugs may fail to do so to save the money. That also may sometimes be 

true. But there is never any guarantee that people will always fill their prescriptions and take their medications regardless of the financing scheme. In 

fact, we know that many health conditions are caused or aggravated by patient 

behavior under all health insurance systems. But, to the extent that people with 

CDHC are more knowledgeable and more invested in their own care, their compliance will be better than it is for other benefit programs. And that is precisely 

what we are seeing in the market. 

In fact, with one exception your witnesses were people with long-standing hostility 

to HSAs and consumer empowerment in health care. The one exception could speak 

only to the experience of his own company and his own employees. But his positive 

experience is being replicated by tens of thousands of similar cases throughout 

America today. 

There is a revolution underway in American health care. It is being transformed 

from a system that is inconvenient, unaccountable, uncompetitive, bureaucratic, of 

questionable quality, and far too expensive into one that is efficient, convenient, accountable, innovative, and matches quality and costs in a way to deliver the best 

value to the American consumer. This is an enormous undertaking, and HSAs are 

only one element of this movement. 

I urge the Members of the Health Subcommittee to open your eyes and your 

minds to the dramatic changes that are taking place right now, right in front of you. 

Thank you for your attention. 

Greg Scandlen 

greg@chcchoices.org 

f 

Statement of Consumers Union 

Summary 

Recent experience with health savings accounts and high deductible health insurance policies has confirmed what economists and policy analysts have predicted for 

the past decade: In a voluntary health insurance marketplace where lawmakers 

have let the free market write the rules, encouraging high deductible policies combined with tax favored savings accounts, benefits the rich and increases the financial burden on the sick. It is time for Congress to call a halt to this misguided 

policy and turn its attention to health system reform that will provide 

guaranteed coverage to all Americans, while improving the quality of care 

in the system and constraining costs. 

Concerns about High Deductible Health Insurance and Health Savings Accounts 

Variation of risk in health insurance markets. The health insurance market 

is different from the market for other consumer goods. When a car manufacturer 

sells a car, the seller has no reason to care who is buying it: age, sex, health status, 

income simply do not matter. Health insurance is a different kind of market. Not 

only do sellers care very much about the nature of the buyer, if allowed they create 

detailed underwriting rules that discriminate against buyers by design—denying 

coverage to the sick, excluding any pre-existing conditions (for which the need for 

care and coverage is greatest), and charging higher premiums to the older and sicker. 

The key economic factor that makes health insurance markets different from markets for other consumer goods and services is the tremendous variation in risk of 

the population. A small percent of the population (regardless of whether you consider the young or the old, the rich or the poor, males or females) tends to account 

for a large part of health care expenditures. Most people are healthy and incur very 

small if any costs. Consumers take their own health risk profile into account when 

deciding about what type of policy (and deductible) they should seek. Insurers take 

consumers’ health risk profile into account when deciding whether to provide coverage. 

Data from the Medical Expenditure Panel Survey (MEPS) (with adjustments by 

the Lewin microsimulation model) reveals the extent of variation that exists. While 

these numbers are from 2000, there is no doubt that the variation continues to 

exist. While average health care costs (of those with employer based coverage) was 

$2,628 in 2000, those with spending in the lowest fifth incurred just $30 of health 


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1Gail Shearer, Consumers Union, The Health Care Divide: Unfair Financial Burdens, August 

10, 2002, Table 10. 2Daniel Zabinski, Thomas M. Selden, John F. Moeller, Jessica S. Banthin, Center for Cost 

and Financing Studies, Agency for Health Care Policy and Research, ‘‘Medical Savings Accounts: 

Microsimulation Results from a Model with Adverse Selection, Journal of Health Economics 18 

(1999) (195–218). 3 ‘‘Health Savings Accounts: Participation Increased and Was More Common among Individuals with Higher Incomes,’’ Letter of April 1, 2008 from Jon E. Dicken, GAO, to Chairman Waxman and Chairman Stark, Government Accountability Office. 4 Jon B. Christianson, et. al., ‘‘Consumer Experiences in a Consumer-Driven Health Plan,’’ 

Health Services Research, 39:4, Part II (August 2004). 5For an expanded discussion of the Humana and University of Minnesota studies, see Gail 

Shearer, ‘‘Commentary—Defined Contribution Health Plans: Attracting the Healthy and WellOff,’’ Health Services Research, 39:4, Part II (August 2004). 

care expenditures. Those in the top tenth of spending incurred costs of $16,710.1

This variation of risk goes to the heart of the need to find a way to spread costs 

broadly in order to keep costs affordable to those at the highest risk level. 

Erosion of ‘‘Choice’’ of Low-Deductible Coverage. Employer-based coverage 

and government financed programs such as Medicare spread the risks and costs 

across broad populations. Because of the variation of risks, and different selections 

made by people of different health status, high deductible plans can not exist in the 

long-term in a marketplace that offers low-deductible plans as well. Ultimately, lowdeductible plans will be driven out of the market, with ‘‘premium spirals’’ driving 

out comprehensive coverage. This is the hidden secret that the supporters of 

high deductible tax breaks tend to leave off of their talking points: Instead 

of increased choice in the marketplace of health insurance options, over 

time, the ‘‘choice’’ of high deductible coverage is likely to crowd out low deductible choices.2 It is particularly troubling that this basic change in the health 

insurance marketplace could take place without explicit debate and consideration of 

the full long-term implications and elimination of true choice. 

When consumers are given a choice between high and low deductible coverage, 

a small percent will elect the high deductible option. People with high incomes and 

low health care costs are most likely to be attracted to the high deductible/HSA option (and relatively low premium). It is ironic that the choice that most consumers 

want may well not be available to them as the market plays out over several years. 

Benefit to the Healthy and the Wealthy from Tax Encouragement of HighDeductible Health Insurance. Tax policy now encourages high deductible health 

insurance policies by making contributions to health savings accounts tax deductible. This tax policy, combined with high deductible health coverage, has been predicted to appeal disproportionately to the healthy and the wealthy. 

• The healthy benefit because they have the new prospect of a tax-sheltered investment in which money is not taxed when put in or when withdrawn (i.e., 

not needed by the healthy to cover health care costs). • The wealthy, with higher tax brackets, benefit disproportionately because the 

tax savings are larger at higher tax brackets than lower tax brackets. 

A recent study by the Government Accounting Office 3 found that people 

with Health Savings Accounts (HSAs) in 2005 had an average adjusted 

gross income of $139,000 compared with $57,000 for other filers. This is an 

alarmingly high differential and should be a wake-up call to policymakers 

for the validation that it provides to the concerns that opponents (such as 

Consumers Union) of this policy have expressed over the last decade. In addition, a study conducted at the University of Minnesota found that the average income of employees who enrolled in high deductible coverage was 48 percent higher 

than the income of employees who did not.4

A study conducted of 4,680 Humana employees found that enrollees in high-deductible policies were ‘‘significantly healthier on every dimension measured.’’ 5

Distraction from the Issue of the Uninsured and Underinsured. The potential for health savings accounts and encouragement of high deductible insurance to 

split the healthy from the sick and the rich from the poor is alarming. But of even 

greater concern is the distraction they pose to turning the full attention of policymakers and the health policy community toward the challenge of providing true 

health care security to all. We should be moving full-steam toward the goal 

of guaranteed, quality, affordable health care for all consumers, not spending countless resources creating and analyzing new models that promise to 

split the healthy from the sick, shift costs to the sick, and expand the inequities in our system. 

f 


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Statement of Energy Manufacturing Company, Inc. 

To Whom It May Concern: 

Energy Manufacturing is a mid-sized designer and manufacturer of hydraulic cylinders located in Monticello, IA. We supply outside equipment manufacturers 

(OEMs) throughout the world. We compete with other manufacturers located in the 

United States, Europe, China, Canada and South America. Our competition ranges 

from OEMs themselves to small manufacturers to multinational corporations. 

We rely very heavily on a highly skilled workforce in order to compete. Consequently, personnel costs, including medical costs is one of our most critical issues. 

Like many Midwestern manufacturers, we have experienced significant increases in 

the cost of insuring our employees. We offer medical benefits that, to our knowledge, 

surpass most companies similar to us in eastern Iowa. We believe this provides an 

advantage for us in attracting and retaining talented workers in an increasingly 

competitive labor market. 

On January 1, 2008 we instituted a medical plan supported by HSAs for our salaried workforce. We made this change after a careful analysis of the issue. We attended seminars on how to reduce medical costs and consulted extensively with our 

insurance agency. Our agents provided considerable research to aid our decision. 

Rep. Stark’s analysis of HSAs could not be more wrong as it relates to the situation at Energy Manufacturing. The first thing we learned in our research is that 

cost shifting will not be effective in reducing hyperinflationary increases in medical 

costs. The monthly premiums that our employees contribute pale in comparison to 

the costs resulting from chronic medical conditions such as diabetes, heart disease 

and obesity. Our research indicated that companies that have been successful in reducing the rate of medical inflation used a combination of wellness programs, disease management and consumer education to encourage a healthier workforce and 

identify medical risks before they become major medical expenses. In doing this, a 

medical benefits program benefits the employee and reduces the cost for all participants in the program. 

Our program does not discourage participants from seeking needed medical care. 

First, all of our wellness benefits including annual physicals, mammograms, pap 

smears, colonoscopies and childhood immunizations are covered 100% by our medical plan without deductibles or co-pays. Second, the company contributes a significant amount of money to each employee’s HSA. When we combined reduced premiums to the employee and employer contributions, we found that the cost of the 

increased deductible was neutralized. Third, we conducted health risk assessments 

(HRA) for all employees. The HRA results in a confidential report that identifies 

each participant’s (and their families if they choose to participate) health risks. The 

HRA was 100% paid by the company and will be performed, and company paid for, 

on an annual basis. 

Our HSA plan has not saved us any money in medical premiums or in the cost 

of administering our program. Our HSA plan is a long-term investment that we believe will result in a healthier, more educated workforce. Already, our employees 

have become more educated on the cost of medical procedures and prescription 

drugs. They are more likely to shop around for drugs and are more likely to get a 

second opinion before undergoing expensive medical procedures. This behavior benefits our employees and introduces incentives for cost containment by medical providers and prescription drug retailers. Our employees do this because they have now 

invested in a savings account (HSA) that grows with each day. They are committed 

to becoming healthier and in building a nest egg that can be used if major medical 

expenses become a necessity. 

What Energy has done is no secret. The research is readily available for companies who want to invest in a program like ours. Some companies may believe that 

HSAs can be used as a cost shift mechanism rather than an incentive. However, 

we suspect that these companies will be very disappointed in the results. We believe 

that more companies will follow the strategy that Energy has employed as they realize that the only way to control medical costs is to encourage healthy and consumer 

savvy behavior. 

The bill that is being discussed is not about accountability or preventing fraud. 

It is an attack on a medical benefits model that has tremendous potential to benefit 

all parties. This is evident in the generalizations and false assumptions included in 

the May 7 advisory. 

We urge you to support the HSA structure as it is currently written. These plans 

will result in a healthier workforce. They will force cost control and accountability 

onto medical providers. Finally, they will provide a means for employees to save 

money for their own medical care. 


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Thank you for your consideration of this extremely important matter. 

Sincerely, 

ENERGY MFG CO., INC. 

Michael Szymaszek 

President 

Patrick T. Kopf 

Chief Financial Officer 

Gregg Eiles 

Vice President Operations 

Kenneth Rosenbecker 

Vice President Sales 

Cc: Sen. Richard Grassley 

Sen. Tom Harkin 

Rep. Bruce Braley 

f 

Statement of Henderson Brothers, Inc. 

Comments regarding House Ways and Means Committee hearing on HSAs 

& CDHP 

In the late 1970’s when, prior to managed care, when most U.S. citizens had employer sponsored health insurance, the typical plan was one that contained an upfront deductible and usually 80% co-insurance. The average family paid 40% of their 

medical bills and people were generally happy with what coverage they had. 

Managed care (promoted by the Federal Government) brought to the table a new 

approach that represented a pre-payment of medical care. What it did to the economic makeup of a private insurance risk was, in retrospect, catastrophic to our 

health care environment. Managed care’s biggest influence at this point is to create 

an abnormal demand for services driving supply and creating double-digit insurance 

price increases for employers trying to do right by their employees. Today’s family 

share of the health care bill is around 11%. The end result is embodied in the fact 

that the most widely prescribed pharmaceutical is a statin—so people can continue 

to live unhealthy lifestyles as long as they take the pills to keep their cholesterol 

under control. Insurance is a basic concept of risk sharing. If you apply the concept 

of today’s typical health insurance model to auto insurance, you would have a policy 

that has a $20.00 copay for collision, and when your tires, brakes and windshield 

wipers showed wear, the policy would cover replacement. That’s not the kind of risk 

sharing for which insurance was intended. And certainly not the kind of coverage 

that people would buy if you gave them the money to purchase insurance. 

My employer (approximately 100 employees) has had a CDHP/HSA plan in effect 

for over 3 years. Our rate increases, including the one for our fourth year, are equal 

to 1⁄3 of the average increase for our region. Our most critically ill person (averaging about $80,000 per year in claims) was happier with her HSA coverage than with 

the high option PPO plan we had in place previously—because her out-of-pocket cost 

for the year was less! 

In holding hearings of this type, you might want to include individuals or companies that are on the front line and are experiencing how HSAs are working. Instead 

you include individuals who are already biased toward a government-based solution. 

What does a hearing mean to you—it certainly looks like you were trying to get people together to come to the conclusion you wanted to come to in the first place. 

f 

Statement of Melodee S. Webb 

Dear Chairman Stark and Ranking Member Camp, 

Rockwell Collins is submitting this information for the record as part of the 5/ 

14/08 Health—Hearing on Health Savings Accounts (HSAs) and Consumer Driven 

Health Care: Cost Containment or Cost-Shift. 

For over 70 years, Rockwell Collins (NYSE: COL) has been recognized as a leader 

in the design, production, and support of communication and aviation electronics 

aerospace and defense customers worldwide. The company has 20,000 employees 

worldwide (17,000 in the U.S.). 

Rockwell Collins’ Value Proposition for People has four broad initiatives—Diversity, Talent Management, Leadership Development and Flexible Benefits Choices. 

Flexible Benefits Choices was developed to provide employees with a basic level of 


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company-paid benefits coverage and choices to fit the needs of individual employees 

and their families. ‘‘My Health While Working,’’ a component of our benefits offerings, is segmented into medical, prescription drugs, dental, vision and wellness benefits. When we were rethinking the design of our health plans in 2004 to allow for 

more choices among the plans being offered, the newly-passed legislation allowing 

for broad application of Health Saving Accounts presented an opportunity to design 

a new high deductible health plan with significant flexibility for plan participants. 

To help our employees make informed choices, we provide comprehensive communications to explain their benefits choices. We have specialized modeling tools that 

help employees to understand what health plan works best for them and their families. We also provide paycheck modeling to show the impact of pre-tax contributions 

to our 401(k) and the HSA. Rockwell Collins’ introduced a comprehensive wellness 

program in 2007 with financial encouragement for participation. We have also enhanced the wellness features in our health plans such as waiving co-payments for 

preventive care. Preventive prescriptions are not subject to the deductible in our 

HDHP. 

Because we designed our program to recognize differences in income levels (with 

our pay-related features), do not charge a premium for our high-deductible plan and 

supplied comprehensive, easy to understand information and planning tools, we 

have experienced strong enrollment since the first year the plan was offered and it 

has continued to grow. This was not a full replacement so employees continue to 

have access to a traditional medical plan if that is their preference. Our program 

changes since 2005 have resulted in improved scores in our annual employee attitude survey. The decisionmaking and forecasting tools, plan design components, and 

cost/benefits comparisons were key factors employees understanding whether the 

high deductible plan and HSA or a more traditional medical plan were right for 

them. 

Our employees are benefiting from these plans and the efficient manner in which 

they can be administered—with appropriate checks and balances but not undue 

oversight. Restricting these plan options or adding unnecessary processing burdens 

could make these plans less attractive to participants. It is important to recognize 

individual circumstances and that there are no simple answers that will serve everyone. 

The attachment provides some details about our HSA participation. If you have 

any questions, do not hesitate to contact me. 

Sincerely, 

Melodee S. Webb 

ATTACHMENT 

Rockwell Collins’ High Deductible Health Plan (HDHP), ‘‘My PPO Plus’’ 

Background: 

• The monthly premium is zero (compared to single and family monthly contributions of $73 and $203, respectively, for our traditional EPO Plan coverage). 

• The deductibles and out-of-pocket maximums are pay-related (those who earn 

more, pay more for care) as shown on the chart below. 

• 4,910 employees are enrolled in the HDHP out of 12,900 non-union health plan 

participants (38%). In recent negotiations, we agreed to add the HDHP as a 

choice in 2009 for unionized employees. 

• Modeling tools are available to help employees make informed choices based on 

their personal medical costs. 

• Considerable communications are provided each year about plan features. 

• 71% of those enrolled in the High Deductible Health Plan are contributing to 

an HSA via payroll deduction (for single coverage 57% contribute and for family 

coverage 81% contribute). There could be even higher participation since individuals can choose to contribute directly to a personal account at many financial 

institutions and not use our payroll deduction feature. 

• Those who contribute to the HSA appear to cover their annual plan deductible. 

The following data relates to enrollment in the HDHP for 2008: 


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Annual Base 

Salary 

Coverage 

Annual 

HDHP 

Deductible 

# Participants With 

HSA 

Without 

HSA* 

Average 

Annual 

HSA Contribution 

Single $1,500 597 289 308 $1,389 <$50,000 

Family $2,500 649 500 149 $2,668 

Single $1,500 1063 616 447 $1,454 $50,001 to $75,000 

Family $3,000 960 757 183 $3,133 

Single $2,000 301 197 104 $1,981 $75,001 to $100,000 

Family $4,000 693 581 112 $3,904 

Single $2,500 128 83 45 $2,280 >$100,000 

Family $5,000 529 451 78 $4,558 

* Others could be contributing directly to an HSA and not use payroll deduction. 

f 

Statement of National Business Group on Health 

The National Business Group on Health (The Business Group) commends the 

Congress for creating Health Savings Accounts (HSAs) under the Medicare Modernization Act of 2003 and thanks the Committee for the opportunity to submit this 

statement for the record. The Business Group, representing over 300 large employers that provide health care coverage to more than 55 million U.S. employees, retirees and their families, is the nation’s only non-profit organization devoted exclusively to finding innovative and forward-thinking solutions to large employers’ most 

important health care and related benefits issues. Business Group members are primarily Fortune 500 and large public sector employers, with 63 members in the Fortune 100. 

A Solution in Search of a Problem? Is HSA Substantiation Necessary? 

As health care costs escalate and consumers become more engaged, the Business 

Group supports expanding the flexibility and value of HSAs and opposes increasing 

the administrative cost and paperwork burden for employers and employees. HSAs 

encourage smart, cost-effective health care spending and provide people with a potential retiree health savings vehicle. The Business Group recommends that the 

Committee further analyze the data on the number of HSA accountholders reporting 

their non-medical expenditures as taxable income before considering imposing unnecessary new administrative burdens on HSA trustees and accountholders. The 

vast majority of HSA distributions are made for qualified health care purchases. 

During the previous Ways and Means Committee markup of H.R. 5719, the Taxpayer Assistance and Simplification Act of 2008, the Treasury Department presented preliminary information that a significant number of taxpayers with HSAs 

who also took distributions for non-qualified medical expenses were reporting their 

non-health care distributions as taxable. Furthermore, a significant portion of unsubstantiated distributions paid to non-health care merchants are likely to be valid 

health care purchases from merchants such as grocery stores, discount retailers and 

other merchants who sell health care products. Accordingly, a substantiation reporting requirement may be unnecessary and raise the cost of HSAs, decreasing their 

convenience for employees and also raising accountholders’ health care costs. 

The April 2008 Government Accountability Office (GAO) Report 

While the GAO did receive estimates of the number of lives covered by HSA-eligible health plans from 2004 through 2007 from America’s Health Insurance Plans 

(AHIP), the GAO report only analyzed 2004 and 2005 tax filer data from the Internal Revenue Service (IRS) to estimate the number of individuals who reported HSA 

activity in those years. Thus, the report only utilized tax data from a year when 

the number of HSA policyholders was one-sixth its current level. Specifically, the 

report found: 

• 2005 HSA contributions totaled $754 million, while withdrawals were only $366 

million. This statistic reveals that people are saving HSA funds as intended— 

to pay for long-term and catastrophic health care expenses. 


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• GAO cited various employer surveys that employers often contribute $600–800 

annually to their employees’ HSAs to pay for health care expenses. 

• GAO found that, on average, people with HSAs in 2005 tended to have higher 

annual incomes—averaging $139,000—than the general population of tax-filers, 

at $59,000. However, a 2006 study by the online HSA sales website, 

Ehealthinsurance, found that 45 percent of people in HSA-eligible plans had incomes below $50,000 and that 41 percent of HSA purchasers had not previously had health insurance coverage in the prior 6 months. Another 

Internet survey in 2005 by the Employee Benefit Research Institute (EBRI) 

found that 33 percent of people who had opened HSA accounts had incomes of 

less than $50,000. 

HSAs Are Expanding Health Care Coverage and Growing with Small Businesses 

Following submission of the GAO report, AHIP released its annual ‘‘census’’ of 

HSA enrollment, showing 6.1 million enrollees in January; almost double the enrollment from 2 years ago. Specifically, the growth in HSA-eligible plans is concentrated among small businesses. Over the last year, the fastest growing market 

for HSA/High-Deductible Health Plan (HDHP) products was small-group coverage, 

rising from approximately 25 percent to 30 percent of overall HSA/HDHP enrollment. 

Large Employer Examples of the Success of HSAs/Consumer-Directed Health 

Plans (CDHPs) 

The table that follows provides some successful workplace examples of employersponsored HSAs among Business Group members. 

Company Name Plan Description Results 

Bank of America 1 • HDHP with personal spending • Employees can use money 

(500,000 eligible) account similar to HSA, or HSA 

• For employees who earn less than 

$100,000—receive up to $100 per 

month for health expenses 

• Employer contributes $600–$1,200 

into the account for copayments 

and other expenses 

for health care in retirement 

• Allow employees to have 

more control over their own 

dollars 

Financial Services • HDHP/HSA • 87% enrollment 

Employer • Provide health care ‘‘navigators’’ to 

help employees navigate the health 

care system • Contributes to HSA in January, 

June 

• Two-thirds of employees who 

participate in HDHP 

contribute to HSA 

General Motors • HDHP/HSA • Increased drug generic utiliCorp.2 zation rate by 9%, to 65% 

Owens Corning 3 • HDHP/HSA or HRA • Employer contributes $750 per 

employee, $1,500 per family • $50 incentive to participate in 

health risk assessment • $40 non-smoker discount 

• 300+ employee have quit 

smoking • Addition of more disease 

management programs 

Pitney Bowes 4 • HDHP/HSA • 20% enrollment 

(18,000 eligible) • On-site health clinics that provide 

preventive services, like screenings 

and immunizations • 100% coverage for preventive care 

The Kroger Co.5 • HDHP/HSA • 23% enrollment, up from 

(70,000 eligible) • Preventive drugs are covered 

outside of the deductible 

• Employer contributes half of 

deductible in early January • Matches employee contributions up 

to $500 for individuals, $1,000 for 

families 

4.6% in 2006 


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Company Name Plan Description Results 

Towers Perrin 6 • HDHP/HSA • 62% enrollment 

• $2,850 deductible 

• 100% coverage after deductible 

• $500 per person for preventive care 

• Employees earning less than 

$50,000 receive $720 contribution 

from company decreases as salary 

increases 

• $120 per person credit for 

employees/spouses who complete a 

health risk assessment and engage 

in health coaching 

Wendy’s 7 • HDHP/HSA • 70–72% enrollment 

(20,000 eligible) • 100% coverage for preventive care • Employer contribution covers 60% 

of deductible 

• 61% generic drug utilization 

rate • No increase in employee 

premiums for the past 4 

years • 2.5 employees per 1,000 had 

a colonoscopy—compared to 

UnitedHealth’s average of 1.4 • 38% of employees had a 

physical, up from 20% in 

2004 

1 Atlantic Information Services. (2008, April 25). Bank of America to offer employees health care accounts for 

expenses. Inside Consumer-Directed Care, 6(8). 2 Atlantic Information Services. (2007, December 21). Generic rx usage reaches 65% under General Motors’ 

cdh plan. Inside Consumer-Directed Care, 5(24). 3 Robbins, M. (2008, April 1). Employers get on the health care superhighway with next generations HSA 

programs. Employee Benefit News, retrieved from ebn.benefitnews.com. 4 Atlantic Information Services. (2008, May 9). Pitney Bowes account-based plans deliver health and consumerism. Inside Consumer-Directed Care, 6(9). 5 Atlantic Information Services. (2007, January 26). CDH pioneers target behavior among chronic, healthy 

enrollees. Inside Consumer-Directed Care, 5(2). 6 Atlantic Information Services. (2007, June 8). From burger chains to municipalities, cdh helps employers 

cut costs, improve health. Inside Consumer-Directed Care, 5(11). 7 Atlantic Information Services. (2007, February 9). Wendy’s ‘beefs up’ preventive care incentives. Inside Consumer-Directed Care, 5(3). 

Employer-Sponsored HSA/HDHP/CDHPs Provide Evidence of Improved Quality 

Preventive Care 

A July 2007 survey by AHIP of 36 insurance companies found that nearly all 

group HSA/HDHP policies and more than half of individual policies cover preventive 

services regardless of whether the deductible has been met. Specifically: 

• 99% of HSA/HDHP policies purchased in the large group market, and 96% in 

the small group market, provided this coverage. 

• In the individual market, 59% of HSA/HDHP policies covered preventive care 

outside of the deductible. 

• Approximately three-quarters (76%) of HSA/HDHP policies cover preventive 

services without any coinsurance or copayment for covered preventive services. 

The 2007 Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits Annual Survey found that most employees and their families 

with HSA/HDHP coverage can get annual examinations, immunizations and 

screenings without a deductible. Most employers pay first dollar coverage, while others require a small copay or coinsurance. Specifically, the survey found that: 

• 88% of employees in CDHP/Health Reimbursement Arrangements (HRA) have 

access to preventive benefits with no deductible; while 86% of employees with 

HSAs can access preventive care without a deductible. 

Wellness 

The Blue Cross Blue Shield Association’s 2007 CDHP member experience survey 

reports that consumers in CDHPs are more engaged than their non-CDHP counterparts in wellness programs, including: 

• Smoking cessation—20% vs. 6%; 

• Stress management—22% vs. 6%; 

• Nutrition/diet program—27% vs. 12; and 

• Exercise program—29% vs. 12%. 


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Treatment Adherence 

An April 2007 UnitedHealth Group study found that CDHP enrollees with a 

chronic illness abide by their treatment regimen at the same rates comparable to, 

or even better than, enrollees in more traditional plans. 

• Diabetes: CDHP enrollees were 16% more likely to receive HbA1c tests than 

members in traditional plans. • Coronary Artery Disease (CAD): CDHP enrollees were 22% more likely to 

have lipid tests, and were equally likely to see a doctor. • Congestive Heart Failure (CHF): CDHP enrollees were 6% more likely to 

use ACE inhibitor medications. 

Urgent Care 

The March 2007 Journal of the American Medical Association examined the effect 

of CDHPs on emergency room usage because urgent care represents a large portion 

of today’s health care costs, it was important to examine whether enrollees (1) were 

getting needed care, and (2) were going to the emergency room for symptoms that 

could be treated at much less expense by a primary care physician (PCP). 

• Hospitalizations for patients whose symptoms could be treated by a PCP declined by 29.6% in the HDHP group compared to the control group. • For the HDHP group, the odds of increasing emergency room utilization after 

hitting the deductible were no greater in comparison to utilization below the deductible. 

Increased Use of Provider and Other Health Information 

AHIP’s January 2007 ‘‘census’’ found that HSA/HDHPs encourage enrollees to use 

available resources to aid them in making health care choices on the basis of quality 

and cost; and, in addition, encourage them to use tools to become healthier individuals. 

• 86% of HSA/HDHPs provide hospital-specific quality data; 50% provide physician-specific quality data. 

• 88% of HSA/HDHPs make cost information (negotiated rates, drug prices) available to plan members. 

• 72% of HSA/HDHPs provide personal health records (PHRs). 

The 2007 EBRI/Commonwealth Fund Consumerism in Health Care Survey also 

reports that individuals with CDHPs tend to use consumer health information at 

higher rates than those in more traditional plans, including: 

• Requesting a generic drug substitution; 

• Talking to a doctor about treatment and options; 

• Checking the price of a service before getting care; 

• Participating in wellness programs; and 

• Using online cost tracking tools. 

Employee Satisfaction 

• A 2005 study by Fidelity Investments found that re-enrollment rates for CDHPs 

reached 95%—the highest of any plan type. 

• A 2005 GAO report found that enrollees from the American Postal Workers 

Union rated CDHPs higher in terms of overall plan performance, compared to 

other plan enrollees. 

• A 2006 Blue Cross Blue Shield Association CDHP member experience survey 

found that 73% of CDHP enrollees said they are likely or very likely to renew 

their current health coverage for the following year. 

CDHPs Cover Every Age Group 

A 2007 EBRI/Commonwealth Fund consumerism in health care survey found that 

CDHP enrollees cover every age group fairly well: 

• 20% between ages 21–34; 

• 31% between ages 35–44; 

• 30% between ages 45–54; and 

• 19% between ages 55–64. 

Again, the Business Group appreciates the opportunity to submit this statement 

for the record. We look forward to working with the Congress and the Members of 

this Committee to expand the value and increase the flexibility of both HSAs and 

CDHPs and to improve the effectiveness and efficiency of health care. 

f 


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Statement of Ross Schriftman 

Dear Members of the Committee, 

Below is my testimony to a hearing of the PA House Insurance Committee a few 

years ago. It demonstrates the value of Health Savings Accounts for low- and middle-income people. Unfortunately, I have come to the conclusion that Members of 

the Committee have been blinded by their opposition to the HSA Concept so much 

so that they have failed to do the math and realize that the more higher-income 

people take up HSAs the greater Federal revenue will result. 

In fact, many wealthy people whose businesses provide health insurance are more 

interested in keeping their tax favored expensive plans. It is virtually impossible to 

get a bigger tax break with a high deductible plan and an employer HSA contribution than it is to keep the current plan. 

The greatest beneficiaries of these programs are actually lower- and middle-income workers. The plans are almost always designed with first-dollar benefits for 

preventive services, coupled with wellness programs. People with chronic conditions 

also benefit more than they do with co-pay plans that slowly bleed their finances 

and cost them more in premiums. 

I believe certain Members of Congress are afraid that the Health Savings plans 

will become very popular and then there would be less interest among the American 

people for a national government-run health care financing system. 

May I also remind the Committee that the biggest government program, Medicare has a high deductible health plan with a $1,024 deductible for each hospital benefit 

period. That is why so many people buy private insurance to fill the gaps. 

It is important to note, that unlike Medicare, Medicaid and other government programs, no government unit is making any contributions to Health Savings Account. 

Contributions are made by individuals and businesses. This is our money. Not 

yours. All the government is doing is giving us a deduction for the contribution and 

not taxing the interest. We are accumulating money because we know that programs like Medicare will not be there in its current form in 10 years when we need 

it. Please let us accumulate our own money. 

It is our responsibility to report distributions on our tax returns whether they are 

qualified 213d expenses or not. You do not have a right to be looking at my dayto-day disbursements from my account because it is no different than my regular 

checking account. You are stepping over the line of constitutionality. 

I urge the Committee to take testimony from individuals and businesses at all income levels and get their input before any efforts are made to take away this valuable benefit. You should be encouraging people to put money aside, not forcing them 

back into expensive plans. If you really want to do something useful, look at the $70 billion reported by one 

study of this year’s waste and fraud in Medicare. That is a far more serious problem 

than one company without solid evidence reporting ‘‘misuse’’ of accounts when in 

fact people can take out money for whatever they want. They just have to report 

as taxable amounts that are not for medical purposes. 

Thank you, 

Ross Schriftman 

Health Savings Accounts will help those who need it the most 

By Ross Schriftman, RHU, LUTCF, CBC, MSAA 

The recently enacted ‘‘Medicare Prescription’’ legislation contains one unrelated 

provision that will go far in changing the way health care is funded in our nation. 

Health Savings Accounts (HSAs) will now be allowed in combination with a high 

deductible health insurance policy for most Americans. These policies cost 30% to 

50% less than the current type of plans most people have. The significant savings 

is then contributed by workers, their employers or both into the HSAs. These funds 

can then be utilized tax free for a wide range of expenses including dental, chiropractic, and therapy services as well as out of pocket expenses not covered by the 

high deductible policy. Even certain long term care insurance policy premiums can 

be paid out of these accounts tax free. The beauty of the HSA concept is that funds 

can be used tax free for expenses that may or may not normally be covered by insurance and done so at the direction of the patient. (Please consult your tax advisor.) 

Opponents of HSAs claim incorrectly that this type of program will only benefit 

wealthy and healthy people. This is an unhelpful misreading of a valuable program 

that will give millions of Americans the opportunity to afford quality healthcare. 

As far as the tax break, the HSA plans will benefit low- and middle-income workers; not the wealthy. Under the current system, many wealthy business owners 

have their companies’ fund their own premiums tax free and enjoy the benefits tax 


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free. When adding the premiums for a high deductible policy and the contribution 

to the HSA, it is virtually impossible to spend more than the current system. (See 

Exhibit 1.) That is because the HSA contribution can not be higher than the policy 

deductible. So, wealthy people actually get less of a tax benefit under the HSA program. On the other hand, a low-income worker may be paying a large portion of 

premiums now. A reduction in premiums and tax free contributions by employers 

and their workers to an HSA will result in tremendous value for the middle- and 

low-income employees. (See Exhibit 2.) 

Under our current system for privately insured patients, most dollars for health 

care run through the hands of insurance companies and then are returned in the 

form of benefits. Administrative costs of processing these claims come out of the premiums. Dramatic rate increases in the last several years are the result of high plan 

usage and higher costs per service due to regulations, litigation and defensive medicine. 

In a sense, there is a perfect storm in our health care system. More employers, 

especially small businesses, are shifting significant amounts of the premiums to 

their workers or raising deductibles and co-pays. If workers’ premiums are dramatically cut under the new HSA plans, these employees benefit directly. The opportunity for small businesses to grow and hire more workers also increases resulting 

in a much better economic climate for all of us. 

The new law also allows flexibility. Businesses can fully fund the premium for 

workers, fully fund the HSA contributions or create innovative sharing arrangements to meet specific needs of their employees. This allows a business to better 

direct the dollars that they and their workers have available for health care. 

Finally, it is absolutely untrue that sicker workers are at a disadvantage with 

these new programs. Under the current system, not only is the worker paying larger 

premiums and higher co-pays and deductibles every year, but those out-of-pocket expenses can really add up. According to benefit consulting firm Hewitt Associates, 

the average out of pocket costs including co-pays and other charges doubled in the 

last 5 years to $2,126. And that was only for large companies. As an example, suppose someone goes to a specialist twice a month and has a $20 co-pay for the service. That is $480 out-of-pocket during the year just to see the specialist. This person 

could have an HSA program, see a reduction in his or her premiums and utilize the 

HSA tax free for those doctor visits. If the employer were fully funding the HSA, 

then the result could be no out-of-pocket expenses for the worker. 

I predict that as time goes by more people will recognize the valuable tool that 

they now have and begin to take control over their own health care spending decisions. They will reduce their dependence on third party payers for each and every 

health care need. The result will be lower costs and a patient driven health care 

system for our country. 

Ross Schriftman is an employee benefit specialist with Kistler Tiffany Benefits in 

Berwyn, PA. He holds the professional degrees of Registered Health Underwriter, 

Life Underwriters Training Council Fellow, Chartered Benefit Consultant and Medicare Supplement Accredited Advisor. Mr. Schriftman served as the Legislative Chair 

for the Pennsylvania Association of Health Underwriters and the Associate Chair 

for Long Term Care of the National Association of Health Underwriters. He teaches 

insurance courses to other insurance professionals including a course in preparation 

for the Chartered Benefit Consultant designation. 

Health Savings Accounts 

Ross Schriftman, RHU, LUTCF, CBC 

Exhibit 1. High Income Business Owner with Company-Paid Health Coverage 

(Age 40 with Family Coverage) 

Current PPO Plan 

Annual Premium 

High Deductible Plan 

($3,500 Deductible) 

HSA 

Contribution Total 

$12,720 $4,775 $3,500 $8,275 

Outlay (premium and contribution) savings to business by using HSA contribution is $4,445 

Tax Breaks (38.6% marginal rate) 

Current Plan—$4,910 

High Deductible Plan and HSA Contribution—$3,194 

Additional Federal Revenue by using HSA Contribution—$1,716 


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Exhibit 2. Benefit to Low- or Middle-Income Worker with HSA Plan with Employer 

and Employee Each Paying 50% of Premiums and Employer Funding the HSA 

(Age 40 with Family Coverage) 

Current PPO Plan 

Annual Premium 

High Deductible Plan 

($3,500 Deductible) 

HSA 

Contribution Total 

$12,720 $4,775 $3,500 $8,275 

Employer’s Share Employer’s Share Employer’s Share 

$6,360 $2,387 $3,500 $5,887 

Outlay Savings to Employer $473 

Employee’s Share Employee’s Share Employee’s Share 

$6,360 $2,387 —0— $2,387 

Outlay Savings to Employee $3,973 

Note: Bottom line result is that the employee will save $3,973 in premium AND have $3,500 available for 

out-of-pocket expenses in the first year alone while the employer still saves $473 in total outlay. 

f 

Statement of Terri Buck 

Chairman Stark, Mr. Camp, and Members of the Committee: 

I read some of the material that was submitted to you regarding HSAs and high 

deductible health plans and am writing to give my input. 

My husband is self employed and I work two part time jobs. Neither of us is eligible for health insurance through an employer. We have a 10-year-old child who we 

also have to provide for. 

We have a high deductible plan with a $10,000 deductible. We have an HSA that 

we contribute to on occasion, when we can afford it. We are not wealthy or high 

income. My husband draws a check from his business when he makes enough 

money to do so. He sets his salary at $500 a week, gross income. If we took a pay 

check each week his pay would be $26,000 a year. Then, if you consider my income 

from two part-time jobs at minimum wage you would get a clearer picture about 

how we live. We have two vehicles (no SUVs). One is a 2004 and the other is a 1997. 

We pay $341 a month for the health plan. I called around to the local pharmacies 

to see who gives the best discount for cash and that is where I go. Our family doctor 

gives a discount for cash. Our eye doctor gives a discount for cash. Our dentist does 

not. 

Paying for the prescriptions we need monthly (one is $28 a month and the other 

is $135 a month) and the doctor visits as needed is more cost effective for our low 

income family than paying for a health insurance policy that would cost $600 or 

$700 a month with all of its mandates (required by State and Federal laws and regulations). 

You have been given an impression that isn’t true about those of us that use these 

products. We are paying our own way. We are NOT wealthy. I am not using anything as a tax shelter. I pay my taxes and hope one day we have enough money 

to put in the HSA on a regular basis. 

I urge you to leave these products alone. They are serving us well as they are. 

If you mess with them I will not be able to afford them. 

I urge you to talk to the people like me that use and depend on these products. 

We are regular people who don’t use it for tax purposes but to cover ourselves in 

the event we need the insurance coverage. We don’t expect anyone to pay our routine expenses through a traditional health plan. We can pay those ourselves and it 

is cheaper for all. 

Thank you for your consideration. 

Terri Buck 

f 

Burlington, IA 


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Statement of the Council for Affordable Health Insurance (CAHI) 

Mr. Chairman and Members of the Subcommittee, 

The Council for Affordable Health Insurance (CAHI) is a research and advocacy 

association of insurance carriers active in the individual, small group, Health Savings Account and senior markets. CAHI’s membership includes health insurance 

companies, small businesses, physicians, actuaries and insurance brokers. Since 

1992, CAHI has been an advocate for market-oriented solutions to the problems in 

America’s health care system. 

We at the Council for Affordable Health Insurance believe that all Americans 

should have access to affordable health coverage. We also believe that consumer 

driven health plans offer one of the best options for affordable health insurance. 

This testimony will focus on two main points: 

1. Consumer Driven Health Plans (including plans involving Health Savings Accounts) are part of a larger movement that is positively transforming health 

care delivery, utilization and financing in this country. 

2. The evidence that suggests HSAs are being used inappropriately is weak. 

Consumer Driven Health Plans 

As companies have struggled to control the rising cost of health benefits, many 

have raised deductibles and co-payments, which require employees to pay directly 

for services without any tax advantage. Other employers have simply stopped providing coverage. In both cases, consumers are responsible for making their own decisions on purchasing a health insurance policy or paying directly for the care they 

consume. While this certainly increases consumer cost awareness and demand for 

information that helps stretch their health care dollars, the core of consumerism in 

health care is associated with HRAs and HSAs, known together as ‘‘Consumer Driven Health Plans.’’ 

Consumer Driven Health Plans have been around for about six years. They began 

in June 2002, when the Internal Revenue Service released its first guidance on 

Health Reimbursement Arrangements (HRAs). Then in December 2003, Congress 

enacted and the President signed legislation enabling Health Savings Accounts 

(HSAs) as part of the Medicare Modernization Act. Both programs reduce the 

amount of services covered by an insurance plan, but supplement the insurance 

with an account of money that receives the same beneficial tax treatment as the 

insurance portion of the coverage. Money not spent in one year may be rolled over 

and used for future expenses. 

The two approaches—HRAs and HSAs—are centerpieces of consumer driven 

health, but they are not the only elements. Other approaches include flexible spending accounts that enable workers to set aside some money to pay directly for the 

care they need. Other aspects include a renewed focus on patient-centric care services such as personal health records, disease management programs, wellness programs, preventive care, care coordination, and the like. 

After 5 years of experience, the evidence clearly shows that: 

1. Patient behavior is changing and people are being more cautious about needless use of services. 

2. Consumers are more compliant with treatment regimens, especially those with 

chronic conditions who are high utililizers of services. 

3. The rate of increase in health care costs is down substantially for people and 

groups in these plans. 

4. The demand for information, transparent prices and patient-support services is 

high. 

5. The adoption rate in the benefits market continues at a rapid pace. 

6. The transformation of service delivery is beginning, though still very formative. 

Early indicators include the growth of retail clinics, concierge-medicine practices, and medical travel (both domestic and international). 

Enrollment Trends 

America’s Health Insurance Plans (AHIP) is the largest trade association of the 

insurance industry. Every year since March 2005, it has surveyed its members 

about HSA enrollment. AHIP found there were 1 million enrolled in HSA programs 

as of March 2005, 3.2 million in January 2006, and 4.5 million in January 2007. 

On April 30, AHIP released its 4th annual survey of enrollment in HSA-qualified 

health plans. As of January 2008, more than 6.1 million Americans are covered 

under HSA plans, a 35% increase over last year and almost double the number in 

2006. This is an increase of approximately 1.6 million Americans enrolled in an 

HSA plan since January 2007. 

Other key findings from the latest survey include: 


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• The majority of the enrollment continues to come from the employerbased group market—4.6 million Americans with HSA coverage had employer-based coverage; 30% of individuals covered by an HSA plan were in the 

small group market; 45% were in the large-group market, and the remaining 

25% were in the individual market. • Small businesses are strongly embracing HSAs—HSA enrollment in the 

small group market increased 70% over the past year. Over 1.8 million Americans working for small businesses now have coverage through HSAs. • HSAs continue to make health insurance more affordable for the uninsured—HSA products accounted for 31% of new coverage issued in the small 

group market and 27% of their new purchases of health insurance in the individual market. 

AHIP also found that people enrolled in HSA programs have wide-spread access 

to preventive services, disease management programs, and information and patientsupport tools. The vast majority has access to account information on line (93% of 

all HSA enrollees), health education information (99%), physician-specific information (97%), hospital-specific quality information (86%), and health care cost information (88%). The companies offer coverage of disease management for diabetes (91%), 

coronary artery disease (90%), congestive heart failure (89%), and asthma (87%). 

More recent surveys find CDHPs have continued to grow rapidly. In 2007, United 

Benefits Advisors (UBA) surveyed 10,000 employers and found that 56% more companies offered CDHPs in 2007 than in 2006, and 76% more people were enrolled. 

It also reported that this growth is concentrated in the 25–100 employee group market. 

Cost Trends 

The growth in enrollment is fueled largely by favorable cost trends. The UBA survey cited above found that the cost of CDHPs went up just 2.7% in 2006, compared 

to 7.2% for all other health plans. This finding is supported by many other reports: 

• Deloitte reports that trend for CDHPs in 2006 was 2.6%, as opposed to 7.4% 

for HMOs, 7.5% for PPOs, 7.3% for POS, and 6.6% for traditional indemnity 

coverage. 

• Cigna reports an overall trend of 10.3% in 2005, but only 4.8% for its HRA 

products and minus 1.2% for its HSAs. 

• An updated report from Cigna (October 2007) found that medical trend for its 

CDHP enrollees was less than half the trend for its PPO and HMO enrollees, 

even though out-of-pocket costs were similar for the two groups. 

• Minneapolis-based HealthPartners reported in October 2007, that medical costs 

for its CDHP enrollees was 4.4% lower than for people in traditional coverage, 

even after adjusting for health status. 

• In the non-group market eHealthInsurance reported that premium costs for 

HSAs dropped 17% for individuals and 4.6% for families from 2004 to 2005. 

• Aetna reported on 4 years of experience with HRAs and found a 1% annual increase for full-replacement employers and 6.7% for employers that offered them 

as an option. 

Clearly something important is happening here. The same phenomenon is being 

reported by many different and independent sources. The cause is not a mystery. 

It comes from very favorable utilization changes. 

Utilization Trends 

Enrollment is going up and costs are stabilizing because Consumer Driven Health 

Plans are doing exactly what they promised to do—change patient behavior. 

UnitedHealth Group has recently reported that people in CDHPs are: 

• Far more likely to see a doctor for diabetes (73% vs. 54%) and 16% more likely 

to receive HbA1c tests if they have diabetes. 

• 22% more likely to have lipid tests if they have coronary artery disease. 

• 6% more likely to use ACE inhibitors, 41% more likely to get creatinine tests 

and 26% more likely to receive potassium tests if they have congestive heart 

failure. 

• 16% more likely to get cervical and prostate screening 

• 10% more likely to get cholesterol screening 

• Similar on all other measures. 

The Blue Cross Blue Shield Association reported in 2006 that people with HSAs 

are more likely to— 

• Use nurse hotlines (10% v 6%). 

• Participate in wellness programs (20% v 8%). 


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• Use provider information tools (39% v 10%). • Use Rx cost and comparison tools (42% v 19%). • Use website based coverage information (53% v 32%). 

A more recent report from the Blue Cross Blue Shield Association confirms these 

findings. They show us that CDHPs empower consumers and help them become 

more engaged in their health care decisions. 

Some of the information provided includes the following: 

• HSA enrollees are much more likely to research health information, including: 

• Doctor quality: 20% of HSA enrollees; 14% of non-CDHP enrollees. • Doctor costs: 14% HSAs; 4% non-CDHPs. • Hospital quality: 12% HSAs; 7% non-CDHPs. • Hospital costs: 10% HSAs; 3% non-CDHPs. • Insurance information: 25% HSAs; 17% non-CDHPs. 

• HSA enrollees are much more likely to plan and save for future health care expenses: 

• Track health care expenses: 63% of HSAs; 43% of non-CDHPs. • Estimate future health care expenses: 38% of HSAs; 19% of non-CDHPs. • Save for future health care expenses: 47% of HSAs; 18% of non-CDHPs. 

• HSA enrollees are much more likely to participate in wellness programs: 

• Smoking Cessation: 20% of HSAs; 6% of non CDHPs. • Stress Management: 22% of HSAs; 8% of non-CDHPs. • Nutrition Programs: 27% of HSAs; 12% of non-CDHPs. • Exercise Programs: 29% of HSAs; 12% of non-CDHPs. • HSA enrollees are no more likely to forego care due to cost: 

• Did Not Go To Doctor: 18% of HSAs; 18% of non-CDHPs. • Delayed Treatment: 17% of HSAs; 17% of non-CDHPs. • Delayed Prescription: 15% of HSAs; 15% of non-CDHPs. 

Cigna studied the experience of 38,211 ‘‘Choice Fund’’ (including both HSAs and 

HRAs) enrollees and compared it to the experience of 231,680 people enrolled in its 

PPO and HMO products. It found the Choice Fund enrollees had 11% lower costs 

for pharmaceuticals, 24% lower for inpatient care, and 10.7% lower for outpatient 

care. It found these savings were not the result of healthier enrollment. It also 

found that Choice Fund enrollees were 12% more likely to use preventive care and 

that, ‘‘Choice Fund’’ members are more compliant with medications that manage ongoing conditions, and more discerning in their use of medications with over-thecounter alternatives. 

These findings were confirmed by Cigna in October 2007, in a followup report that 

said, ‘‘First year member preventive visits increased and second-year member visits 

remained significantly higher than those among traditional plan members (and) use 

of maintenance medications that support chronic conditions increased while costs 

decreased.’’ 

McKinsey & Company reports that people in CD health programs are: 

• More likely to comply with treatments than people in traditional plans (36% vs. 

27% for diabetes, and 51% vs. 31% for HBP). • 25% more likely to engage in healthy behaviors and 30% more likely to get an 

annual physical. 

A study in the Journal of the American Medical Association (March 14, 2007) 

found that people in CDHPs have 10% fewer ER visits overall and 25% fewer repeat 

visits, almost entirely for non-severe conditions: ‘‘Our study showed that for most 

members, the high-deductible plan seemed to work as intended,’’ said Frank 

Wharam, MD, MPH, research fellow in the Department of Ambulatory Care and 

Prevention at the Harvard Medical School and the study’s lead author. ‘‘Patients 

went to the emergency room less frequently for non-emergency conditions.’’ 

We are in the midst of a transformation in American health care. Not everything 

about consumer directed health care will succeed, but the overwhelming preponderance of the evidence says it is working exactly as it was intended to work. Policymakers who ignore or deny this development are missing out on the most significant 

change in health care in recent times. 

HSAs Are Not Tax Shelters for the Wealthy 

A recent report by the Government Accountability Office (GAO) has been used by 

some to suggest that HSAs are merely tax shelters for wealthy individuals. This 

conclusion is based on two findings from the report: 


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• The average adjusted gross income was about $139,000 for Health Savings Accounts enrollees compared to $57,000 for all other filers in 2005. 

• The total value of all Health Savings Accounts contributions reported to the IRS 

in 2005 was about twice that of withdrawals—$754 million compared to $366 

million—suggesting an interest in it more as a tax shelter than a vehicle to obtain needed health care or supplement inadequate coverage. 

Furthermore, GAO’s findings are being used to justify support for legislation 

passed earlier this month in the House (H.R. 5719) that would require HSA enrollees to substantiate that HSA withdrawals were used for allowable medical expenses. 

It is important to realize that the data used by the GAO was from 2005—only 

the second year of the HSA program. According to the AHIP survey for that year, 

only 1 million Americans were even covered by HSAs, over half of which were covered by HSAs in the individual (non-group) market. Unfortunately, GAO did not 

conduct any further analysis of these individuals to determine whether these ‘‘early 

adopters’’ of HSAs may have been better educated people buying policies on their 

own, including many self-employed people. 

Still, GAO does not present a strong case for HSAs being ‘‘tax shelters for wealthy 

Americans.’’ For example, the average contribution to an HSA in 2005 was $2,800 

for taxpayers with income above $100,000 vs. $1,400 for those with income under 

$30,000. But the average taxpayer with an HSA also made withdrawals—$1,300 for 

those with income above $100,000 vs. $600 for those with income below $30,000. So 

the net-net is that taxpayers with HSAs with income above $100,000 ‘‘sheltered’’ 

$1,500 vs. $800 for those with income below $30,000. 

Finally, it is not appropriate to compare income for taxpayers with HSAs to the 

average income for all taxpayers, the latter of which includes individuals who do 

not have access to HSAs because they are covered by Medicare, Medicaid, Tricare 

and other programs. A better comparison would be to compare the incomes of individuals with HSAs only to individuals with private health insurance coverage. We 

hope the Subcommittee will ask the GAO to revise and update its analysis to reflect 

this fact. 

Conclusion 

CAHI appreciates the opportunity to submit our statement for the record. HSAs 

are providing some measure of tax equity to Americans who are individually purchasing health insurance. People are uninsured because they cannot afford to buy 

health insurance coverage. We believe HSAs help fill that need by helping millions 

of Americans gain and keep health insurance coverage. We look forward to working 

with Congress and Members of this Committee to preserve and expand this vital 

health care option. 

Æ 


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