McKinsey, a very smart firm that should be trusted about as far as it can be thrown in terms of putting its clients’ interests above its own, is out with what looks a pretty well researched report on CDHPs. My less well researched opinion is that the CDHP is an intermediate step on the employer’s retreat from offering health insurance, and that the HSA is a foolish tax-deductible sop to the people who would have put that money aside anyway. But then again I’ve got one, as there’s no better alternative.
Essentially the report says that the employees who had CDHPs (connected to HRAs not HSAs but it’s the same sort of thing) were more cost conscious in their health choices than they had been in the good old days of more generous plans, but that they were less satisfied with their health plans. However, the lower spending on care for patients is similar to the introduction of managed care back in the 1990s, other than initially managed care recipients were happier with their plans — as they had lower out of pocket costs than in FFS. One thing I do know is that high out of pocket costs correlates with higher patient dissatisfaction, so as the employees are left more and more on their own, dissatisfaction will likely increase. Still I suspect at least one of my commentators (can anyone guess who?) will tell me that I’m wrong.
And despite some long and complex correspondence with a couple of advocates I still can’t understand why an employer would give their healthy employees money for an HSA and then let them keep it if they didn’t spend it. (In an HRA, it reverts back at year end).
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You’re exactly right about giving healthy employees money for their HSA bank account. Most blue collar employees and many white collar employees will use that money as soon as they’re hit with the first unbudgeted expense. Or, they simply decide they want to make a purchase with the “money that fell from the sky”. My experience has shown employees have used the money for down-payments on a new motorcycle, kitchen remodel, car repairs, tuition, etc. Employers find their healthcare dollars being spent in many ways they never intended.
I would highly recommend an HRA coupled with a high deductible health plan where the employer only funds deductibles that actually occur.
A “foolish tax-deductible sop,” Matthew?
There is one clear advantage to an HSA over other tax-advantaged methods of saving money: it is much easier to use it without penalty before you retire. It is both more and less than an IRA/401K for this reason.
It is more in that the money is more accessible, and it is less in that if you have serious illnesses you may not have much, or any, of the money left when you retire.
As for your other point about CDHP being a step on the way to a shift away from employer-based insurance, I suspect you’re right. But the untenability of the current employer-based “system” of providing health insurance is increasingly clear to the public as well as policy wonks. Universal health insurance is probably coming and I think it’s more likely that CDHP will affect how it happens than affect whether it happens, and it may not affect either. If you disagree, I’d like to hear your reasons.
McKinsey is well known for seeding its alumni into large corporations, networking with them extensively, and then using them to (re)hire McKinsey in ongoing strategic consulting projects. Frequently those projects reverse whatever the previous consultants working for the previous regime did–and sometimes that consultant was also McKinsey. They’re also well known for billing out teams of junior people at senior people’s rates. They are by no means alone in this behvior and in fact are the envy of the other major consulting companies for their strong client relationships and their business practices.
I don’t mean to say that McKinsey is doing anything unethical or fraudulent, but at the least all sensible clients, (including mine!), should be looking at the value their consultants bring them rather more carefully than they do.
I don’t know how I managed to write that TomH’s post was curious. I meant to write that the post was very good, and that I was curious about Matthew’s characterization of McKinsey.
TomH, I read your signalhealth post on McKinsey. It was very curious. My question for Matthew related more to his belief that they weren’t really trustworthy.
The McKinsey report is perhaps not all it’s cracked up to be. I have a critique of the report up on http://www.signalhealth.com.
And someone other than Ron answered. I’m amazed.
I’ve always had a bad feeling about McKinsey, but I’m curious as to what leads you to say that Matthew.
There are advantages to both . . .
Which plan the employer chooses (HRA or HSA) depends on what the employer is trying to accomplish. In some ways the HSA with employer contributions is like establishing a SEP but with more flexibility and lower outlay. The employer get’s a lot of bang for their buck, providing health insurance AND a fund that can be used (eventually) for retirement vs. only providing health insurance OR only providing a retirement plan.
As for employee dissatisfaction, the contrary is true. Most employee’s usually resist the change initially when a copay type plan is replaced with a high deductible plan but that attitude changes once the first plan year is completed. Employees like the ability to make their own decisions knowing that unused funds are there and can be used next year.
In the case of the HSA the unused funds are portable providing an added “bonus”.
And this . . . your closing comment on the HRA is not necessarily correct. At the end of the year unused funds do not have to revert back to the employer. If the employer chooses, the funds can remain in the account to be used in later years. Most HRA plans operate in this manner but again, this is at the employer discretion. The only time forfeiture occurs is when the employee leaves and there is a positive balance in the account.
// still can’t understand why an employer would give their healthy employees money for an HSA//
Because employers have been claiming health care is part of Total Compensation? It’s not compensation if an employer can snap it back.