Mini-meds Can Help HSAs Succeed
An old solution to the health care crisis may by the right prescription for small businesses.

By William Short

The rising cost of providing health benefits to employees plagues all businesses. The rise in health care costs can be attributed to over-utilization, unhealthy life styles and a third-party payment system that does a poor job of managing the payment cycle and educating workers on the real cost of medical care.

Employers cannot continue to shoulder the burden associated with the rising cost of health care. As a result, they have begun to investigate more consumer-centric solutions designed to reduce cost by engaging employees in their own health care decisions.

The Health Savings Account (HSA) allows employers to reduce costs and encourages employees to be more involved in managing their own health care. HSAs are used in conjunction with a High Deductible Health Plan (HDHP). Employees can manage their health care "risk" below a set deductible. In addition, they gain a financial incentive in the form of pre-tax and/or post-tax funds that roll over from year-to-year and grow on a pre-tax basis. Above that deductible, an HDHP kicks in that covers major medical costs and hedges against catastrophic risk.

The HDHP-HSA combination does, however, create a gap between initial medical costs and the high deductible. The realization that there is no "first dollar" coverage can scare some employers and consumers away from the product.

To mitigate the "first dollar" exposure risk, it is possible to develop a program utilizing Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRA) and a mixture of indemnity plans (mini-meds).

The mini-med flourished until the introduction of Health Maintenance Organizations (HMOs), and then fell out of favor with consumers. The mini-med is a defined benefit that pays a predetermined cash amount for medical services, which may or may not cover the entire medical bill. This defined benefit feature allows for a mini-med plan coupled with an HDHP-HSA plan, which could soften the financial burden if a medical event were to occur and individuals did not have the needed funds in their HSA.

On average, an HDHP costs anywhere from 25 to 30 percent less then a traditional health plan. A plan could, therefore, include an HDHP, funds contributed to an HSA on a tax-preferred basis, a mini-med plan and a limited-use FSA. 

HSAs have the potential to empower consumers and restore a true marketplace in health care by removing the unfortunate disconnect between buyer and seller in the medical marketplace. For too long, Americans have not had to think about the cost of health care beyond their co-pays and rising insurance premiums.

Consumer-driven health care is the best way to re-establish this relationship between medical care and true cost. In the process, it will improve the quality of care, reduce the number of uninsured and drive innovation. This potential for change, however, will fall short of its promise if employers and consumers fear taking advantage of the benefits due to perceived financial risk.

Mini-meds provide a particularly helpful tool when combined with the powerful HSA. As it turns out, the biggest ally of HSAs and consumer-driven change in health care may, in fact, come from an old insurance product whose time has finally arrived-the defined medical benefit plan.
 
William C. Short is an adjunct scholar with the Kansas-based Flint Hills Center for Public Policy and senior vice president of First Horizon Msaver. You can contact him at . To learn more about the Flint Hills Center, please visit www.flinthills.org.