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Consumer-driven health care aids self-employed and small business owners

HSAs continue to grow in popularity among AVMA GHLIT participants

Prepared by the AVMA Group Health and Life Insurance TrustPosted July 1, 2007

Consumer-driven health care. It's a phrase that's heard more and more often in the discussion of health care in America, and a concept of great importance to all Americans—especially those who are financially responsible for all or a substantial portion of their health insurance costs.

Historically, health care in the United States has been largely defined as an entitlement of employment. Most employees insured under employer group plans have had little or no choice in plan design, nor have they been exposed to the true cost of health care, since their exposure has typically been limited to a small portion of the insurance cost as well as a small percentage of the actual health care cost—a deductible or copay, for example.

Consumer-driven health care, as the name implies, places much more control over costs and care directly in the hands of the insured. The assumption is that when the insured has a larger financial stake in the decisions being made, health care dollars will be spent more wisely.

Being an educated and conscious consumer of health care is really at the heart of the consumer-driven model. Proponents of this new model point out that individuals who were covered by first-dollar insurance were insulated from the true cost of health care. While some health care services are beyond the consumer's control, such as emergency services, the concept is that an educated consumer will shop wisely, make choices on the basis of quality, and will spend health care dollars judiciously—hopefully well-armed with knowledge, and in partnership with his or her physician.

The AVMA GHLIT is committed to providing participants with access to quality cost information needed to make wise decisions. Last August, Medco Health Solutions, the pharmacy benefit manager for the GHLIT, signed an agreement with Consumer Reports to deliver Best Buy Drugs information to participants. Beginning with the prescription drug component of health care was logical, since drug costs represent a substantial portion of health care expenses. Today, GHLIT participants can access online information to research and evaluate the effectiveness, safety, and pricing of prescription drugs and to get cost-savings alternatives based on the participant's personal prescription history and drug plan by visiting www.medco.com. A personalized results page can be printed out to bring to the participant's doctor for a discussion of options.

Because being an educated consumer can enhance the benefits of consumer-driven health care, veterinarians should be well-positioned to make the most of this health care model. Many veterinarians—as self-employed individuals and/or small business owners—are uniquely qualified to benefit from the financial incentives of consumer-driven health care since this model can address two of the biggest issues the self-employed and small business owner face: taxes and health care costs. In particular, one consumer-driven health insurance plan that can provide a welcome break for both is the Health Savings Account, which is a qualified, high-deductible health insurance plan paired with a tax-advantaged savings account.

In effect, an HSA provides a tax-sheltered environment to save for future medical expenses. The HSA contributions are deductible from gross earnings for federal tax purposes, and interest on HSA balances accumulates tax free. These funds may be used for all qualified medical expenses, and withdrawals are not taxed. Unused funds roll over from year to year. In addition to out-of-pocket costs such as prescription drug costs, HSA funds may be used for prescription eyeglasses, dental visits, radiographs, many over-the-counter medicines, and many other qualified medical expenses that are not covered by the GHLIT HSA-qualified plans. (Insureds should consult with their accountant or tax adviser before opening an HSA to determine whether this savings vehicle is appropriate for them.)

Dr. Michael Thorp, owner of Burlington Veterinary Center in Burlington, Kan., was an early proponent of the HSA. He is one of the 3,196 GHLIT participants who purchased a high-deductible, HSA-qualified plan as of the end of April 2007. This figure represents a 23.5 percent increase over the same time period last year.

Dr. Thorp said he contributes the maximum allowable amount to his HSA every year. "If you discipline yourself to put in the maximum every year, you can enjoy a nice tax deduction, and your money draws a little interest," he said.

"The advantage of the high-deductible plan is you don't spend your money until you absolutely need to," Dr. Thorp said. "With an HSA, I can lay aside more money, and get some tax benefit."

Beverly Kirkpatrick, who runs the office of her husband, Dr. Doug Kirkpatrick, helps make insurance decisions for their business, called the Southwest Veterinary Clinic in Porter Hill, Okla. Making the switch to a high-deductible, HSA-qualified plan dramatically reduced their premiums, and has allowed them to begin accumulating money tax free.

"The HSA looked like a nice option for us to save money back for those times when we might need it in the future," Kirkpatrick said. "It's nice to be able to shelter some money from taxes. It also earns a little interest, which is a plus."

Congress recently expanded HSA provisions to allow individuals and families to tuck away even more money every year. Beginning this year, insureds with single coverage can deposit up to $2,850 in their HSA, and insureds with family coverage can deposit up to $5,650—with no restrictions as to deductible level selected or time of year the account was opened. HSA holders who are 55 years or older can make extra catch-up deposits.

The tax savings can be substantial. A married couple with two dependent children and an annual income of $100,000 will find making the maximum $5,650 HSA contribution could reduce income taxes by $1,413. (This example is for illustrative purposes only and individuals should consult with their tax adviser.)

Consumer-driven health care encourages an ongoing dialogue with one's health care provider. It can provide a better grasp of the real cost of medical care as well as more control over one's health care dollars. Consumer-driven health care holds great potential to help veterinarians get a better handle on the important personal and business issue of quality, affordable health care.

The AVMA GHLIT program is underwritten by New York Life Insurance Company (NY, NY 10010). The GHLIT and New York Life bear no responsibility for the establishment or administration of any Health Savings Account.

For more information on GHLIT plans, including eligibility,rates, renewal provisions, exclusions, and limitations, or to finda GHLIT agent in a particular area, call the Trust office at(800) 621-6360.