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Whole Foods and why HSAs aren’t being used

August 16, 2009

John Mackey, the CEO of Whole Foods, recently had an op-ed piece in the Wall Street Journal discussing some alternatives to recently proposed health care reform ideas.

Since this appeared in the WSJ you can easily guess that free-market principles play a prominent role.  He mentions how Whole Foods has used high-deductible health insurance plans coupled with health savings accounts (HSA) to reduce their health benefits costs:

Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs). The combination of high-deductible health insurance and HSAs is one solution that could solve many of our health-care problems. For example, Whole Foods Market pays 100% of the premiums for all our team members who work 30 hours or more per week (about 89% of all team members) for our high-deductible health-insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees’ Personal Wellness Accounts to spend as they choose on their own health and wellness.

Money not spent in one year rolls over to the next and grows over time. Our team members therefore spend their own health-care dollars until the annual deductible is covered (about $2,500) and the insurance plan kicks in. This creates incentives to spend the first $2,500 more carefully. Our plan’s costs are much lower than typical health insurance, while providing a very high degree of worker satisfaction.

Now, my question is–if this has worked so well for Whole Foods and indeed provided high satisfaction while lowering costs, WHY HAVEN’T MORE COMPANIES FOLLOWED THEIR LEAD?  These plans exist and are available in many states throughout the country, yet their adoption has been slow.  I am unaware of any research or commentary on why HSAs haven’t been more widely used.  Are the legal obstacles really that high?  If so, why aren’t big businesses lobbying Congress to deal with this issue?  If HSAs are such a promising solution, why isn’t anyone publishing research on companies such as Whole Foods and then extrapolating their successes to potential savings for the rest of the country (or at least other big corporations)?

I personally think HSAs may indeed be an excellent option for many people and help in reducing rising health care costs.  Given their potential, I am honestly perplexed as to why more companies have not tried this option.  My gut feeling is that employees are dictating what health benefits are offered.  HSAs are relatively complex and difficult to understand compared to traditional health insurance schemes.   Additionally, many companies when offering HSAs don’t pay into the actual HSA at all; they just cover the premium for the high deductible health insurance plan.  Thus, if the deductible for the insurance plan is $5,000, then the employee must find a way to scrimp and save to put that $5,000 into the HSA before some illness or accident hits.  This may be very difficult for somebody who lives on a thin margin or those with chronic conditions requiring regular medical care.  These two barriers may be much more difficult to surmount than any current legal obstacles.

I previously worked for an organization that offered an HSA plan in addition to 3 tradtional insurance plans.  When I sat down and figured out how much I would have to take out of my monthly pay check to make sure I covered the $5,000 deductible it quickly became apparent that it wouldn’t be possible.  Thus, I chose the traditional health insurance plan with the lowest monthly premium coming out of my check.  What was most frustrating about this was the fact that I was a perfect candidate for a health savings account.  I’m young, healthy, low risk for high cost medical care (other than accidents).  I could put away money in an HSA and let it grow for years, likely only taking out a bit here and there for the occasional trip to the doctor.  The end goal of this process would be to have enough money saved in my HSA for any potential serious illness as I grew older (or that of my spouse or kids).  Having a large sum in an HSA (similar to growing money in a 401k) would protect me from exorbitant bills in later years.

What would have helped me choose the HSA over a traditional health insurance plan?  A single initial deposit of roughly half the insurance deductible into my HSA by my company.  This would make covering the deductible more manageable if for some unforseen reason I had a serious illness prior to covering the deductible on my own in the HSA.

Mr. Mackey mentions one other thing I find very important:

Equalize the tax laws so that that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

His last sentence says it all–unfair.  The tax benefits companies currently enjoy for providing health insurance to their employees should be extended to indiviudals as well.  Why are big corporations getting yet another break?  Extend this tax advantage to individuals and at least you will give people the option of buying health insurance on their own.  This would greatly help lower income working individuals who don’t have employer-provided health insurance and research shows this group makes up the largest portion of uninsured americans.

Dr. Jay Parkinson’s comment on Mackey’s column.

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