Mitch Daniels on
State Employee HSAS

Fortunately, Washington is only a teensy part of America, and once you get out of the Beltway things make more sense. Take, for instance, Indiana Gov. Mitch Daniels. He wrote a wonderful article in The Wall Street Journal about Indiana's experience in providing HSAs to state employees. Unlike the boasting of the DC crowd, he starts off modestly, saying, “perhaps some fresh experience from Middle America would be of value.”

Five years ago he started offering HSAs to state employees. Only 4 percent signed up the first year. But 70 percent are in the program now. Why? Because the state pays the full premium and adds another $2,750 into the account, which is money the employee owns. For high utilizers, the state also covers the difference between the HSA deposit and the total out-of-pocket exposure of $8,000, presumably through an HRA.

Both employees and the state are saving money. Mr. Daniels writes, “State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative.” And, “Indiana will save at least $20 million in 2010 because of our high HSA enrollment. Mercer calculates the state's total costs are being reduced by 11% solely due to the HSA option.”

But he adds, “Most important, we are seeing significant changes in behavior, and consequently lower total costs. In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18.”

It's a pity the governor would have to state the obvious, but for those slow learners he writes, “The Indiana experience confirms what common sense already tells us: A system built on “cost-plus” reimbursement (i.e., the more a physician does, the more he or she gets paid) coupled with “free” to the purchaser consumption, is a machine perfectly designed to over consume and overspend. It will never be controlled by top-down balloon-squeezing by insurance companies or the government. There will be no meaningful cost control until we are all cost controllers in our own right.”

It would be nice if the clowns in Washington would learn how to read.