IRS Ruling Could Help Revolutionize Health Benefits
Healthcare costs are skyrocketing, physicians continue to rebel against health maintenance organizations, Congress remains poised to impose new mandates on health plans, and employers are shifting more and more costs to their employees.
Are health reimbursement arrangements–HRAs–the harbinger of a revolution in the nations troubled healthcare system?
Advocates of these consumer-directed health plans believe so, particularly in light of a recent interpretation by the Internal Revenue Service that unspent amounts in HRAs can be carried over and used to pay for healthcare costs in future years.
In other words, the "use-it-or-lose-it" rule that applies to flexible spending accounts does not apply to employer-funded HRAs.
The belief among advocates of HRAs is that by giving individuals a direct stake in how their healthcare dollars are spent, they will become better consumers of medical services. As such, individuals will be more likely to comparison shop, demand generic alternatives to expensive brand-name medications, and more closely examine their doctor and hospital bills.
This, HRA advocates say, will bring some much needed market discipline into a healthcare system in which the actual consumers of services have, for too long, been essentially powerless.
"These new rules will promote personal ownership and healthcare savings in a way that will fundamentally change healthcare in America," says Rep. Jim DeMint, R-S.C., an advocate of consumer-directed health plans.
Whether the implications of the IRS ruling are as sweeping as the HRA advocates suggest remains to be seen. It is certainly not unusual in the complex world of healthcare reform for hopes to far exceed reality.
Nonetheless, the IRS ruling should be applauded. It will provide new options for employers as they try to cope with double-digit increases in health insurance premiums and continued dissatisfaction in many quarters with HMOs.
For all its flaws, the employment-based healthcare system has served the country well. It has made high-quality healthcare available to all employees of a covered employer regardless of salary or health status.
Without the employment-based system, consumers might well be saddled with a government-run system and the bureaucratic nightmare that it entails.
But employers are, understandably, becoming increasingly weary of the growing burdens of the system. Not only are costs skyrocketing, but Congress continually threatens to hold employers liable for medical decisions as part of a Patients' Bill of Rights.
Many employer groups say that if these burdens get much worse, the incentive will be to dump health insurance as an employee benefit, and let individuals fend for themselves.
Perhaps HRAs will not revolutionize the healthcare delivery system in the United States.
However, if they offer employers a practical new way to continue to provide health coverage to employees while controlling costs, and if they help preserve the employment-based system, the impact of the IRS ruling will be significant nonetheless.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.