Dr. HSA

News & Views on the Rise of Medical Consumerism

HSA Arbitrage - Hospitals Beware

November 2006 - Vol. 8

As Health Savings Accounts (HSAs) reach the 3 year mark on December 8th, some consumers are building sizable nest eggs for retirement. In fact, if an individual has converted their Medical Savings Account (MSA) into an HSA-they may have six-figure investments that are on par with 401Ks, 529s and IRAs. What does one do with all that money and what happens when they require medical care beyond the typical physician office visit? This column explores one tactic that some individuals are taking to leverage their financial obligations at the expense of hospitals.

Some account holders are arbitraging their HSA. You're asking yourself how does one arbitrage an HSA? It's as easy as clipping a coupon from the Sunday newspaper to save a few bucks.

Case-in-point

Let's say you have an ambulatory care procedure at your community hospital in January. You have a:

• High Deductible Health Plan (HDHP) with a $5450 deductible, and
• Health Savings Account (HSA) with a balance of $10,000.

"Dr. HSA": David Harris, National Healthcare Revenue Cycle Partner, PricewaterhouseCoopers LLP, NY, NY © 2005 All rights reserved.

Assume the gross charges for your ambulatory procedure are $10,000, but because your insurance carrier has a preferred provider network agreement and you selected an in-network facility, your actual charges (or net charges) are $5,000. If you haven't met your deductible, you could possibly be on the hook for the entire amount.

For sake of argument, let's say you've had an HSA qualified HDHP for 2 years and you've built up $10,000 in savings (GOOD FOR YOU!). Assume you're making a conservative 5% on your investments by spreading your financial risks between a mix of index funds, bonds and cash instruments (STREET SMART INVESTOR THAT YOU ARE).

Your insurance carrier sends you an Explanation of Benefits (EOB) informing you that you have not met your deductible and the amount you owe the provider (i.e., the hospital-not the physician) is $5,000. Assume your insurance carrier has also sent an Explanation of Payment (EOP) or Remittance Advice to the hospital informing them you have not met your deductible.

If the hospital is on the ball, they process the zero payment (i.e., denial of third-party payment), take the contractual adjustment in the amount of $5,000 and transfer the balance due from insurance to patient responsibility. Patient accounting professionals call this a self-pay balance (or balance after insurance). The hospital's patient accounting system automatically places the patient debt into a self-pay dunning cycle and you receive your first patient statement informing you that you owe $5,000.

Because this is your first real hospital visit since going onto the HSA qualified HDHP you throw the bill away because you know the hospital's always wrong. Two to four-weeks later-depending on the hospital- you receive your second patient statement. You notice the language is a little terse so you stuff it in your brief case with the intent of reconciling it to the EOB you received last month from your insurance carrier.

Another month rolls around and you receive a third patient statement informing you that you're about to be referred to collection if you do not pay your bill within 10 business days. STOP THE MUSIC! Bells are ringing. Lights are flashing. You just realized that you owe the hospital $5,000 and it's been over 2 months since your procedure. You come home, dig through your revolving mail file and locate the insurance carrier's EOB. Luckily, the provider's records are in sync with your insurance carrier's and you actualize the notion that your pay-later insurance policy has just come home to roost.

WOW... $5,000 is a lot of money to fork over to a hospital. You thought this was some sort of tax savings vehicle. It sounded good at the time when your broker shared the concept with you. Yes, you have enjoyed the lower insurance premiums over the last couple of years and the 2.5% increase in annual premiums made you feel like a financial genius. But $5,000!

Hmmm. Let's think for a minute. Why not call the hospital and see if we can work out some type of payment arrangement.

The next day you spread your papers across your desk, run through your to-dos for the day and get around to calling the hospital after lunch. You reach a nice lady in the business office that kind of reminds you of your grandmother. She thanks you for contacting the hospital regarding your patient responsibility and tells you a story about how the doctor's bill was the most important bill in her family's home while growing up. After 5 to 10 minutes of simple banter and numerous keystrokes in the hospital's billing and imaging systems, the conversation becomes more direct and this sweet person on the other end of the phone asks you how much you can pay.

You have a good job, plus you have $10,000 in your HSA. You're able to pay the amount in full. In fact, you should have paid the hospital $5,000 over a month ago. You stop for a moment and think to yourself. hey, I'm making 5% on this money. That's $500 a year! If I give this person $5,000 today, I'll only make a couple hundred.

"Uh. nice lady, would you accept $500 a month for the remainder of the year?"

"Of course dear."

"Do you charge interest?"

"Oh no, we're a charitable organization and we're here to serve our community."

"AWESOME. Oops, I mean that's big of you."

* * * * * * * * * *

Hospital CFOs, PFS Directors, Collection Reps. What just happened to your hospital? Well. you were taken by someone clever enough to arbitrage their HSA. We thought Coordination of Benefits (COB) was touch enough! This individual just made $135 (e.g., $385-$250) off of your revenue cycle-compliments of HDHP (the new kid in town).

Income Analysis on $10,000 HSA Making 5% Annually

In the olden days, your network agreement would have paid you $5,000 within two-weeks of this patient's date-of-service (DOS)-assuming you submitted a clean claim. Today, you're waiting close to a year to get paid in full. Oh, did I mention that that the $385 is tax free as long as the consumer spends it on qualified healthcare expenditures?

Sure, the example described in this article is a worst-case scenario and HDHP is only 5% of your commercial payer mix today. But what about tomorrow? Large employers are signing up more and more employees on HDHPs every day. According to a recent Kaiser Family Foundation/HRET Survey, 53% of all employers believe CDHPs are effective at controlling costs. Eventually over half of your commercial insurance may be HDHP. Some states are considering CDHPs and CMS has announced plans for a Medicare qualified HSA as a tactic for controlling costs.

Put your gloves on, because its time to start fighting for survival. HDHPs coupled with either a HSA or HRA are destined to impact your revenue cycle. Keeping close tabs on credit policy, (remembering the larger issue of bad debt vs. charity care), patient access staff training and other revenue metrics and programs will help to size up and overcome the new demands of medical consumerism.

>> What's your point of view? Email Dr. HSA. We look forward to hearing from you!

About the author...

David Harris is a Partner with the Healthcare Advisory Practice in PricewaterhouseCoopers' New York office. He has over twenty years industry experience in the health care and information systems field. David is the National Partner for PwC's revenue cycle practice that specializes in, payer, hospital and physician revenue cycle operations improvement, operation turnarounds/workouts, process redesign and business office integration, as well as denial management. He is responsible for the thought leadership, products and methodologies used by PwC's more than 100 revenue cycle professionals with in-depth knowledge of patient access, clinical documentation, health information management, inpatient and ambulatory coding, billing, claim adjudication, collections, A/R management and information systems. David also leads the Medical Banking Project's HSA Workgroup as part of a new consumer-focused effort being developed at the Project.