The Bush Administration has made Health Savings Accounts (HSAs) a central focus for curing the nation’s health care problems. The approach is to empower individuals to manage their own medical expenses by offering a tax-free savings account that can be used to cover medical expenses.

These plans are meant to provide basic, high-deductible insurance while letting people accumulate money in tax-free accounts to be spent on medical services or saved to pay for future health care needs. Individuals are allowed to keep whatever is left over at the end of the year, should savings exceed costs.

The theory is that individuals will more prudently purchase health care if the money in the HSA could be available to the individual after age 65. The tax-free savings incentive is also an attractive component.

HSAs slow to catch on

HSAs were actually made into law in late 2003 as part of the Medicare reform legislation, but they have not been embraced to any great extent in the first year. Many believe individuals are very risk-averse when it comes to health insurance. They want as much coverage as they can afford, and they value company-sponsored health insurance that often pays as much as 75 percent of the total premium. Most individuals have learned to accept a $20 co-pay as part of this security blanket for their usual and customary care.

Employers are slow to embrace HSAs, and very few offered this option in their 2005 health insurance coverage “menu” during employee enrollment periods. UnitedHealth Group, the nation’s largest insurer representing 18 million workers, expects only 150,000 of those employees to choose HSAs in 2005. Aetna, the second largest underwriter of employer health plans, says only 38 of the hundreds of employers it covers are offering HSAs in 2005.

So why should providers even care about HSAs, and how might they be affected if HSAs become popular? If they aren’t popular today, what is the concern?

Because it is the beginning of a trend. The trend is to allow individuals more say in where they spend their health care dollars.

The facts about health insurance are troubling. In the United States, 14 million individuals spend as much as 25 percent of each paycheck on health care. More than 15 percent of Americans have no health insurance coverage.

Patients who have catastrophic coverage in addition to acceptable basic coverage don’t often participate in cost-effective purchasing of their medical needs. Only those with fixed incomes or chronic illnesses have a personal understanding of this issue. It hits them in the pocketbook, and many are not able to save much, if anything.

The trend, embraced by the Bush Administration, follows along the lines of generic drugs, where individuals can save by purchasing a generic medication instead of a company brand, and suggests individuals are willing to participate in saving money when it comes to buying health care. A recent study by Blue Cross and Blue Shield of Minnesota of 12,000 Options Blue members from January 2003 to March of 2004 found that overall medical utilization was down 7 percent, while emergency room visits declined 10 percent. Experts suggest this is one of the first signs the new consumer-driven health plans (that put spending decisions in the hands of consumers) might help keep medical costs down.

What does consumer-driven health care mean to providers?

But how will this trend actually affect providers? Why should there be cause for concern? The balance of this article attempts to more clearly define this issue and also provides some tools to prepare providers for more consumer-driven health care decision-making in the years to come.

Over the past 30 years, we have seen dramatic changes in how providers were paid for their services, and how they managed their accounts receivables (the money owed to them by patients and third-party payers). Our country has gone from patients paying most, if not all, of their medical bills, to insurance reimbursing patients for covered services, to insurance covering 100 percent of the providers charges and directly paying the provider (the patient is completely uninvolved in the mix), to a very complicated and confusing system today.

Disallows, allowables, conversion factors, deductibles, etc., are not very patient-friendly. Most providers now electronically send a claim to a carrier, accept whatever reimbursement they receive, and balance-bill the patient for the difference (when allowed), in that order. Depending on when the provider decides to bill the carrier or the patient typically affects the speed by which they will get paid.

Patients have become more knowledgeable as they attempt to understand this complicated and confusing process of payment for their medical care. They just wait. They wait until insurance is paid before they pay their portion. It gets very interesting when there are three or four episodes of care reflected within one billing cycle. Patients don’t know what they actually owe, and providers have difficulty answering patient questions about their bill.

Providers have been reluctant to charge patients extra when they don’t pay their bill. They don’t add late payment fees even though the law allows it. Patients will often pay their medical bills last because it is the only bill they receive that does not attach a penalty for late payment. Those that do charge this fee often “write it off” if the patient pays the bill as a result of this extra “nudge.”

It should not be surprising that accounts receivables, after experiencing a reduction in the 80s and 90s in the typical provider’s practice, have started to increase. A bigger problem has been the age of the receivables. Partners’ consultants are seeing 25 to 35 percent of the accounts receivable in a typical provider’s practice more than 90 days old. Unlike wine, accounts receivables do not get better with age. It costs more and you collect less when receivables get old.

So how will consumer-driven health care spending affect the typical provider’s revenues? Well, without a business-like approach to collecting for services, the typical provider may see an increase in their accounts receivables and decrease in cash flow as patients become more directly responsible for payments. Some providers may see dramatic increases.

What can providers do?

Providers should start by developing a credit policy. This policy should answer these questions:

• When do I expect to get paid?
• How will I deal with the patient’s third-party coverage?
• How will I deal with copays, deductibles, or co-insurance?
• Will I charge a late payment fee?
• Will I turn accounts over to a collection agency, and if so, what criteria shall I use?
• Do I have a minimum payment policy?

Answers to these and other questions should be constructed in a written credit policy and a copy should be given to each patient and a patient signature should be attained, indicating they have read and received a copy of the policy.

Also, providers should improve their patient communication about monies owed by updating their billing practices and, if necessary, their billing systems. Here are some guidelines:

File all claims electronically each night. Don’t wait to communicate with a third party. The goal of any medical practice should be to post all charges within 24 hours of service, collect all co-pays at time of service, and bill the third party the same day as the charge is posted. It is one of the few accounts receivable management functions clearly in control of the practice.

Provide a breakdown of all charges and payments on all patient statements.  At least once per month, patients should be sent a statement that delineates:

• Total charges for each date of service
• The amount pending because of insurance “waiting to pay”
• The amount now due because insurance has paid their part.
• Total amount of the balance, including pending amounts, amounts due now, and any past-due amounts.

If your statement is not clear to your patients, don’t expect payment from them within your credit terms.

More recommendations

• Print your credit policy directly on the statement (e.g., “amount indicated in balance due column is due in our office within 30 days of receipt of this statement”).
• Provide phone numbers for patients to call with questions or to set up payment arrangements.
• Develop a sliding scale payment policy based on family size and family income.
• Don’t print aging categories on the bottom of your regular statement. If patients see their balance is in the 60-day past-due category and there are 90- and 120-day categories also shown on the statement, they may choose to wait a few months before paying.
• Charge a late-payment charge or billing charge. It is very reasonable to bill a patient $7 to $10 if you have to send them a second statement for an amount due.

Remember, if you can clearly indicate to the patient the amount they owe you today, you should expect payment from them within the limits of your credit policy.

Conclusion

HSAs are not popular today, but the trend of consumer-driven health care is here and will grow. Patients will direct their own dollars to the care they need and choose.

Providers need to reexamine their billing management policies and practices in order to best position themselves to get paid appropriately and on time. 64 percent of the population currently spends their dollars on minor illness care and routine medical visits. Although this represents 14 percent of the total amount spent on health care, for many providers it is 60 to 70 percent of their services.

Sound policies, efficient billing practices, and clear patient communication will get providers paid on time.

Arthur W. Saunders is a principal and director with Partners Healthcare Consulting, which recently merged with Wipfli. He consults in management and operations of system-owned physician networks and private medical practices, physician compensation, and accounts receivable management strategies.