Ebenezer Scrooge Would Offer a High Deductible Health Plan*

Posted on July 2, 2020 by David Jaffin

*with apologies to Charles Dickens

Now that the holidays are upon us, we feel the lure of tradition especially strongly. Certainly “A Christmas Carol” by Charles Dickens is on many reading lists: the main character, Ebenezer Scrooge, is one of the most famous characters in English literature.

Scrooge, as we know, undergoes an astonishing transformation after visits from the ghosts of Christmases Past, Present and Future. The original Scrooge, notoriously mean, uncaring, and misanthropic, becomes generous, outgoing, and warm-hearted. One of the prime beneficiaries of the “new” Scrooge is his sole employee, Bob Cratchit – A Christmas Carol ends with Scrooge promising to make amends for his shoddy treatment of Bob, which the narrator tells us he does in fact do.

But what if we could pluck Messrs. Scrooge and Cratchit out of 19th century London, and put them in the 21st century United States? What sort of employer would Scrooge be? And, most particularly for this piece, what sort of health plan would he offer poor Bob Cratchit?

There’s a reasonable case that both Scrooges (pre and post ghostly visitation) would offer a high deductible health plan (HDHP). A further case can be made that the actual insurance part of the plan would be very much the same. Bad Scrooge would use the HDHP to minimize his costs, regardless of the effect on his employees. Good Scrooge would use it to maximize employee satisfaction with their health plan, and in so doing, increase their satisfaction with him as an employer (leading, one presumes, for higher profitability for Scrooge & Marley).

How is this possible? The key to this is not the plan itself, but an essential adjunct to it – the Health Savings Account (HSA). An HSA is a tax-deferred account that enables employees to accumulate funds. These funds can be used without penalty to pay current medical expenses or can accumulate in a manner analogous to a 401k.

And this is what provides the ability for an employer to create a plan with genuine employee satisfaction: Adopt a HDHP, but fund a significant portion of the deductible, either through outright or matching contribution.

Once an employee has an HSA balance with his or her own money, there are three immediately beneficial outcomes:

First, the incentive to skip needed medical care is reduced. HSA funds can only be used to fund medical expenses, so the ability to divert funds to pay for other expenses is curtailed.

Second, since HSA balances are the permanent property of the employee, they carry over year-to-year. If the employee is fortunate enough to not require using HSA funds during his or her working life, they become a retirement asset, available for both medical and general living expenses. In addition, if HSA balances are used to pay for qualified expenses (virtually all medical/healthcare expenses), they are permanently tax free to the recipient.

Third, it addresses the primary economic concern of American families – both working and retired – that a medical emergency will arise and that they will be forced to choose between basic necessities and healthcare bills. Evidence is mounting – across virtually all age groups – that people are avoiding doctor and dental visits, skipping tests, and skimping on medicine because of cost and inadequate resources. Again, in A Christmas Carol, Bob Cratchit was not worried about being poor – he worried about his inability to provide proper care for his sick son Tiny Tim.

At this point, one might ask – wouldn’t it be better if Scrooge simply paid for all Cratchit’s healthcare costs?

The answer to that is no – both from Scrooge’s and Cratchit’s perspective. A plan that pays all costs offers no opportunity for the employee to acquire his or her own healthcare asset – an essential component of both satisfaction and security, given the changes – both past and anticipated – in healthcare plans and regulation. From the employer’s perspective, a too-generous plan diverts money from employees to an insurer; it is simply not cost-effective. Money spent here cannot create a long-term employee asset – and therefore cannot provide long-term employee satisfaction. Lastly, given that people will change employers multiple times during their career, it makes better sense to enable them to acquire assets of their own. Regardless of how benevolent Scrooge may have become, he would not always be Cratchit’s employer.

Getting ordinary people the wherewithal to meet medical costs – and doing so in an efficient manner – clearly must be a priority. The example of 401ks is instructive – the programs are inexpensive to administer and have been effective – HSAs could clearly replicate this success.

Here is where policy and focus needs to catch up. Currently, contribution limits to HSAs are far too low: for 2019, the limit for an individual is $3,500, and for a family, $7,000. At a minimum, the limits should be increased to deductible levels, which for Bronze plans under the ACA, can be as high as $15,000. Even better would be an increase to 401k levels.

Employers also should consider changing their focus from the 401k as the primary (and quite frequently sole) matched benefit. Given that the HSA is a more flexible vehicle, this switch in emphasis would also help bolster employee wellness programs.

Lastly, improving employee financial security through an HSA provides tangible benefits to the employer. Removing worry over healthcare expenses by enabling employees to accumulate a true healthcare asset can only help morale, productivity, and loyalty.

In our little thought experiment, we’ve been able to use Scrooge’s transformed temperament to illustrate a better path to employee benefits. A Christmas Carol ends happily – so too can this latter-day approach. And so, as we bid adieu to our 21st century Messrs. Scrooge and Cratchit, with Mr. Cratchit a better, happier employee than ever, we repeat the immortal words of Tiny Tim, “God bless us, every one!”

Scrooge

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