At the same time, the United States is about to experience a massive shift of assets as the World War II generation passes away and transfers unprecedented wealth to the next generation (the baby boomers). This will precede an equally massive surge of demand by aging baby boomers for higher-quality health-care products and services. Creating incentives and mechanisms for deploying the money effectively for future health-care needs will be the job of policymakers; serving those programs will be a major opportunity for the health-care and financial-services industries. We believe consumer-directed health plans and their associated savings mechanisms will be important elements of those future products and services.
Future innovations should focus on the opportunities presented by HSAs’ triple tax advantage and the needs generated by the change in locus of decision making (from employers/insurers to consumers). Specific products and services might include:
• Annuities that can be purchased within an HSA account. These would allow borrowing to cover the years of higher-than-expected health-care expense.
• Mechanisms to optimize the long-term triple tax advantage of HSA contributions and earnings. These would include loans collateralized against life insurance equity or private retirement accounts. The goal would be to reach the retirement finish line with the most tax-efficient mix of assets.
• New financial models and advisory services. These would optimize “surplus” discretionary contributions across individuals’ 401(k)s (and Roth and Keogh plans) and HSAs. Higher-income earners, in particular, will want investment products that blend retirement and health-care savings.
• New high-deductible health plans. These would incorporate strong-form managed care (i.e., closed-panel HMOs) with HSA provisions and advantages. Insurance product innovation is likely to focus on ways to offer these.
• Improvements in disease management and other techniques for optimizing the use of sophisticated medical technologies. These improvements will become increasingly important, not just to employers and consumers trying to manage cost, but also to insurers seeking to control a coherent portion of the value chain.
• Innovations in information gathering, sharing, and transparency. Local and regional market makers will be needed to gather up-to-date pricing and quality data from providers. Consumers and their agents (primary care doctors and/or insurance intermediaries) will need this information to make informed decisions and trade-offs.
Transparency — clear and accurate information at the “point of sale” — will be critical for the broad and effective societal uptake of CDHPs. Incentives and choices mean nothing if consumers can’t find out anything about the choices. Doctors, hospitals, clinics, and labs will be increasingly compelled to gather and publish clear and cogent information about their quality, cost-effectiveness, and service. Two efforts recently begun — the federally supported health information technology (HIT) initiative and a series of ongoing industry programs designed to create a readily shared electronic medical record (EMR) — will need to bear fruit over the next five to 10 years if CDHPs are to realize their full potential to transform the health-care scene. The current information gaps are unfortunate (but natural) results of health care’s evolution over the past 50 years. The industry is poised to move from a “cottage industry” model to a high-tech, information-age business, but the technology has yet to be deployed to make this shift a reality.
The coming wave of innovations will most likely create new battles for portions of the value chain. Traditional health-care insurers and pure-play CDHP firms currently have natural advantages with both employers and individual customers, but these advantages are not necessarily unique or permanent, and other players may evolve or find natural advantages of their own. Whatever specific innovations and structural changes lie ahead, the nexus of health-care benefits and financial services will be one of the most fertile areas of the economy over the next decade.