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CMS Announces Demonstration to Introduce HSA-Like Plans to Medicare

By Matthew Sedlar, CQ HealthBeat Deputy Editor

July 13, 2006 -- The Centers for Medicare and Medicaid Services (CMS) has announced a demonstration program that would allow providers under Medicare Advantage programs to offer health savings account–type plans to beneficiaries in 2007.

According to a statement from CMS, plans similar to health savings accounts, or HSAs, previously have not been available to Medicare beneficiaries. "We are giving Medicare beneficiaries the option of health savings account–type plans, as an additional choice among other health plan options in Medicare," said Department of Health and Human Services Secretary Michael O. Leavitt. "Along with HMOs, PPOs, and private fee-for-service plans, Medicare is aiming to provide a full range of coverage options so that our beneficiaries can get the coverage they prefer at the lowest possible cost."

CMS Administrator Mark B. McClellan told health policy analysts and journalists at a briefing in May that HSAs were likely to be part of the coverage choices offered to Medicare beneficiaries next year.

The accounts, which were created in the 2003 Medicare drug law (PL 108-173), allow individuals under age 65 who have a high-deductible health plan to contribute and withdraw funds to cover health care costs tax-free. Proponents of HSAs say that when patients are forced to pay more costs out of pocket, they will begin to comparison shop and request quality data, eventually driving down health care costs.

Opponents of the accounts, however, have noted numerous problems presented by HSAs, including difficulties meeting the high deductibles and co-payments—especially among lower-income Americans.

Under the demonstration program, Medicare will pay for high-deductible plans for beneficiaries and place money in the accounts, called Medical Savings Accounts (MSAs), at the beginning of the year. When the deductible is reached, the agency said, any services covered by Medicare would be covered by the plan. CMS spokesman Peter Ashkenaz said Wednesday that the amount placed in the accounts will be determined by the plan's benefit design and how much the plan thinks it will cost. Money in the account not used during the year will carry over into future years even if the beneficiary is no longer in a high-deductible plan, the agency said.

Medicare Advantage MSAs only resemble HSAs because under the Medicare law, contributions to the accounts can't be made once an individual qualifies for Medicare. However, the agency said that proposals from providers should allow CMS and health plans to develop MSA products for 2007 or 2008 that "more closely resemble HSAs."

Providers wanting to participate in the demonstration program must apply by July 21 and bids for plans are due Aug. 10.

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