Health Savings Accounts: The Past, Present and Future for Healthcare with Kevin McKechnie, Executive Director of Health Savings Account Council: Audio automatically transcribed by Sonix

Health Savings Accounts: The Past, Present and Future for Healthcare with Kevin McKechnie, Executive Director of Health Savings Account Council: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Saul Marquez:
Hey, everybody. Welcome back to the Outcomes Rocket, Saul Marquez here. Today I have the outstanding Kevin McKechnie on the podcast. He is the Executive Director of the Health Savings Account Council and a Senior Vice President at the American Bankers Association, representing HSA Council before Congress and the federal government. Kevin is a nationally recognized expert in insurance and health insurance in particular and is the winner of the 2011 Public Policy Leadership Award from the Institute for healthcare Consumerism. Kevin joined the ABA in 2001 after serving for four years as Government Relations Representative for the Affinity Services Division of Marsh And McLennan. Previously, Kevin served as director of Government Relations for International Financial Services, a wealth management and insurance consulting firm located in Bethesda, Maryland, just an extraordinary individual, and I’m excited to have him here on the podcast today. So Kevin, thanks so much for joining us.

Kevin McKechnie:
Saul, thank you for having me. I’m excited to be on your show.

Saul Marquez:
Yeah, you know, and we’re excited to have you on. Obviously, healthcare is going through a lot of changes from every angle with the COVID pandemic and the rise of deductibles and how do we pay for this? How do we pay for that? How do we access this or that? You know, a lot of the dollars come through by way of health savings accounts and you have an expertise there, among other things. And so before we dig into some of those tidbits, I’d love to hear what inspires your work within the sector of healthcare that you play in?

Kevin McKechnie:
Happy to help. The confusion that goes between those two words, I think should be dealt with right upfront, which is to say people engaged in healthcare tend to be those folks that stayed in college until they were thirty-seven and racked up hundreds of thousands of dollars of debt and are generally called doctor, and they’re the ones who give you your healthcare. Our approach to this, at the American Bankers Association is different. We’re very much interested in financial literacy and we’re interested in individual, personal, financial wellness. And that sounds self-serving, and it may be slightly out of fashion, but every American engages in that, whether they like to or not, because at the end of the day, you’re responsible for you. And my interest in this, my contribution if you will, is a recognition that your health and how you finance has a great deal to do with the quality of your life, with the quality of your family’s life, it may, in fact, speak to some of the political views that you have, but in every case, it is determinative of what will be the last few years of your life. What’s that going to look like to you? And so the stewardship you exert upon your own financial wellness is extraordinarily important while you’re working. And if you do it correctly and from our position, if we are able to manufacture the right financial instruments for you, which we’ve done in this case, Health Savings Accounts, you have a real shot, as does everyone, no matter how much you make, no matter what kind of American you are, everyone has a chance to end their life in a better place than they started it, which is why we’re in this game.

Saul Marquez:
I love it. Really well said. And you know a lot of what you said Kevin is so insightful because the financial well-being and how we access our healthcare financially is a critical part of our mental health, let alone physical health, right? I mean…

Kevin McKechnie:
There’s no two ways about it.

Saul Marquez:
Yeah.

Kevin McKechnie:
The more financially secure you are, generally the happier you are. And notice that’s entirely agnostic about what party you’re in, what you believe, who you are, where you go, and has nothing to do with what you do for a living. It has to do with do you have the right tools to take care of yourself? Do you have tools that are accessible by everyone? If there are any barriers, what are they and can we get rid of them? Because we want this to be universal. In other words, if you choose to steward your healthcare by accessing one of the products that we made, we want to make it easy and we want to make it something that anyone can duplicate. It doesn’t matter who you are. In fact, I’m studiously, I just don’t care and the law enjoins me from caring in a number of different places. What I care about is that you can get this, that is easy for you to use and that is used for the purposes for which we built it, which is to take care of you over time and into retirement.

Saul Marquez:
Fantastic. So let’s dig in. Let’s definitely dig in, Kevin. Yeah, how are you and your business adding value to the ecosystem? Let’s talk about some of these vehicles. I mean, we also enjoy a little history too, you know, being that you do what you do, it might also be fun to take a little historical angle at this if you wish.

Kevin McKechnie:
Happy to help you there because the answer to your question is a short history lesson. There are no new health insurance products, save this one. About 17 years ago, the governor of the United States, in the person of George W. Bush, thought it would be beneficial for everyone to have essentially Medicare, prescription drug benefits. And so in the winter of 2003, in order to attract Conservatives that didn’t want Medicare to expand. There was a suggestion, what if we allowed something that had been in a pilot status earlier in the 90s to be included with this proposal so that conservative members of the House of Representatives would be induced to vote for it? It worked. Health savings accounts were born in the fall of 2003. The first person to insure themselves with one in January 2004. And we are going to announce in an hour that more than 60 million Americans now finance their healthcare for the health savings account. And just for your audience, a quick refresher on what the mechanism is. If you have any other kind of health insurance product in the country, whether you bought it for yourself or it was provided to your employer, there are no health insurance products that allow you to save for your future healthcare needs. You start January one, it’s zero. Doesn’t matter whether you have a co-pay plan or some kind of indemnity plan or an HMO or any of these other bewildering kinds of plans that Americans have to suffer through, a health savings account is the only one that says, look, here’s what you can save, here’s what you can spend it on. And here’s the insurance in case something unforeseen happens, which is the right mix of incentives and financial instruments in our opinion. Now other people may disagree. It’s an interesting debate to have, but the point of the story and why did we get involved in this is because we wanted to bring to people something they couldn’t access before we did this, which is the chance to save over time. You live adjacent to the state that is the poster child for this idea. Indiana decided it wanted to offer only health savings accounts to its state employees under the stewardship of then-Governor Mitch Daniels. Then Govenor Mike Pence made this available to Medicaid people. In other words, the people who said, look, we just can’t pay for this stuff ourselves. We have Medicaid in this country for those people, and there’s a choice in Medicaid in Indiana. Do you want to have the Healthy Indiana Program or do you want to have standard Medicaid? Up to you. Here’s how they both work. Well, there are so many people that wanted to be in the HIP 2.0 program, they had to shut it down because it turns out, no matter where you are in the socioeconomic spectrum of America, Americans like the idea of managing their own money, they like the idea of being responsible for themselves, and this product gave them the chance in Indiana, and that’s why they scooped it up. And that’s why I think the ecosystem is better with account-based healthcare. It’s the right mix of who we are as people. You’re responsible for you, I’m responsible for me. Here’s a tool that lets you do something about that, and it has a qualitative component, too. It’s an engagement strategy. It’s like your 401K, it’s like your IRA, it’s like your savings account. Can’t just wish the balance to be there, you’re going to have to do a little work at it. That kind of component makes smarter people out of every American. And so when you have this engagement mechanism, what do I have in the bank? I’m not sure that I need to go to the doctor, can I buy a generic drug? Hey, look, there’s a balance. Maybe I should call a broker dealer like Schwab or my bank. My favorite one, obviously Bank of America, maybe Merrill Lynch, this would be a good idea, try to invest that money, make it grow for you because you’re going to need it in retirement. This is what we think we’ve added to the calculus, and 60 million people now agree with us. That’s one in three working Americans.

Saul Marquez:
Yeah, you know, that’s fantastic. I appreciate this, Kevin. And you know, many of us think of HSAs as that supplemental item many times provided by your employer, employers and employees contribute to the vehicle. And, you know, give us an understanding of the breakdown, if you have it, of the people that use it as kind of that supplemental thing and then also the people that use it as wealth creation tool in addition to kind of supporting the healthcare.

Kevin McKechnie:
Happy to help here. And this is where literacy comes in. I think they should be teaching financial literacy in high school. It’s amazing to get.

Saul Marquez:
I agree.

Kevin McKechnie:
A high school diploma and not understand what a mortgage is and not understand what insurance is.

Saul Marquez:
101. Right? It’s crazy.

Kevin McKechnie:
It’s astonishing to me and something we work on every day here at the American Bankers Association. So it goes like this. Let’s say you have a co-pay plan. Your employer may choose to also have a flexible spending arrangement or a health reimbursement arrangement plan that goes with it. And then, it’s called an arrangement because the arrangement is you agree to not take a certain amount of your income and give it back to your employer, and you can access that money on certain conditions if you provide a receipt. That’s not what we’re doing. Health savings accounts are major medical insurance where the money isn’t your employers, it’s yours. And the minute it goes to your account, you can do anything with it you want. Now, if you don’t do it for healthcare, we agreed long ago there should be significant penalties for that, and there are. If you take it out of the account and you decide to buy a big screen TV, it’s going to be taxed as regular income and it’s going to be penalized at 20 percent. That’s called a non-qualified withdrawal. Think of the moment where this was built and think about the idea of portability, which is to say if you change employers, you’re going to be changing major medical insurance. Not with this. Because your health savings account is yours, the money in it is yours, the idea was that as you move through your life employer to employer, all they’re going to plug in is the insurance. In other words, we made a conscious choice to minimize the role of insurance in your life and maximize the role of treasury management in your life. You should be thinking about your own money and what it’s used for. You should be thinking about growing your money and what it’s used for. And the members of our organization, the Health Savings Account Council, our banks that provide access to all of that. And I mentioned one today, but obviously there are others, thousands of banks administer HSAs. And the issue here is what do you do with your money when it’s in the account? How do you access it for qualified medical expenses? If you have an excess and now we’re very pleased to see that some people do, where do you want to invest that money and how? These are the building blocks of individuality. They’re the building blocks of financial sustainability. And given the very unsettling reports out of the trustees for Social Security and Medicare, it just might save you. By the time someone in their thirties or forties, it retires. You tell me, what do you think the chances are, that those entitlement programs are going to look like they do now? We think it’s very low. We think there’s going to have to be supplemental wealth management products available to people, not the big companies, not to lawyers, not to brokers on Wall Street. These are the things that any one person can access from their laptop, in their living room, in their apartment no matter where that apartment is. And that’s what we designed this for.

Saul Marquez:
Yeah, fantastic. Thank you, Kevin. And you know, certainly good to take something like this that we really maybe don’t give as much time or thought to to really dig into it further. How would you say you believe you’ve been able to improve outcomes for people or even just, you know, their overall experience with healthcare with you and the company have done?

Kevin McKechnie:
I would say thematically, you’re moving from a passive model where your employer gives it to you and you just take whatever you can. Our old joke was health savings accounts are finally that you’re doing something for you instead of to you. And I think there’s a lot there. And we can unpack that this way. As I said, it’s an engagement model and because you’re putting insurance in a minimized posture in this financial organization, this arrangement if you will, the maximal effort you’re going to make is, well I wonder how much money I can get into this account. Because keep in mind it has, they say it has three distinct tax advantages. I think it has four and I’ll lay them out for you and I’ll try to draw the distinction between that and say, a 401k or an IRA. It goes like this. Every dollar you put into your account is deductible from your adjusted gross income. It starts there. Now there’s a maximum and it changes year by year. But I’ll use myself. I’m 55 years old, I can put eighty two hundred dollars a year into that account, and so whatever I make in a year take eighty two hundred dollars off of it. Then you tax it, that’s a big benefit. As it grows over time, that investment income isn’t taxed at all. When it comes out the other end for qualified medical expenses, either during your working life or in retirement, for qualified medical expenses it’s not taxed either. But here’s the fun part. If you work in a company and you are making contributions to your account through your company, that’s called a cafeteria plan. And it means it also avoids Social Security and Medicare tax. That’s seven point sixty five percent, which is why we start the comparison there. That’s not true of your 401K. So the first dollar in your HSA has a seven point sixty five percent investment bonus, but your 401K dollar hasn’t. That’s a lot of money. If you go to the bank and ask them for a savings account, seven point sixty five percent is not the answer you’re going to get right now.

Saul Marquez:
Right.

Kevin McKechnie:
We’re in an era of very, very, very low interest rates. And so this is a good benefit for you. That has change behavior. It’s changed affordability for employers. Right now we have and I think we’ll remain an employer-provided system at least for some time. Health savings accounts and the insurance they’re buying are arranged so that that’s the least expensive option you can provide to yourself or to your employees, that’s because you’re not buying a lot of insurance. I leave on my resume that time I spent working for Marsh McLennan because I was a health insurance broker. There is nothing a broker likes more than when somebody who’s uneducated about these instruments walks in and says, I want good insurance and good insurance means no deductible. Now that, think about it in the context of auto care, auto insurance. If you had no deductible auto insurance, it would be three or four times what it costs right now because you’d be insuring things like oil changes and windshield wiper blades and brake jobs. You know you’re going to do that work anyway, and it’s easily understood by Americans if you have a car, there’s going to be maintenance costs. Well, you and your body aren’t that much different while you’re working. There are going to be maintenance costs, they rise over time. Insuring those is foolish and expensive because you know you need to go to the doctor at least once a year for a checkup. You may have to go because you’ve got the flu or a cold. If you have a family, your child is certainly going to go. Why would you insure those dollars? It cost about a $1.16 to insure a dollar when you’re under that first thousand. So if you want to pay me 16 percent to manage money I know you’re going to spend anyway, fair enough. But it’s a foolish choice and you shouldn’t make it. That’s what we’re offering employers and people the chance to manage your own money, to avoid those risk charges up to the spot where it actually makes sense to transfer that risk management to people who are expert at doing it, which are insurance companies.

Saul Marquez:
Yeah. Now, Kevin, great stuff. So the other end of this, you use it for qualified expenses. What happens when you die? You know, like what happens with the transition of those funds? Talk to us about that.

Kevin McKechnie:
Well, I’m glad you clarified because I don’t know what happens when you die. That’s why we all go to church or some other existential service. But I do know what happens to your health savings account because this was important to us as well. Open a health savings account and name a beneficiary. There are no banks that won’t ask you this question because it’s an important part of trust form. In other words, whoever your beneficiary is, that money will go to them, importantly, as a health savings account, their health savings account. And so that balance will completely transfer. If you don’t name a beneficiary, it goes to your estate, unfortunately, and then it becomes part of the calculation to be taxable. And so you don’t lose the money in it, it just becomes taxable. What your spouse or significant other or whoever the beneficiary might be, what’s lost here is their ability to keep it outside of the taxable space. And that’s not insignificant, as we’ve shown. In other words, if you spent your whole life building up a healthcare balance and you’re lucky enough to have that perhaps top out in the six figures, this is great news. Make sure you’ve named a beneficiary on your form so that wealth can accumulate to the people that you care about the most.

Saul Marquez:
Love it. So you put a beneficiary on there. You forgo the, the estate tax and you’re in a good spot for whatever …

Kevin McKechnie:
That’s right.

Saul Marquez:
You know, just thinking through different options here, Kevin. So let’s just say you build a balance, you’re going to retire, can you use the funds to pay for your insurance?

Kevin McKechnie:
Well, you can use the funds to pay the Medicare premiums that you owe.

Saul Marquez:
Yeah.

Kevin McKechnie:
Medicare would be about a B-minus health insurance plan if you were a worker. It would be sort of a high bronze or low silver plan if you try to map it over to the Affordable Care Act exchanges, meaning you’re going to have first of all, you have lower premiums than you otherwise would if you were sixty-five trying to buy private health insurance, that’s why we have this program. It’s guaranteed so you can’t be rejected, that’s another reason why we have this program, but you owe on average, about five thousand six hundred dollars a year out of pocket in deductibles and premiums, and that money can come from your HSA. And so people who work all their entire working life, they’ve had a health savings account, they’ve saved this money if they’ve been fortunate enough, not to have to take money out of it, the remainder can be used to pay for Social Security Premiums while they’re in retirement.

Kevin McKechnie:
Fantastic. Good.

Speaker3:
You can also buy long term care insurance with it. In other words, if you’re in the right demographic, I won’t guess your age. Also, something out of fashion. But the point is the sooner you come to the gates of underwriting for a long term care insurance, the lower that premium is going to be. And that is one of the very few insurance products you can buy with a health savings account on a tax advantaged basis.

Saul Marquez:
Interesting. Good stuff. Good stuff. What about complement your thoughts around qualified expenses for Social Security premiums? How about Medicare Advantage options? Do those also apply here as qualified expenses?

Kevin McKechnie:
Well, no. Challenges here about which is, once you’re covered by Medicare, you may not contribute any more money to your health savings account, and so you can use the money in your health savings account to pay for the things Medicare doesn’t. But you can’t use that stuff to buy, for example, a supplemental insurance product. You can use to pay for the premiums that go with Medicare.

Saul Marquez:
All right. Well, fantastic. So folks, you’re probably listening to this today and you’re thinking to yourself, yeah, I knew this or wow, I actually didn’t appreciate how I could use my HSA, and that’s what we’re aiming for here, for you to be thinking about this vehicle that exists today as a tool in your arsenal to benefit yourself and your family for healthcare, a powerful tool. Kevin, I can’t tell you how much I appreciate the insights here. You know, as you think about the program and things that you guys have done, what has been one of the biggest setbacks of the program and a key learning that came out of that.

Kevin McKechnie:
Two ones, one that I think will interest you more than the other. And so we’ll start with the other first, because I do believe it’s important, And that is the premise of a health savings account as I hope I’ve made clear is the insurance doesn’t start for a while, there is, it’s called a high deductible health plan for a reason. Now, since we invented these 17 years ago, almost everyone has a higher or high deductible now, there’s no such thing as twenty-five dollar insurance anymore. It’s all gone away. And so in the intervening moment, the cost of these products is starting to normalize. In other words, if you have a co-pay plan, you probably still have something like a $2,000 deductible, which would be an HSA qualifying deductible if you were an individual. And so not much difference there. But employers have tried to make high deductible health plans much more versatile, meaning they would like to pay for things what we call under the deductible and the point of the affordability of a HSA high deductible health plan is that you don’t do that. And so one of the reasons the premium differential is starting to harmonize. In other words, the cost of a high deductible health plan is going up, and it’s starting to make its way up to where all the traditional insurance was is because there’s so much legislative pressure, political pressure, to try to pay for things under the deductible. And we’ve resisted for some time. We’re trying to be accommodating, this is our audience after all, employers and the people that they buy health insurance for. And so we want to be helpful there. We generally support these things, but we’re trying to point out there’s an oppositional relationship between all the things you put in the insurance bucket and affordability. You just can’t fill that bucket all the way up and expect it to be as affordable as it was in the past. That’s one dynamic that has yet to be a true setback, but there could be some leaking on our boast that we’re the most affordable on every market if all of these things happen at once. I suppose the other one was much more interesting to me anyway. And it’s a political story. It happened locally, it happened in the wonderfully appointed various conference rooms, ballrooms really across the street in a Washington hotel, when then Senator Obama’s aides came to us and said, you know our vision for healthcare reform, this would be in the fall of 2008. Just he had won the nomination of his party for president, but the election had not been held yet. And his aides came and said, you know, there’s really no space for any of this account-based stuff, where we’re going in the future. We just don’t see it. And we thought that’s a pretty hard message because this is a meeting, a board meeting where we’d invited people from the McCain camp, people from the Obama camp to come and tell us what’s going to happen in the future and when if you have any experience at all with any politician in elected office, it’s usually the kind where it doesn’t matter if they’ve had no sleep for two days and they’re under indictment, they bounce off the chair and put their hand out and introduce themselves boisterously and ask for your support in November. So we were expecting a lot of that. A little bit too much truth telling in that meeting, we thought. And they were telling us of course, that we weren’t going to play a role in the fabric of insurance going forward. Well, the most important thing on the burner in 2009, when Senator Obama became President Obama was healthcare reform. They succeeded, that gave us the Affordable Care Act. The Affordable Care Act raised prices so dramatically because it tried to cover so many things, but it turns out health savings account qualified insurance literally became the most attractive insurance policy you could possibly buy. And it’s because the affordability was there where previously the affordability issue had been with other kinds of insurance. And so something that was a dark day to be sure, there are only two parties in the United States. One of them is promising to write you out of the fabric of healthcare, this is not a good experience, turned into something that, rightfully speaking, we would have to locate the genesis of HSA success with President Obama. And in a way that I’m sure he didn’t anticipate because the law mandated so many different things that insurers have to do. In other words, it concentrated the market. And so insurers that didn’t have the capital to build these kind of comprehensive products simply were price down that made it affordable. HSAs became, by relative measure, the most attractive force in the healthcare marketplace, and that was really when the explosion occurred. And all of our modeling since then has placed 2009-2010 as the genesis of this long upward rush to where we are now, as I said, more than 60 million Americans, one in three working people now finance their health insurance with a health savings account. And it’s, you know, this is only 2021. The law didn’t really come into effect until 2014, so it took about seven years to create this massive tranche of people that like what they have.

Saul Marquez:
Fascinating. I love the story.

Kevin McKechnie:
Has the virtue of being true, which is an unusual thing to hear from someone whose address puts him in Washington, D.C. So apologies if you’re confused.

Saul Marquez:
No, it makes a lot of sense and amazing how things work, and I can’t even imagine being in that, in that spot where one day they’re telling you, you’re going to be gone, and then the next minute you’re like, holy smokes, this thing is like backfiring now. Like, they meet us everywhere.

Kevin McKechnie:
Well, we managed to invoke the ire of both parties we had originally. We were coming off a two year window where the Republican Party had said, do you know what you’ve just done? We said, well, of course we do. No, I don’t think you do because all of the previous efforts at what people mistakenly say are socialized medicine. I don’t know why that’s a bad word. We have socialized medicine, we call it Medicaid, we call it Medicare, we call it Tri-care, that’s true. These are all fabulously popular programs, government programs in our country. What’s the problem? Well, to go the next step and to put everyone in Medicare, it would be fantastically expensive to do it on the first dollar. It’s not fantastically expensive to do it on the three thousand first dollar. And so the Republicans in 2004 thought well, you’re just making it easier to go to Medicare for all. Democrats in 2008 said, no, you can’t be here or we can’t go to Medicare for all. And now both parties seem to be coming round back to the place where we started, which is, you know, you’re right, insurance isn’t really the issue, it’s financial wellness, it’s retirement security, it’s individual responsibility, those are the things that matter on the first few dollars. How you insure people after that as a function of where they sit in our society. And I think that’s probably the right outcome.

Saul Marquez:
And I’d also add cost, right?.

Kevin McKechnie:
Huge cost.

Saul Marquez:
The cost is a huge, huge issue. But that’s right. Yeah, just fantastic, Kevin. I mean, I love the history, I love my history, learning where things happened. You took us all back to that, that ballroom conference where this happened. And and so what would you say you’re most excited about today?

Kevin McKechnie:
I have been reassured in recent moments with despite all of the drama and things you’ve seen in the last two years, the resiliency of this country is remarkable. It will survive all of these challenges, which everyone says are existential, they’re not. And I like being part of an organization that is bringing solutions to people because we do it every day and we represent organizations that you can touch and feel through the branch system. To be a banker is to be interested in the well-being of your fellow American. I think that’s important, and what we’re trying to do is bring the dignity of ownership to the experience and health insurance. That’s our gift, we think to that debate and one that should have been done earlier, but we finally got around to it. And so our 18th full benefit year will be next year, and I hope we can have this discussion again and we’ll tell you where we are then.

Saul Marquez:
I love it, Kevin. I love it. Well, listen, thank you so much. Appreciate everything that you’ve shared and all the brilliant work that you and your group are doing for this country. I can’t thank you enough.

Kevin McKechnie:
Thank you for having me.

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