State of the Union Study Assignment - Health Saving Account Facts

From the Center for American Progress:

The Truth about Health Savings Accounts
January 30, 2006

According to news reports, President Bush will devote a significant portion of his State of the Union address to talking about “health savings accounts (HSAs) as a solution to
America's health care crisis.” In general, HSAs are tax-free savings accounts combined with high deductible insurance policies that people obtain through their employers or buy independently from insurance companies. Numerous studies have shown that HSAs may increase the number of uninsured and increase health care costs, all while costing taxpayers tens of billions of dollars. It sounds like Bush is trying to do to health care what he did to Social Security – placing the burden on ordinary Americans while expecting them to take on the billion-dollar health industry. As such, it is another special interest policy that allows profits and health costs to continue to rise.

HSAs will do nothing to address the increasing number of uninsured Americans. HSAs will not help expand coverage among the uninsured because most uninsured Americans do not make enough money to benefit from tax breaks. HSAs would also encourage employers to either drop health insurance or reduce their contribution amounts. According to the Center on Budget and Policy Priorities, the number of people who would lose their coverage because of HSAs would be higher than the number of uninsured who would get insurance.

HSA users will be more likely to skip necessary treatments to avoid the high costs. Individuals who have either consumer-driven or high deductible plans (both are elements of HSAs) were more likely to avoid getting necessary health care because of costs. Users with high deductible plans were also more likely than those with traditional coverage to have problems paying their medical bills.

HSAs have failed to work in other countries. South Africa and Singapore both implemented versions of health savings accounts, and Americans should learn the pitfalls from these systems. The Harvard School of Public Health found that the Singapore plan "caused financial hardship for Singapore's citizens and ... adversely affected the cost-effectiveness of its health care system." In South Africa, "the cost of specialty care has increased 43 percent, the cost of hospital care is up 65 percent,” and uninsured rates have "continued to grow rapidly."

HSAs will do little to control rising health care costs. Approximately 70 percent of costs in the U.S. health care system are spent on 10 percent of the population – the most expensive patients with the most catastrophic and complex needs. The costs these individuals incur well exceed health insurance deductibles, even for high deductible health plans, and high deductibles won't change their health spending patterns. By their very nature, HSAs are trying to control health care costs by changing care-seeking behavior for people whose health care spending represents a small proportion of overall health care costs.


Hap Moorii said...

Reading this post, I can tell that nothing I say is going to change your mind about HSAs. However, as an HSA account holder, I feel like a few points in your post should be addressed.

First, let's talk about who needs HSAs. For small businesses and the self employed, this is the only real option for using pre-tax dollars to pay for medical expenses (aside from a questionable reimbursement approach promoted by the NASE). The IRS requires you to meet a 7.5% floor on your income taxes before introducing any deductions, and cafeteria plans are only practical (based on my understanding) for big businesses. Additionally, cafeteria plans are a big guessing game anyway often causing users to lose money put into the plan if they overestimate health care expenses. If they underestimate, they don't get any tax benefit, and if they have high expenses (over $5,000...it happened to me), they get no benefit on anything above $5000 (if they thought to specify $5k at the beginning of the year). With an HSA, you can accumulate money and even invest it. It's like developing your own self-insurance over time if you are disciplined.

Granted, HSAs are not for everyone because they require discipline and a firm understanding that you *will* save money over time even if you have some high expenses in the short term. If you can't write that $120 check for a Doctor's appointment without grimacing, don't go the HSA/HDHP route. If you don't have your deductible in a savings account or some other liquid, protected asset, don't go the HSA/HDHP route.

So, obviously HSAs are useful to some of us even though it may not be your preferred solution. Granted, I would rather have another option, but I'm thankful that HSAs are there to fill the gap. In my opinion, their purpose is to control health care insurance premiums, not health care costs as you state in your article.

People in this country have forgotten that insurance serves as a financial safety net, and that insurance companies must adjust premiums to exceed expenses. If we want insurance to pay for everything, we would be better off just pooling our money and paying the Doctors and hospitals directly. Cut out the middle-man, and we can all save some money if that's our goal. In my opinion, though, that's not the goal.

The goal of insurance is to protect from catastrophic financial loss and nothing more. If I could get a $10k or $15k deductible on a health plan, I would take it. Of course, nobody will give one to me because big brother makes the rules, but I would be happier if I had access to one because it would lower my premium even further, allowing me to put more money away in my HSA for a rainy day. Same thing for my home owner's insurance and car insurance. Why can't I decide what amount of risk I want to accept? Why does government and/or the insurance industry make that decision for me?

Anonymous said...

As usual no response from Mr. Hall. He hates common sense backed by facts.