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May 23, 2005

HSA's on the March

This LA Times article on the rise of Health Savings Accounts in employer-offered health plans is the most important piece you'll read this week. Corporations, tired of paying out the nose for health care, are pushing the cost onto employees. Employees, sick to death of huge premiums, are taking them up on it. The catch? HSA's look cheap upfront, but when you actually start going to the doctor or having health problems, the cost makes your premiums look meager.

The sick, of course, know that they can't afford HSA's. So only the healthy use them. But subtracting the well-off from the risk pool and leaving only the chronically ill shoots premiums ever-higher, making health care prohibitively expensive for both the ill and the old. This means that HSA's are not, as a health care consultant in the article admits, a cost control. Instead, they're a cost shifting device. Employers are trying to escape the bills for health insurance and so they're enticing workers into programs where upfront cost is low, but the actual cost is high. All this, of course, comes after the bankruptcy bill, which made bankruptcy harder to declare. Bankruptcy, of course, is generally declared after health emergencies, and often by people with preexisting health insurance. Get ready for more of them. It's like the bill was a preemptive strike.

What it all means is that the safety net's holes are getting larger. They're being widened by legislation, widened by employers, and widened by rising costs. In the past, government has tried to counterbalance the other forces by controlling costs, offering subsidies, or legislating programs that helped working families bear the load. The Bush administration, however, has done the opposite. In the Ownership Society, you own all the risk, and combined with the other forces massing against working families, that's a lot of risk.

May 23, 2005 in Health Care | Permalink

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It's all about shifting risk to the little guys. HMOs have shifted risk from insurance companies to physicians' groups (50% of groups in California went bankrupt in the 1990s) and now the rest of the risk is being shifted to the consumer. That leaves insurance companies in the role of packaging consumers into groups and selling them to physician groups rather than actually providing insurance. For that service they then proceed to charge a pretty fancy price.

Posted by: J Bean | May 23, 2005 7:56:55 PM

Bring on the universal healthcare! It's a comin'!

Posted by: Kate | May 23, 2005 11:18:48 PM

"But subtracting the well-off from the risk pool and leaving only the chronically ill shoots premiums ever-higher, making health care prohibitively expensive for both the ill and the old."

We actuaries call this adverse selection. We know that this happens. We HATE it when this happens. That's why we have underwriters.

When an insurer offers an HSA as one of several options, it knows that it is going to get a barbell-shaped risk profile, where the only people who buy into the HSA are (1) the healthy people who need no care and thus are happy to pay the lowest premium and (2) the sickest people who blow through the deductible so fast that their share of costs approaches zero. If it has no one in the middle to mitigate the right tail of this distribution, it has to raise prices on the lowest cost people. This indicates that offering an HSA is an absorbing state; if you give people the option to choose an HSA from among several different plans, eventually your costs will get so skewed that you will have to force everyone into the HSA.

Disclosure: my employer only offers an HSA type plan with a $1000 deductible per person, a $1000 out of pocket max per person, and a 50% employer share. Therefore I have $2000 taken out of my checks in a year, and we pay half the deductible and half of the next $4000 at 90% coinsurance. We are 30 and 32, childless, and healthy, and so it is an appropriate option for us.

Posted by: diddy | May 24, 2005 11:20:51 AM

Diddy's right a combinaiton of adverse selection and moral hazard will change the dynamics here. In the short term employers and insurers will reap some benefit as the availability of an HSA allows the reduction in plan benefits. Basically it's just a back door benefits cut.

I participate in the HSA where I work, mostly to help with orthodontic costs for growing kids. It's money I would spend anyway, so the up-front tax deductibility makes sense in my household.

In the long term, as a nation we need to take the profit motive out of providing coverage. The market doesn't function well in the first place. We already have a form of universal coverage in that we don't allow people to die on the hospital steps. It's not a matter of if we will pay, rather how we will pay. Let's rationalize the mess we have now.

Posted by: Sonny | May 24, 2005 11:48:35 AM

It's been my experience that HSAs are very effective when offered in conjunction with a decent health plan, allowing before tax payroll deductions to pay for expenditures on things like OTC drugs, co-pays, glasses, dental work, items that aren't covered by whatever insurance you have. For me, these items never amount to enough for me to qualify for the medical expenses deduction. The drawback, of course, is that you have to be able to calculate when you sign up how much you expect to spend on these items over the coming year. In the plans I've used and been exposed to, you lose what you don't spend. It's usually not too hard to figure that out, though.

HSAs should in no way be viewed as a substitute for health insurance, however. There have been two years in which my medical expenses far exceeded all other years of my life combined. I couldn't have anticipated and budgeted for these expenses and in the case of one of those years, I probably would have foregone the testing I underwent because I just couldn't have afforded it. Do I feel bad that I let the insurance companies pick up the tab for something I wouldn't have paid for myself? Hmmm. Do you think the insurance companies feel bad for all those years my employers and I paid the premiums but I never used the services?

An argument could be made that HSAs could address just that kind of situation, where you could contribute to the HSA over time, let the account build up, and then draw on it when you need it. Such a plan would have to allow you to maintain a balance in the account over a span of years, however, something they don't seem to be designed to do now. Even that, though, would never allow anyone to build up a sufficient balance to address a catasrophic health problem.

Posted by: mrgumby2u | May 24, 2005 12:41:06 PM

mrgumby2u,

President Bush says, "HSAs have tax free deposits, growth and withdrawals." The Flex Spending Account (FSA) you lose the money at the end of the year.

The best tax cut is no taxes. The President promised HSAs for all Americans and he has delivered.

So spread the good news and correct those who are clueless.

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