Many of the folks who need help with health care work from paycheck to paycheck, and simply do not have the money to put in the accounts, since all of their money goes to living expenses.  This is another Bush fix that will not benefit ordinary citizens.  Looking at the plan, I would say it's clueless, but knowing this crew, I believe it is calculated.

God, HSAs are ducks in a barrel.    

1.  So, the big problem with out healthcare system is that most people's deductibles and co-pays are too low?

2.  So, in a country with 45 million uninsured people, President Bush is focusing his energy on making sure the rest of us don't have too much insurance?

3.  Huh.  What happens if someone in my family gets really sick and we don't have enough money put away in our HSA?  This kind of sounds like "your money or your life," only literally.  

4.  So, for people who have never ever been sick, this could be a good deal.  But, um, they already have a pretty good deal--they could have bought insurance like this any time and they chose not to.  How does this help the rest of us, who have played by the rules for years but who don't have the good luck to be 22 years old and in perfect health?

this month's Health Affairs has an article on Medical Savings Accounts (MSAs), the forerunner (roughly speaking) of HSAs.

it's buried beneath a subscription wall, i'm afraid, but, there's good stuff in it. the author has data from the entire universe of tax units who opened MSAs. Abstract is pasted below:

 

Alexandra Minicozzi

Fewer than a quarter-million tax units had reported a medical<sup> </sup&gtsavings account (MSA) by the end of 2001. Nearly one-quarter<sup> </sup&gtof those having an MSA reported being previously uninsured.<sup> </sup&gtThe tax data support the prediction that higher-income taxpayers<sup> </sup&gtare more likely than others to be MSA consumers. Surprisingly,<sup> </sup&gtthe middle-aged had the greatest predicted MSA demand, even<sup> </sup&gtafter income and marginal tax rate were controlled for. There<sup> </sup&gtis mixed evidence as to whether the account was treated as a<sup> </sup&gtsavings vehicle. For those who continued their accounts, their<sup> </sup&gtbuild-up was generally sufficient to offset a year or two of<sup> </sup&gtfuture medical expenses below the deductible.

http://content.healthaffairs.org/cgi/content/abstract/25/1/256&nb sp;

I had a discussion post last week, here, which generated a decent amount of discussion here in the café. Might take a look if you didn't catch it last week.

I am an insurance broker who specializes in working with businesses setting up benefit plans.  I also do some work with individuals advising them on making health insurance decisions.  Hopefully I can give you an on the ground perspective from somebody who works with employers on a daily basis.

HSA's are specifically for high networth/high income people like doctors, lawyers and business owners.  They are the only ones who have the income and ability to save money into one of these plans. 

No employer, who really cares about their employees, would adopt an HSA plan.  The reason is simple.  Under an HSA plan the high deductible insurance is mated with a savings account which is the asset of the employee.  By law the account can be funded by either the employee or the employer. From the employer's perspective the account is money they can kiss good by.  The savings from the decrease in insurance premiums are not large enough to justify funding money into an account the employer has no control over.  The only employers that implement HSA plans (except for doctors and lawyers) are those that are using it as a tool to reduce benefits to their employees--ie switch from a zero deductible plan to one with a $2,000 deductible and a $500 HSA account.

Many companies are adopting programs called Health Reimbursement Accounts.  Under this approach the employer puts in a high deductible plan in conjunction with an account funded by the employer.  If the employee doesn't use the money in a year, the employer can allow a portion or all of the money to roll over each year (unlike an FSA).  This rollover allows the employee to have a benefit if they do not overutilize care, but if they need to have all of their expenses covered--not a problem because the money is there.

I have set up plans where the employer has gone from a zero deductible plan to one with a $1,200 deductible and a $1,200 HRA account.  If an employee has medical problems--no change in situation.  If the employee has minor issues/no issues-they and the employee win.

My point here is to highlight where innovative plans can give individuals flexiblity.  HSAs are basically a lousy idea--but the concept of a high deductible health plan combined with an account at the employer level can bring a benefit to everybody involved.

The problem with HSAs as currently constructed are fundamental:

1. They require a workforce educated about the costs/benefits of medical care--systems are not in place to do that, most people don't know what to ask and how to evaluate what they are told.
2. The only part about medical expenses we can control is wellness.  Preventive care, excersize, taking our medication if we need it, being proactive.  HSAs presume that the burden of a high deductible will force people to take these steps.  Unfortunately people tend to "discount risk" and the potential of a large deductible will have little effect on people to take steps to manage their health.

Our health costs are going up for a couple of basic reasons--we are getting older and as a population we are unhealthy--no excersize and junk food goes a long way towards increasing costs.

The leading edge of the baby boom are now 60 yo and the average age of a baby boomer is somewhere around 52.  The difference between a 40 yo baby boomer that doesn't go to the doctor for preventive care and one that is 52 and doesn't go to the doctor for preventive care is that the 52 year old is more likely to get a heart attack or stroke.

One final point.  Most countries in the world have highly developed public health systems and rudimentary/small private health systems.  The United States took a different approach, we have a very large private health system and a weak public health system.  Obviously a private system will cost more which is why our rates are out of control.  The trick in designing a public plan in the US will be to assure the population that has good healthcare that they will not lose that care while providing care to all. 

Calls for a single payor system will fail if we cannot make that argument.

For a majority of people this system (although expensive) works fairly well.  The problem will be to develop a solution that delivers healthcare in a fashion that

This is a pretty bad piece on HSAs. There is a lot to rebut here so I'll take it point by point, with the two common themes being that 1) libertarians like me sometimes don't agree with progressives like Kate, and 2) libertarians like me sometimes agree with progressives like Kate more than they think...

Trapier K. Michael
www.marketplace.md
Pres. & Founder

• “HSA's were created by the Medicare Modernization Act of 2003 (the same bill that brought the drug debacle).”
  
• Libertarian health policy wonks are sober and sophisticated enough to differentiate between two separate policy initiatives occupying the same spacious, 400+ page Act. That gives libertarian wonks the freedom to hate the drug bill as much as progressives do while supporting unrelated health policy reform efforts like HSAs.
  

• “You can't just go down to your local bank and open an HSA -- you have to be enrolled in an HSA-qualifying plan, or a plan with a high deductible (known in the healthy policy world as HDHPs).”
  
• Libertarian health policy wonks would like to see the HDHP requirement lifted [See MCannon & MTanner, “Healthy Competition” & MCannon, “Combining Tax Reform and Health Care Reform with Large HSAs,” Cato Institute, Tax & Budget No. 23, May 2005, http://www.cato.org/pubs/tbb/tbb-0505-23.pdf].
  

 

• “For an insurance plan to be eligible, the deductible must be at least $1,000 for an individual and $2,000 for a family.  Except the market rate for most of these plans is about twice that -- $1,901 for single coverage and $4,070 for family, according to research by Kaiser.”
  
• A higher market rate doesn’t diminish the affordability of those that actually offer the $1,000 deductible. I realize it is hard to understand personal choice and freedom, but the higher market rate means that under the given laws people freely chose policies with deductibles that averaged $1,901. But the $1,000 plans still exist.
  

 

• “Be wary of Republican claims that you can save away all this money "tax-free"!  That's only true if you spend it in the right place (health expenses) -- otherwise a penalty will erase any tax benefits.”
  
• Yes…and the list of “right places” is very short...feel free to read the IRS’s 31-page, non-exhaustive list of “right places”…( IRS Publication 502 at http://www.irs.gov/pub/irs-pdf/p502.pdf )   
  

• “Just in time for SOTU, the Commerce Department released a report that found Americans' savings rate is at its lowest since the Great Depression.”
• Then it is a good time to encourage savings, yes? Or are you saying savings are bad? It’s not clear what you intend, Kate.

• “Further, recent reports found that almost half of the HSA's already created are empty. As Ezra pointed out, that means even more windfall for the credit industry as Americans look to credit cards to charge their now majority out-of-pocket health expenses.”
• Hat tip Kate and Ezra. Those are both solid points and should make H.S.A. advocates question themselves.

• “Charged health expenses are no different than premiums -- if they can pay it later, why would Americans suddenly become hawk-like protectors of their dollars?”
• Not true. A pay-later option is valued differently from a never-pay option. The discount factor (applied by economists to calculate the present value of something) is 1/x such that x < infinity in the former and 1/infinity in the latter.

• “In order to transform our system into a cost-efficient paragon of free-market goodness, HSA's will need widespread adoption.  But industry predictions are modest -- only 15 million Americans, or about 10 percent of all those insured, are expected to have them in five years...[this implies] low adoption rates.”
• Your friend Ezra doesn't think adoption rates will be low at all; his personal predictions are almost entirely opposite of these (See “H.S.A.’s: Comments,” Ezra Klein, 27 Jan 2006, http://ezraklein.typepad.com/blog/2006/01/hsas.html#comment-13512 588.)

• “In the meantime, premiums will continue to increase at double digit rates, and politicians will have long turned to other proposals to stem rising health costs.”
• Which premiums? HDHP premiums might behave separately from others.

• “Besides paltry savings and low adoption rates, HSA's simply cannot make Americans spend less on health care.  That's because only 20% of patients incur 80% of health costs.  That 20% will blow their deductible regardless of whether it's $500, $1000, or $5,000.  A higher deductible won't change their spending habits at all.”
• Again, good point. That’s why libertarian policy wonks want to remove the limits on H.S.A. contributions and remove the HDHP requirement [see Cannon & Tanner, Cannon]

·        “HSA's are complicated policy that Americans will struggle to understand.”
o       Another good point evidenced by your own inability to understand them.
**Note: the author is not a Republican and has never voted.

While the general thrust of the comments on HSA are accurate there is a segment of the non-rich who might well benifit from an HSA. My wife and I have no kids and we are both self employed.

Here in CT we have been paying a around 10 grand a year for crappy insurance. We can get an HSA at a family deductible of $5000. The coverage is basically the same as what we now have. We will save about $5000 a year in premiums, more if we have a healthy year. Our risk exposure out of pocket is actually decreased, its less than our old premiums.

Any money not spent in that HSA account will be rolled over and wil not be taxed until we withdraw it. We will pay no penalty unless we withdraw it before the retirement age. After that age it will be taxed at our then applicable tax rate when it is withdrawn.

You do not have to fund the account, you can simply pay as you go if you wish, but we will fund it and, if healthy, it will act as an extension to the limits we are allowed to put in our IRA's. Additionally we will gain a small tax break each year from funding the account (money in the account that we spend on health mattters will be directly deductable from our income, only a percentage of our current premiums are deductable.)

Over the next ten years we might realize a savings of 75,000 or more. For us that is more than one years income. 

I believe that the country needs a single payer system, but if you are self-employed you should really check out your HSA options, it might well save you money. I agree it will do nothing to drive down costs..

While the general thrust of the comments on HSA are accurate there is a segment of the non-rich who might well benifit from an HSA. My wife and I have no kids and we are both self employed.

Same here but with two children.  The big incentive to me was the much lower premium compared with my older plan.  Our deductible on the old policy was $5000 for the individual and $15,000 for the family.  Our premium was rapidly approaching $10,000 per year.  The policy was good, but was basically a catastrophic policy due to the high deductible. 

With the HDHP, HSA plan I was able to lower our premium by almost 75%, but I was only able to achieve this by opting for the highest deductible -- $10,200.  We were lucky to be accepted in the new plan without any exclusions written into the policy due to some preexisting conditions.  I had previously applied to another insurance company for an HSA plan that had an even lower premium but we were flatly rejected due to preexisting conditions that I thought were relatively minor ailments. 

Over the next ten years we might realize a savings of 75,000 or more. For us that is more than one years income. 

Due to my age (54) and my high deductible, I doubt if I would be able to save much.  What I am able to save on premiums right now about covers what I can contribute annually to the HSA account.  If I have few medical costs for two years, I would be able to put into the HSA the equivalent of my deductible for one year.   So, one year of even moderate expenses would wipe out that account.  Throw in a Cat scan, MRI or two, a few trips to the physical therapist, and the savings is gone.  But we have accepted this as part of the bargain of being self employed and .  Frankly, I have a bigger complaint of having to bear the burden of the self employment tax that I have not heard either liberals or conservatives screaming about. 

Ah, Trapier.  I'm glad you liked my piece so much.

See, I'm talking about HSAs as we have them now, and you're talking about some dream of HSAs as they might be.

Since we don't have these dream HSAs yet, I can only evaluate what we have now and why it's bad for health insurance. If you can get those fixes through, I'll consider them as well.

I do refute your point about premiums growing -- HSA premiums still exist in the world of health insurance, and as costs for everything else continue to rise, HSA's can't escape that.    

Further, I'm not Ezra, so it's not fair to act like his arguments are mine.

And a pay later option is still very different than a pay now option.  

The reason people are buying $1,900 deductibles is because the higher the deductible, the more benefits are covered.  Hmm...doesn't that seem to indicate people want more benefits?

It's not so hard to understand personal freedom and choice, but it's apparently terriby difficult for you to understand why  HSA's are terrible policy.  I've tried to explain it before but you insist on living in the dream HSA world.  

As an independent broker of HSA Health Plans (http://www.HSASale.com). I have many satisfied customers. Yes, it does take some disciple for these individuals to save money, but I would estimate that 90% of my clients have funded HSA accounts. You also have to remember that if you sign-up for a HSA account when you are 25 and pay into it until you are 50 when your medical bills typically rise, you will have quite a chunk of change to fall back on. And after age 65, you can use the money for whatever you want.