Who wants HSA's?
Allan Hubbard, an senior economic advisor to the administration, is singing the praises of consumer directed health care:
HSAs could help low-income U.S. residents because the high-deductible health plans associated with the accounts are less expensive than traditional health insurance. He said, "Some people say, 'Well HSAs are just for the rich and the well,'" adding, "As it turns out, of the three million people who have taken up HSAs, 37% were previously uninsured, and 40% earn less than $50,000 a year."Last time I checked, $50,000 isn't anywhere near "low-income". When less than half of your enrollees have incomes at $50,000, I don't think that's ample evidence to claim HSA's don't attract majority higher-income clients. Hubbard says HSA's aren't for the well, but he doesn't mention any statistic to back that up.
But there's a larger problem -- HSA's are another government-subsidized "fix" for health care that is a big waste of money for taxpayers.
One of private health care's best-kept secrets is that it's already heavily subsidized. Employers can deduct health costs from their income, so they end up paying less in both social security and income taxes. While the tax break sounds somewhat insignificant, this windfall is estimated to cost the government $120 billion dollars a year in lost tax revenue.
This is an incredibly inefficient way of funding health care. Rather than simplifying things and going single payer (or at least providing universal coverage), the government pays indirectly for our fractured system.
HSA's, on top of their other problems, are another way for government to subsidize private sector care. The employer tax credit and other health care tax breaks ensure government foots the bill for our private market experiments. That $120 billion should go to providing coverage for everyone, rather than sustaining the system as it cracks around the edges.
Look, there is a group that could find HSAs a better solution than is currently available to them, and that is the self-employed. They would have to be pretty well off and have a significant savings on hand to get on the bus, so to speak, because the cost of getting started is considerable, but it might actually work for a tiny segment of the currently uninsured population. The point is, it would NOT work better than a universal, single payer system, and that's the only thing that makes sense.
February 3, 2006 8:52 AM | Reply | Permalink
This isn't intended as a criticism, but to be fair, I think you should point out that the "tax benefit" runs not to the employers (health insurance expense is a deductible business cost no different than wages) but to the employees who are receiving compensation which they are not being taxed on.
But whether it is the employer or the employee who is being subsidized through favorable tax policy, it's still subsidization.
February 3, 2006 8:55 AM | Reply | Permalink
Hubbard points out that while "some people say...HSAs are just for the rich...40% [of those with HSAs] earn less than $50,000 a year."
You attack by saying "$50,000 isn't anywhere near 'low-income'".
Why do you have quotes around "low-income"? Hubbard did not mention "low-income" consumers. He said HSAs are not just for "the rich". And I would argue that with an income of < $50,000 you cannot be called "rich".
There really are other strong, respectable reasons to be an HSA skeptic; and they don't involve attacking people for points they haven't made.
Trapier K. Michaelwww.Marketplace.MD
February 3, 2006 10:06 AM | Reply | Permalink
I would be interested in a demographic breakdown of those who've moved to HSAs. Having been self-employed, and having many friends and former clients who were ALSO self-employed, I would like to see if my hunches would be borne out.
Regardless, the program doodles in the margins AT BEST. It won't do.
February 3, 2006 11:11 AM | Reply | Permalink
The employer shares in the benefit. It gets to offer the employees a total package worth more to the employee for the same cost. Accordingly employers can reduce the wage portion of the package from what it otherwise would have needed to be to have the same attraction to the employee versus other possible employers.
Example: First employer offers a salary of 50K with no insurance, tax rate 20%, employee takes home 40K salary, cost to employer 50K. Second employer offering an insurance package worth 5K would only have to offer a salary of 43.75K to generate 35K in after tax dollars at the 20% rate, which, when added to the tax-free insurance policy, gets the employee to the same 40K take-home as the first employer offered. Thus the total cost to the second employer is only 48.75K to be competitive with the first employer who is out of pocket 50K. This doesn't even take into account the fact that the uninsured employee can't get insurance at the same price on his own as through the employer, making the benefit of the insurance (to both parties) even greater.
February 3, 2006 1:45 PM | Reply | Permalink
There are HSA discussions also going on in the comments for two other Steadman entries:
--Building Bridges
--What do Americans think about health spending?
As for why individuals are purchasing HSAs, for those in good health with higher incomes who may have access to more comprehensive insurance if they or their family become seriously ill, they are a tax advantaged purchase. For lower income individuals with limited access to insurance, a high deductible policy may be the only policy available or affordable. These reasons don't make HSAs the right health policy choice. And with the small number of HSAs out there, we shouldn't read too much into the current distribution of who has bought them.
Every country that has succeeded in assuring universal insurance, and the access to care it allows has done so by 1) either putting an insurance card into people's wallets or requiring they purchase insurance, and coupled with this, 2) made the amount they pay toward their coverage a function of their income or wages, not a fixed head tax (same premium regardless of income) that may be higher (if there is medical underwriting) for the sick. Healthy or wealthy you pay more than the actuarially-fair premium to guarentee that when you or your children or relatives or neighbors are poorer or sick they have access to insurance at a price they can afford.
February 10, 2006 9:34 AM | Reply | Permalink