Friday, June 6, 2008

HSAs - common misunderstandings

The HSAs (health savings accounts) are in my view the best answer that I know to the question: How do you increase people’s responsibility in health care spending in a fair way that balances compassion (giving the sick all they need) and responsibility (discouraging waste and overspending).
One of the main drivers of health care cost is the moral hazard, the fact that we are “shopping with someon else’s credit card” and therefore do not mind at all to spend generously and overspend. Unless you adress the moral hazard, you will never curb the spiraling health care costs. Obviously everybody wants to best, most complete, most modern etc…...This desire leads to cost overruns and it is often not necessary to reach the goal of diagnosis and or treatment.
People only get a bit more selective and cost conscious when they have to pay pat of the bill themselves. Then, and only then, they will ask the question: “Doctor, how can we manage my condition in a cost efficient way” and if their own money is at stake, they will keep an eye on the doctor’s spending.
The only other way is the top-down, one size fits all, anonymously handed down by committee cost reduction through rationing and through making resources simply unavailable - as it is done in single payer systems such as Canada and the UK - with al the disadvanatges that come with it.
The HSAs are a intelligent, balanced and fair way of adressing this problem, my favorite solution so far. I still have not found anything better. That is why HSA deserve publicity.

Here is a quote from John Goodman" excellent Healthcare blog, a comment left by Greg Scandlen, whose website "" I highly recommend. I could have called this "debunking myths about HSAs" but that expression is so overused...

begin quote:

"Greg Scandlen Says:

May 21st, 2008 at 3:52 pm

The week was not enhanced by the hearing on HSAs held by the Health Subcommittee of the House Ways & means Committee. Chairman Pete Stark (D-CA) has long been contemptuous of HSAs or anything slightly similar. He seems to think that the federal Medicare program is the Nirvana of health care financing - never mind that it has $34 trillion in unfunded liabilities and even then it pays only about half of the average senior’s health expenses.

The witnesses at the hearing included three long-standing opponents of HSAs — Linda Blumberg of the Urban Institute, Judy Waxman of the National Women’s Law Center, and Michael Chernew of the Harvard Medical School. What these folks had to say was boringly predictable and I’m not going to repeat it here. You can go to the Committee’s web site and download their testimony if you are feeling masochistic.

But we responded by submitting a statement that tried to rebut some of the distortions. Part of our statement said –

Most of what you have been told in the testimony to date is either mistaken, based on suppositions or surveys of uninformed people, or simply irrelevant to CDHC. For example –

• You were told that lower-income people cannot afford the out-of-pocket responsibility that comes with an HSA. You were not told how those same people could afford the higher premiums that are required to avoid that cost. In fact, money that is paid to an insurance company for first-dollar coverage is money that is lost forever. Lowering the premium and using that saving to pay directly for services gives the low-income consumer a chance to save money that would otherwise be lost.

• You were told that the tax break associated with HSAs is unprecedented and a boon to the “wealthy.” In fact, the tax treatment of HSAs is precisely the same tax treatment afforded to employer-sponsored health insurance. Premiums are untaxed and benefits are untaxed. It is true that the “wealthy” get a larger tax benefits than the unwealthy, but that is the case for employer-sponsored comprehensive coverage as well as for HSAs. Further, the opportunity to save, say, $2,000 a year that would otherwise go to an insurance company is of far greater benefit to the low-income worker who earns $20,000 a year than to the wealthy executive who makes $200,000, regardless of the tax treatment.

• You were told that “the sick” do not benefit from HSAs because of the higher out-of-pocket responsibility. In fact, both the healthy and the sick have less out-of-pocket exposure with an HSA, a point that was well documented in a recent Health Affairs article. In fact, HSAs limit a patient’s out-of-pocket exposure, something that is not true for the Medicare program, for instance.

• You were told that most health care spending takes place above the deductible associated with an HSA, so they will not have “a significant effect on overall spending.” This is probably true, but irrelevant. HSAs are having a profound effect on lower-cost routine spending and that is significant by itself. Other strategies are needed for high-cost services with or without an HSA.

• You were told that many people with a high-deductible health plan do not open up an HSA. That, too, is true but irrelevant. The HSA itself is attractive for those people who are able to get a tax benefit from passing their direct payments through the account. Other people, especially those who pay no income taxes, may find it more suitable to simply pay cash at the time of services or to keep their funds in some other, non-HSA, account. Further, there is likely to be a lag time between the point of enrollment and opening up that account. This is not a problem.

• You were told that some people who have to pay directly for care or for prescription drugs may fail to do so to save the money. That also may sometimes be true. But there is never any guarantee that people will always fill their prescriptions and take their medications regardless of the financing scheme. In fact, we know that many health conditions are caused or aggravated by patient behavior under all health insurance systems. But, to the extent that people with CDHC are more knowledgeable and more invested in their own care, their compliance will be better than it is for other benefit programs. And that is precisely what we are seeing in the market."

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