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Health Care Debate: Health Savings Accounts as Cost Containment
The current socialized medicine bill
proposed in the house and senate discourages a cost
containment method known as the Health Savings Account
(HSA).
What is a health savings account (HSA)? Is the HSA a cost containment tool? Is the proposed socialized medicine scheme discouraging the use of the HSA?
What is a Health Savings Account (HSA)?
The health savings account (HSA) is a market based, consumer driven, health-care cost containment mechanism. Through the use of tax qualified deposits to the medical expense savings account and through withdrawals from the account of tax free money (tax free when used for qualifying medical expenses) the consumer is put in the a position of spending their own funds in the wisest manner. (1) (2)
The health savings account is the concept of moving insurance back to the realm of catastrophic coverage. That is, you are allowing insurance to perform its intended use and moving routine items to the sole direction of the consumer. In this way you remove the use of the "insurance mechanism" for everyday expense and/or basic health maintenance issues. (3) (4)
Is the Health Savings Account a cost containment tool?
Health insurance dates back to the artisans of imperial Rome. (5) Health insurance progressed over the years and between 1910 and 1945 the basic medical care expense program was introduced. However, basic medical care expense policies were inadequate against catastrophic accidents and illnesses that required long hospital stays and/or extensive treatment. (6) In extended stay and extensive care cases, the medical expense plan left the insured with large unmanageable bills that were not covered by the basic medical expense plan.
To address the short comings of the basic medical expense plan, Liberty Mutual Insurance Company in 1949 introduced major medical insurance to provide insurance coverage for catastrophic medical events. (7) Today major medical is the most common medical- care coverage available. (8)
However, as with any insurance plan, public or private, there is an inherent problem of the "third party payer system". That is, when a third party pays a bill on the consumer's behalf, the consumer is disenfranchised from the health-care cost and health- care provider. That the third party payer effect leads to the any cost from any provider phenomena. (9) (10) (11)
Major medical health insurance was designed to pay for catastrophes. However, in the recent past major medical has been combined with elements of the old basic medical expense plan with offerings (known as "extras") such as doctor office co-pays, specialist co-pays, prescription cards co-pays and co-pays for emergency room visits. The relatively small out of pocket co-pay with the remainder of the bill subject to the third party payment effect mentioned above, leads to over utilization at a high cost. That is, the cost of the routine expense and the provider of the routine expense are not items that the consumer directly measures in regards to expense or quality due to the third party payment effect.
If you price a typical major medical plan with a $1,000 deductible and include the menu of "extras" as mentioned above, then reprice the plan removing the "extras", you find, as a rule of thumb, a 30% reduction in cost. Further, by increasing the deductible from $1,000 to $5,000, you generally see another 15 to 20% reduction in cost. Hence the proponents of high deductible health plans (HDHP) point to the immediate savings to the consumer of the traditional major medical plan with a high deductible. In other words, taking the major medical plan back to its intended initial use as a "catastrophe plan".
With the removal of the "extras" and the increase in the deductible a major cost savings is achieved. This cost savings is then redirected into the health savings account. The health savings account then gives the consumer the ability to make cost effective decisions about more minor, mundane, everyday expenses such as routine doctor visits, prescription drugs, physicals, etc.. The consumer can shop these routine medical needs and find the best provider at the lowest cost. In other words, the third party payer effect is removed.
Is the current socialized medicine scheme discouraging the use of HSA's?
In both the house and senate versions of socialized medicine the health savings account is discouraged rather than encouraged. (12) Coverage never intended to be included in high deductible health plans are required to be included driving up cost for the major medical portion. Further, limitations on contributions and withdrawals are proposed in both house and senate plans.
The arguments to discourage the health savings account are class warfare based. The typical argument avoids the cost containment feature of the health savings account and concentrates on the class warfare argument associated with the tax qualified status of health savings account as well as the health savings account not being a popular program. (14) (15) However, the critical arguments to discourage HSA's are quickly dispatched as highlighted in a paper by Michael F. Cannon of the Cato Institute as well as other evidence . (16) (17) (18) (19)
Basically the arguments against health savings accounts are that the wealthy and/or high income earner takes advantage of the tax aspect of health savings accounts more often than low wage earners. The argument is the classic class warfare argument and has nothing to do with the main idea of cost containment. The arguments against HSA's point out that HSA's are not popular and have little impact on market share of health insurance. The popularity argument is based on notions and not empirical evidence. That in fact between 2004 and 2010, a mere six years, the HSA has captured 12% of the health insurance market place. (20) (21)(22)
One must take into account that the proposed socialized medicine scheme is nothing more that an elaborate and very complicated price fixing scheme. (23) Fixing prices has nothing to do with cost containment. In point of fact, price fixing schemes have always produced reduced supply. The proponents of price fixing schemes think fixing a price somehow affects basic underlying cost. The results of price fixing is well known within the discipline of economics. Its known to fail each and every time ever attempted. There is not one recorded incident in all of economic history where price fixing ever succeeded. Hence the discouragement of the HSA under the proposed socialized medicine scheme fits the proponents wishes as they are removing a cost containment measure in favor of price fixing.
Summary
The health savings account is a cost containment measure. The health savings account is an attempt to put health insurance back in the realm of catastrophe coverage and make routine medical needs a consumer driven point of sale decision hence creating a cost containment environment. The currently proposed socialized medicine scheme is in fact discouraging health savings accounts as a cost containment measure.
Notes:
(a) the phrase health savings account gets blurred. Many times the phrase health savings accounts (HSA) is used when referring to high deductible health plans (HDHP). Also, the phrase health savings account is sometimes used to refer to the combination of the health savings account and the high deductible health plan.
(b) an excellent source for health savings account information can be found as http://www.hsabankusa .com/.
(c) a very comprehensive discussion of the tax aspects of the health savings account can be found at h ttp://www.irs.gov/publications/p969/ar02.html
(1)http://www.examiner.com/examiner/x-11804-Health- Care-Examiner~y2009m7d27-Health-Savings-Accounts-101- Twelve-reasons-to-have-a-Health-Savings-Account-HSA
(2)http://www.foxnews.com/opinion/2010/01/21/clgray- health-care-reform-obama-massachusetts/
(3)http://www.healthsavingsinfo.com/
(4)http://www.health--savings--accounts.com/hsa- weblog- arch/2009/07/hsa_plan_owners.html
(5)(6)(7)(8) http://www.mrm-mgu.com/sections.asp? sec=42
(9) http://www.healthsavingsinfo.com/
(10) http://www.euclidmanagers.com/downloads/legrev/LRSept04 READER.pdf
(11) http://www.answers.com/topic/economics-of- health
(12) http://blog.group-insurance- guide.com/2010/01/14/health-savings-accounts-effects- of-health
(13)http://blogs.wsj.com/wallet/2009/06/26/health- savings-accounts-come-under-fire/tab/article/
(14) http://industry.bnet.com/healthcare/1000865/health- savings-accounts-much-ado-about-nothing/
(15) http://money.cnn.com/2009/09/14/smallbusiness/health_sa vings_account_HSA_reform/index.htm
(16)http://www.cato.org/pub_display.php? pub_id=6395
(17) http://www.health--savings--accounts.com/hsa- weblog-arch/2009/07/hsa_plan_owners.html
(19)http://blogs.wsj.com/wallet/2009/06/26/health- savings-accounts-come-under-fire/tab/article/
(20) http://www.healthsavingsinfo.com/
(21)http://www.kff.org/insurance/7672/
(22) http://www.ahipresearch.org/pdfs/2008_HSA_Census.pdf
(23) http://thelastembassy.blogspot.com/2009/12/socialized- medicine-scheme-bending-cost.html