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HSAs are not the cure

In poll after poll Americans name fixing the health care system as a top domestic priority. Even those with employer-sponsored health insurance are feeling insecure. But despite this national anxiety, the prescription offered by President Bush in his State of the Union speech was a spoonful of weak medicine.

The centerpiece of Bush's health care strategy is an expansion of health savings accounts, a program initially approved by Congress in 2003.

These accounts operate in tandem with catastrophic or high-deductible health insurance. Individuals who purchase a health insurance policy with a deductible of at least $1,050 for an individual and $2,100 for a family, can then contribute pre-tax money into an account that can be used to pay for the deductible.

The president proposes expanding the ceiling on the pre-tax contribution - this year it is $5,450 for a family - and allowing the accounts to be used for all out-of-pocket health-related expenses. The White House also proposes making the insurance premiums tax deductible for the self-employed and uninsured.

The idea is that "consumer-driven" health care will tamp down costs, since people digging into their own pockets for health services will be more exacting consumers, and it will address the problem of the uninsured by giving them tax incentives to sign up.

But the evidence on how health savings accounts are operating so far is telling a different story. About 3-million people already have enrolled in the program. Of those, only about half have put any money in the account. Just as with other "ownership society" benefits, you can only reap the tax savings if you're wealthy enough to put dollars aside.

Then there's the study by the Employee Benefit Research Institute that found people with consumer-driven health care are more likely to spend a larger share of their income on medical expenses, and less likely to seek the routine preventive health care they need. Moreover, for consumers to have an impact on pricing levels for medical services, information on quality and cost has to be readily available. But it's not. A single doctor might have thousands of different billing categories for various procedures and a hospital, tens of thousands. For an average consumer, trying to compare prices is virtually impossible.

The idea is that "consumer-driven" health care will tamp down costs, since people digging into their own pockets for health services will be more exacting consumers, and it will address the problem of the uninsured by giving them tax incentives to sign up.

The long-term risk of health savings accounts is that they will be tempting to employers looking to get out from under double-digit increases in health care costs. Just as with the death of defined-benefit pension plans, employers might start shifting the inflationary risks onto workers. For example, an employer might agree to contribute $2,000 a year into employees' health savings accounts and after that they're on their own.

Health savings accounts are as much about letting the employer off the hook and providing a new tax loophole for those in the highest tax brackets as about providing good medical coverage for workers. If these accounts are part of the answer to this nation's health care affordability crisis, they are a very small part indeed.

[Last modified February 7, 2006, 01:12:14]