The political economy of Health Savings Accounts

We’re going to be hearing a lot of talk about health savings accounts over the next eighteen months as the panacea to our healthcare crisis.  The Republican wonk solution to healthcare spending is to diagnosis the problem as Americans have it too good and too easy and we don’t shop enough with our own money so we’re frivolous and we don’t use our power to say no to exorbitant prices to drive down pricing.

The solution is catastrophic coverage with fairly low actuarial value which means very high out of pocket maximums combined with health savings accounts to buffer a one off event for a year or two where spending is above the out of pocket maximum.  Personally, I am not a huge fan of High Deductible Health Plans(HDHP) with Health Savings Accounts as a general policy solution.  HDHP are good for people who have very strong reasons to believe that they are healthy and have sufficient access to resources to afford the high deductible after they got hit by a meteor.  A HDHP is good for my family.  A HDHP is horrendous for my younger sister as she has a pair of pre-existing conditions that can only be managed and never cured.

But I digress.  I want to look at the political selling point of an HSA.  First, we need to look at the distribution of healthcare expenditures in the US.  I am grabbing this chart via the Incidental Economist from the NIHCM.  

hc-spend

Averages disguise constant outliers.

The political play for an HSA regime is fairly straightforward. The offer would be the US government would fund everyone with an HSA a flat amount every year be it $1,000, $1,500, $2,000 or whatever. And then there would be a super high deductible wrap around plan.

The play is that most people in most years barely touch the medical system. Of the people who do touch the medical system, most of them are fairly cheap where all of their expenses excluding coffee and parking could be covered by the HSA with a bit left over. For the people who are expensive and have expenses that are above the federal HSA contribution level there are a couple of classes. The first class are people who have truly random, non-recurring expensive but not too expensive one-off events that could be covered by the combination of previous years’ balances in the HSA, personal contributions to the HSA and either cash or short term debt.

Everyone in this scenario is seen to be better off than a high actuarial value coverage scenario as they see much lower premiums for insurance that most of the time they will never use.

The two sets of losers in this environment are people with expensive long term conditions. A hemophiliac will be hitting their catastrophic deductible every year. An individual with Multiple Sclerosis will hit their deductible on drug costs alone by the first time they have to mow the lawn in Maine. The FSA contribution is a joke. Having a long term, high cost chronic condition means they are effectively being taxed for being ill and unlucky. The other group of people who are losers in this scenario are people who had a one-off near catastrophic event a few years ago. They covered their deductible by draining their HSA. And then they have another catastrophic event with minimal reserves.

Pain in an HSA world is concentrated most among the least lucky. Pain in the ACA world hits the lucky as they throw in more to cover the unlucky and unwell. The political bet is the temporarily lucky and healthy are a much bigger and powerful coalition than the unlucky or unwell.






39 replies
  1. 1
    WereBear says:

    Excellent summing up. And as I try to explain to people, there are very few who can save enough for even a broken arm, much less anything complicated or expensive.

  2. 2
    OzarkHillbilly says:

    Shorter Richard Mayhew: “The OzarkHillbilly is well and truly fucked.” but thanx. You put it better than I ever have and filled in the blanks for me. Now I caN argue better.

  3. 3
    rikyrah says:

    Keep us informed, Mayhew

  4. 4
    Schlemazel says:

    I remember the first time my company pitched the HD-HSA bullshit to us as the best plan. I was healthy, my family was healthy. But The family I grew up in had experienced a set of medical events that all came out of the blue & would have been a huge burden without good insurance (they were just a burden with it). I said no. Between the fractured pelvis, the cancer and the new continual condition we would have been ruined if I had gotten suckered into that plan.

  5. 5
    MomSense says:

    I love a bargain when I’m shopping but I don’t know how a consumer is supposed to shop for healthcare when you don’t know what anything costs and you’re not usually in any shape at the moment you need to figure it out.

  6. 6
    RigreenGreen says:

    How about offering an HSA without attaching it to a “super high” deductible wrap around plan? (Not to say THAT would work, mind you, just wondering.)

  7. 7
    RSA says:

    Pain in an HSA world is concentrated most among the least lucky.

    Sadly, I think that this is okay with many people, possibly the majority of Americans. Our culture worships the rich and lucky.

  8. 8
    tarragon says:

    Our company offers 3 high deductible accounts with an HSA, gold, silver, and bronze, and one crazy expensive “Hybrid” with an FSA that and a huge out of pocket.

    Since we hit our out of pocket max last year and are likely to for the foreseeable future it makes the plan choice easy. Add it all up and see what each plans maximum cost is.

  9. 9
    Central Planning says:

    My company offers a HDHP + HSA. My family is on it, and we have maxed out the deductible for at least the past 3 years. Migraine medicine is crazy expensive, carpal tunnel surgery is expensive, and getting cancer is expensive. Actually, for me, getting cancer and the surgery wasn’t expensive. It’s the follow-up CT scans and MRIs that the doctors want that is expensive.

    The only benefit of the HSA is that I can fund it with pre-tax dollars and I can save it year over year. Besides that, it’s just a pain in the ass way to have dedicated money to use for healthcare.

    Sadly, even when maxing out the deductible (plus co-insurance) at $4500, the plan is still cheaper than getting the HMO plan. We have to pay the first $3,000 during the first few months of the year, and then it’s 10% of care until we get to the $4500. The HMO plan spreads that pain over the entire year, but then you are always paying, regardless of how much healthcare you use.

    While my premium hasn’t really changed (up ~$10/paycheck this year for the family plan), the company continues to make changes to the healthcare benefit. One year the company funded some of the HSA. One year they changed the maximum per-person/family amount to just the family amount, and next year they are doing away with health incentives (ways to do healthy things and get money added to the HSA).

    I wonder what they will do after that. Probably just raise premiums. I don’t see the HDHP going away any time soon.

  10. 10
    Marmot says:

    The political bet is the temporarily lucky and healthy are a much bigger and powerful coalition than the unlucky or unwell.

    This is a lot like the Repubs’ evergreen plan to get rid of Social Security. Appeal to the larger group’s self-centeredness and greed.

  11. 11

    @RigreenGreen: That could work. I was talking with a couple of other nerds last night, and we were floating around the idea of attaching HSAs to low(ish) actuarial value plans without regard to cost sharing structures.

  12. 12
    Another Scott says:

    I didn’t know what a FSA was (we just have BC-BS via work, though we’ve got the options for these other “xSA” as well), so I did a quick search. Healthcare.gov:

    A few fast facts about FSAs

    FSAs are limited to $2,550 per year per employer. If you’re married, your spouse can put up to $2,550 in an FSA with their employer too.

    You can use funds in your FSA to pay for certain medical and dental expenses for you, your spouse if you’re married, and your dependents.

    You can spend FSA funds to pay deductibles and copayments, but not for insurance premiums.

    You can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor’s prescription. Reimbursements for insulin are allowed without a prescription.

    FSAs may also be used to cover costs of medical equipment like crutches, supplies like bandages, and diagnostic devices like blood sugar test kits.

    See a list of generally permitted medical and dental expenses.

    FSA limits, grace periods, and carry-overs

    You generally must use the money in an FSA within the plan year. But your employer may offer one of 2 options:

    It can provide a “grace period” of up to 2 ½ extra months to use the money in your FSA.

    It can allow you to carry over up to $500 per year to use in the following year.

    Your employer can offer either one of these options but not both. It’s not required to offer either one.

    At the end of the year or grace period, you lose any money left over in your FSA. So it’s important to plan carefully and not put more money in your FSA than you think you’ll spend within a year on things like copayments, coinsurance, drugs, and other allowed health care costs.

    It’s easy to see why the medical industry likes such things (“hey, it’s a dedicated revenue stream for us!”), and why the Teabaggers like such things (“hey, it cuts government revenue by setting aside another pot of money that isn’t taxed!”), but it can’t do much of anything to help people with common and easily expected medical expenses (see above for just a few examples). Having people use different colors of money to pay for different expenses isn’t efficient for the people, and if the IRS has to audit these things, then it increases government expenses for little obvious benefit. If it doesn’t audit these things, then it’s ripe for abuse.

    Pretending that the right half of the cost curve doesn’t exist, or pretending that a large fraction of medical expenses [don’t] happen in the last 6-months of life, or pretending that health care decisions are the same as decisions about laundry detergent, won’t make the problems (of health care in the USA being far too expensive and far too many people not being able to afford it) go away.

    (sigh)

    Thanks.

    Cheers,
    Scott.

  13. 13
    A Lurker says:

    Shopping around doesn’t even really help control cable or cell phone costs. And in these cases, prices are for the most part fixed and advertised up front.

    That anyone thinks this can work for healthcare is absolutely insane.

    I once asked a dentist for a quote for the simplest procedure imaginable. A cleaning. The receptionist laughed at me. Never mind the sucking chest wound scenario.

  14. 14
  15. 15
    Another Scott says:

    @Richard Mayhew: I meant to add: My doc is a big fan of me having lots of blood tests every 6 months to keep track of my various cholesterol numbers, vitamin D level, etc., etc. The list price for these tests is $1250+ every 6 months. Of course, that’s not the real price since I have insurance. My insurance pays about $40 and I pay about $70.

    I don’t know how this would work with a HDHP/HSA/FSA. It’s hard to believe that the whole $1250+ would be dumped on me, but I’m sure that the Teabaggers and their friends at the blood testing company would very love that to happen…

    Cheers,
    Scott.

  16. 16
    A Lurker says:

    Another point that needs to be addressed: What about people who are either newly arrived or returned. In my case I’m a citizen working overseas temporarily.

    Am I supposed to fund a HSA in the US (on top of my healthcare costs over here) in order to build up a balance if I ever return.

    Is the government going to contribute for me even though I’m not currently resident or paying tax?

    How will foreign revenue services view this account and any interest it pays? It’s not a pension, so the default assumption is that it’s reportable and taxable.

    Relatedly, if we go to a continuous-coverage requirement for pre-existing conditions, exactly how screwed will I be?

  17. 17
    Central Planning says:

    @Another Scott: No, you wouldn’t pay the full $1250 – you would pay whatever the negotiated rate is from your insurance provider, most likely the $70 + $40 until you met the deductible. I have never paid list price with any insurance I’ve had, just the “negotiated rate”.

    I had a dentist try to bill me once for the delta between the negotiated rate and his list price. That did not work out well for them.

  18. 18
    ArchTeryx says:

    HSAs are one of the evergreen conservative pet rocks when it comes to health care, but you nail it right on the head: It’s just a tax break for the rich and healthy, while the poor and unlucky (read: people like me) are just hosed in yet another way.

    Getting hosed by the system has been my entire adult life. Obamacare was the first time, the FIRST time, the system actually started to work in my favor, however slightly, and now that looks to be taken away. And people wonder why I’m bitter!

  19. 19
    D58826 says:

    The political bet is the temporarily lucky and healthy are a much bigger and powerful coalition than the unlucky or unwell.

    And the personal bet is that over a normal lifespan of 75 years or so you will never get unlucky. And since the risk of diabetes, heart disease,cancer, and alzheimers are problems of aging it seems to me that most people will become unlucky. Of course they may be assuming that when foks with these diseases of old age hit, medicare will be there to cover them. HeHe Granny Starver Ryan has that one covered also. In short from birth to death you are SCREWED.

  20. 20
    Adria McDowell (formerly Lurker Extraordinaire says:

    We loved the HSA we had with my husband’s old employer, but at that time we were covered by two health insurance policies, so it was used for things like glasses and contacts for me, or any amount that our dental insurance wouldn’t cover (we were covered by two dental insurance policies at the time as well). We are a healthy family, with really no pre-existing conditions, and my husband is covered for his service connected injuries by the VA. (Hopefully Cantaloupe Caligula and the Repukes won’t fuck with it).

    Thing is, unlike many selfish Americans, I know that not everyone is as lucky as we are, and that you still have to pay INTO an HSA. It won’t cover 99.95% of stuff if you have cancer! HSAs are helpful, but cannot replace real heath coverage. Health care is a human right, period.

  21. 21

    @Another Scott: You would pay the $110 contracted rate

  22. 22
    ArchTeryx says:

    @Adria McDowell (formerly Lurker Extraordinaire: Not in this country, it’s not. It was, and is about to become again, a privilege of wealth.

  23. 23
    MomSense says:

    Health Savings Accounts are gone in 60 seconds if you use them for a medical emergency.

  24. 24
    Villago Delenda Est says:

    @A Lurker: I’ve told this story before, about a friend of mine who had a medical emergency. He checked to see if he was covered on a web site for his particular emergency and the web site assured him he was. So he went to the clinic for treatment, and was informed AFTER he was treated that no, you’re not covered. It seems that the particular emergency physician on call for the one who was supposed to be on call was out of network. When he called up the insurance commissioner about this discrepancy, he was told that first, when you’re busy bleeding, you’re not supposed to worry about how you’re going to pay for this (not in this fucked up country, you don’t!) and secondly, they’ll get right on the discrepancy by the health insurance provider in how they report if your situation is in network or not.

    This is why I advocate putting the advocates of “Health Savings Accounts” in the emergency room themselves. So that perhaps while they’re bleeding out, they can contemplate what Hannah Arendt wrote about the nature of evil.

  25. 25
    Rob in CT says:

    Pain in an HSA world is concentrated most among the least lucky.

    Conservatism, in a nutshell.

    Pain in the ACA world hits the lucky

    Liberalism, in a nutshell.

    Fuck these assholes.

  26. 26
    sublime33 says:

    Health Savings Accounts are like Fire Insurance Savings Accounts. You put aside a bit of money aside each year – PRETAX! – and if your house catches on fire, you simply pay for the damages out of your new FISA account. Of course, you have to ignore the possibility that replacing your house might cost a lot more than you ever had the chance to save for. HSA’s are basically a Christmas Club savings account. Except you draw lots for which family you have to buy presents for and you might get stuck buying for the Trump family instead of your own.

  27. 27
    Adria McDowell (formerly LurkerExtraordinaire) says:

    @Villago Delenda Est: This happened to me with TriCare, of all things! My husband and I were moving from Texas to Germany, and I was six months pregnant. I would have gone three months (!!!) without a check up. So I made an appointment with a doctor near my parents house (we were visiting before we went overseas). I got the okay to go to that doctor’s office, and called to make an appointment with the doctor specified. He was on vacation, so I made an appointment with another doctor at the practice. I was seen no problem, but then TriCare tried to tell us that the doctor I saw wasn’t approved. A) How am I supposed to know that, and B) so I am supposed to not be seen at all, even though I was pregnant and needed to be seen every month at that point? Yeah, they ate that bill because even they realized how stupid it was. This is why people hate managed health care. It’s not like I was going to the doc for botox, I was pregnant, FFS! There is literally zero sense in managed health care. None.

  28. 28
    Aardvark Cheeselog says:

    @Schlemazel:

    Wait, they gave you a choice?

  29. 29
    sam says:

    I’ve talked about this before – our company switched us all over to a HDHP/HSA a few years ago, and so far it’s worked out pretty well for me, but that’s because of a few specific things:

    – my company is picking up the cost of the premiums for employees – I pay basically $10/month out of my paycheck for my “share” of premiums. under our old “traditional” plan I was paying well over $100/month in premiums for my share. This is going to be a very different calculation for my colleagues who have families/children, because the company really only covers the cost of the employee – additional family members bump up the “employee” share considerably. So money formerly going into premiums I now contribute to HSA.

    – my company also makes a contribution into our HSA each year, so that’s “free” money. In addition, we now have a pretty robust activity/rewards plan where we can earn money for our HSA – I say “robust” because there are many activities that are “holistic” – meaning that they don’t require physical activity (which is a big problem with a lot of these plans – they can be discriminatory towards people who have disabilities or other mobility issues). Ours includes options for “learning how to save more money each month” and “meditation” and all sorts of things. Or you can just do what I do and max out your rewards by wearing a pedometer earning a $1/day by walking a ridiculously low number of steps for a New Yorker (seriously – I hit the target by the time I get to the subway in the morning).

    At the end of the first year, I had a significant amount of money left over in my HSA – so *I* saved money compared to year over year with my old plan.

    I will say that I am MUCH more conscious of what I am spending on healthcare and how much things cost. But there’s still no real way to negotiate those things – it’s hard enough to find a decent doctor in NY who is taking new patients – switching is not something to do lightly. And my colleagues with chronic conditions (one with Type 1 diabetes) are definitely experiencing the plan in a VERY different way than I am – I would say that you’ve hit the nail on the head in terms of these being OK for the relatively healthy, and less good for folks with chronic conditions.

    One other thing – this plan did enlighten me to my GP’s completely FUBAR billing practices. on my old plan, I would just pay my copay and be on my way. Now, between the ACA requirement for a free checkup and the HDHP billing mechanism where the doctor submits everything and then I get an “adjusted” bill afterwards, that was a sight to behold. At my last checkup, I had to get some extra blood tests done for another doctor, so I knew there would be some charges. I kept waiting and waiting, and checking UHC’s website to see what my doctor had submitted, and they submitted SO MANY DIFFERENT TINY LITTLE THINGS that made no sense to me that I had to call them up and basically interrogate them as to what the f*** they were doing. Every other doctor I go to submits one charge, or maybe two/three if there’s lab work. For that doctor, I’m actually looking into switching because it left such a bad impression.

    The other thing I’m REALLY confused about here – are they talking about JUST giving people a HSA, or giving people a combination of HSA and HDHP? because that’s two very different things. The latter still involves an actual health insurance plan at the end of the day, even if there are more (and possibly still catastrophic for poor people) up front costs to be paid out of an HSA. if it’s an HSA only, what happens when that runs out?

  30. 30
    OGLiberal says:

    To all the single issue voters out there – like the save the fetus, fuck the child folks who hate OCare because it might cover lady stuff – I’m going to be like you. I have two kids. My son has Crohn’s Disease and my daughter has NF-1. (look it up) They were born with these. They do not go away, ever. In order to keep his Crohn’s in remission, my son has to have a bi-monthly outpatient infusion. Each time it costs thousands of dollars, like close to 10k. My daughter is, so far, non-symptomatic and I pray that will last but it likely will not, at which point she will have high costs as well. I’m lucky that I have pretty good employer provided insurance and, even with that, we struggle financially because of co-pays and out-of-pocket. (our FSA has a max of $2,550 but our family co-pay plus out-of pocket max is about 5K so that only covers about half…and that FSA money, while before tax, comes out of my paycheck so not like it’s free cash) But if I lose that job and can’t get another I’m in a world of shit, even with the ACA in full effect. But if we move to this HSA bullshit, I’m truly fucked..big time. I’d be better off just being poor and hoping my kids qualify for CHIP. Of course, that could also be in danger if Medicaid/CHIP becomes block granted. BTW, Trump has a 7-point healthcare reform plan and repealing OCare, HSAs, and block grants. But I’ll be saved by one of his other positions – selling across state lines. Thanks be to Jesus…we’re all save.

    So I’m a single issue voter – all I care about is my children’s healthcare. And fuck this HSA noise and fuck anybody who loves it because they think nothing bad will ever happen to them or their family

  31. 31
    Vhh says:

    @OzarkHillbilly: Great, let the hillbilly get the full impact of what he/she voted for. Right in the neck. I’m done with people too racist or too stupid to understand that insurance pools resources to cover large risks, which hit people without regard to their race. color, creed or general virtue. Thinning the red state population will improve the gene pool

  32. 32
    RaflW says:

    Lemme tell ya, when I had a fever, no appetite, and a white blood cell count that was so alarming the doctor immediately ordered a CT scan, it went like this:

    Dr.: You need a CT scan so I can find out why your white blood cell count is terrible.
    Me (with v high deductible plan at the time): That seems expensive, do I need it?
    Dr.: I don’t order frivolous tests. We need an answer and we need it like today (icy stare of concerned anger from him).
    Me: OK.

    It turned out the ‘retail’ ‘price’ of the scan was $4,000. I have insurance, so the negotiated cost of the scan was $600, all of which I paid. If I hadn’t had that high-deductible plan, you wanna bet that hospital was gonna let me have the scan for $600? Hahhahaha, I have so much market power by myself! Oh, and it was pancreatitis and I could have died. I was fine within a week, however, since it was accurately and quickly diagnosed.

    Anyway, free markets are bullshit for medical care.

    As a semi-aside, I hope AARP and seniors in general hand Paul Ryan his ass on a tarnished old platter for suggesting privatizing Medicare.

  33. 33
    Arclite says:

    Aren’t these those kinds of use it or lose it plans? I hate those because I can never A) estimate how much I’ll use in a year, and B) forget to use it so I lose it.

  34. 34
    Irony Abounds says:

    As a cure-all for everyone I agree HSAs simply don’t work. On the other hand, they do make sense for a segment of population so I do not see why they are evil as long as it is optional. My HSA has a deductible of $5,500, which isn’t painless, but it is not so astronomical that my financial world will come to an end if I have to spend that money (which I did a few years ago when my daughter had to deal with thyroid cancer). Being able to use pre-tax dollars is a benefit, plus you get all the negotiated rates on treatment you get from other types of health insurance. Again, I recognize how it wouldn’t work for everyone, but as an option I think HSAs are worthwhile.

  35. 35
    sam says:

    @Arclite: FSAs are use it or lose it. HSAs roll over and if you actually accumulate enough money in them, become investment vehicles like a 401(k). I can’t speak to the actual wisdom of that last part, but HSAs are “your” money.

  36. 36

    @Arclite: No use it or lose it is the Flexible Spending Accounts (FSA) not HSA which you can roll over and accumulate

  37. 37
    Procopius says:

    Something I haven’t been able to come to grips with are these people who say they’re healthy and aren’t going to get the benefit of their premiums. As I understand it, about 3,500 years ago, Chinese merchants on the upper Yangtze River were faced with narrow gorges which produced violent, dangerous rapids. Many of the ships carrying their goods toward the coast were wrecked. The merchants hit on the scheme of splitting their cargoes among several ships so some would probably survive the trip. The shipowners, however, couldn’t do that, so they hit on a brilliant scheme. Every shipping season all the ship owners in a town would contribute to a pool of money. At the end of the season, the owners whose ships had been lost split the pool of money to (hopefullY) give them a stake toward building new ships. As I understand it the owners who did not lose ships, and did not get any money from the pool, did not feel that investing in the pool was a waste. This was the origin of insurance. Over a long career they might contribute more than they would have spent building a new ship, and they did not feel that was a waste. I don’t think any of them felt that socking a little money away in a “shipwreck savings account” would have been as good a way of managing risk.

  38. 38
    Procopius says:

    @MomSense: I, too, have wondered how you’re supposed to shop for health care. Usually you don’t know what your problem is. That’s what you need the doctor to tell you. Then you don’t know what the price of the medicine is, which medicine you need, if there’s some physical intervention you need, too, etc. The hospitals certainly won’t tell you how much they are going to charge.

  39. 39

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