Health Savings Accounts

by hilzoy

Kevin Drum just wrote a post on the Bush administration's idea for health care reform: Health Savings Accounts. I wanted to expand on what he said, since HSAs are a Very Bad Idea, and it's worth knowing why.

The basic idea behind health savings accounts is simple. You get a health insurance policy that is, ideally, cheaper, but has a much higher deductible. In Kevin's example, the deductible is $2,000; he suggests that such a policy would be $2,000 cheaper, but that's wrong. CNN reports:

"According to the Kaiser Family Foundation, premiums for an employer-sponsored family plan averaged $9,068 in 2003, with workers kicking in $2,412. The premiums on a high-deductible plan will run you 20 to 40 percent less, estimates Herschman."

If you have such a policy, you or your employer can deposit money in a tax-sheltered account. The idea is that this account will cover some or all of the health care costs you run up before you hit the deductible. Since you will have to pay for the first few thousand dollars of your health care costs, the proponents of HSAs argue, you will be motivated to be a good consumer, and use no more health care than you need. In this way, health care spending will be driven down.

Sounds good, right? A nice, market-oriented solution to a serious problem. (And the idea that liberals are hostile to market-oriented solutions, in general, hasn't been true for at least fifteen years.) However, this is just one more illustration of Hilzoy's First Rule of Policy Wonkery: Never, ever rely on slogans instead of looking at the details*.

First, under the Bush administration proposals, employer contributions to HSAs are optional. That means that the account you supposedly get to use to pay your medical bills below the deductible might not exist. You could put the money you save into it, but as noted above, those savings will not cover the whole difference in the deductible. If they don't, you'll just pay more.

Second, HSAs will not, in fact, lower health care spending overall. The best study on the issue concludes that "health spending would change by +1% to -2%." One reason, as Kevin notes, is this:

"the vast bulk of healthcare dollars are spent on people who are extremely sick and quickly blow past even a large deductible anyway. Since HSAs don't affect that spending at all, it means that, at best, their effect on the total cost of healthcare is probably pretty negligible."

It's worth being clear about this. To that end, I have created my first ever chart using Excel (I am so proud), from data found here (see Exhibit 1.11):

[UPDATE: OK, I blew my chart. Darn. Along the y axis, it should say: percent of health care spending. The idea being that the 1% of the population who spend most on health care account for 22.3% of all health care spending, and so on.]

The top 50% of health care spenders will probably breeze right by their deductible, and will thus be completely impervious to HSAs' incentives to save money. Any health care savings will have to be gained from the bottom 50% (or from people who will be in the top 50% but don't yet realize it.) But the bottom 50% accounts for only 3.4% of health care spending. This means that this proposal leaves the overwhelming majority of health care spending absolutely untouched.

More problems below the fold.

Third problem: the health care market is just about the last place you'd expect an idea like this to produce better health care decisions. For one thing, consumers often have absolutely no idea of what they will pay for services, especially non-routine services. Hospitals, for instance, rarely tell you which services you can expect to receive while (say) having your appendix removed. And they almost never tell you how much you will pay for these services.

One reason for this is that how much you pay depends a lot on your insurer. Different insurers negotiate different pay scales with medical service providers; and so there is no handy price list for consumers to survey. (A persistent unfairness in the health care system: the insurers who cover large companies tend to get much better rates. This means not only that many small businesses pay more for health insurance, but also that their workers pay more for the very same health care if they haven't reached their deductible. Small businesses tend to employ less prosperous people. Of course, the uninsured haven't negotiated any reduction, so they pay sums undreamt of by people with insurance, for the same health care.)

Besides the lack of information on price, it's very hard to get good information on quality. From an article in TNR:

"Within the federal government, the Centers for Medicare and Medicaid Services recently began publishing information on hospital quality, in the hopes of steering beneficiaries to the best providers. But, while a few basic criteria are helpful in drawing narrow judgments--generally speaking, you want to get a surgical procedure at a hospital that does a large quantity of them--others can be grossly misleading. Does a high mortality rate suggest a hospital has lousy staff? Or does it mean the hospital simply takes on the most difficult cases?"

So we are hoping that giving consumers incentives to save money will produce savings even though those consumers will have to make decisions without good information on either price or quality. This is not, it seems to me, a recipe for success. And that's even without considering the fact that a non-trivial amount of health care decisions are made in emergencies, when detailed comparison shopping is really not an option.

Fourth, whether you're concerned with helping the sick or with saving money over the long term, you want to achieve savings by having consumers spend money more wisely, not by having them skimp on things like annual checkups, pap smears, and the like, which can catch diseases early, thereby avoiding both a lot of needless suffering and a lot of needless expense. But HSAs give people incentives to skimp across the board.

This is especially true when you consider that most people do not consciously decide to spend excessively on health care. They buy what they need and think they can afford; they don't just decide to have a colonoscopy for kicks. The rich will probably continue to spend money as before, even if they have to pay more of their health care costs themselves. The poor, however, will probably save money on checkups and preventive care, especially since, if their employers don't contribute to their HSAs, the money will come entirely out of their own pockets. Possibly some savings might come from the middle class, but it's not at all clear that those savings would offset the higher costs incurred as a result of poorer people skipping checkups and preventive care.

Finally, there's the truly ghastly problem of adverse selection: HSAs will draw young, healthy people out of traditional health insurance, since they are the ones who can best afford to take the risk. This will make the premiums for traditional health insurance skyrocket, and this, in turn, will mean that people who are already sick will find their costs driven up, even if they remain with their original plans. Last time I wrote about this, I tried to explain the phenomenon this way:

"Insurance is all about spreading risk among large numbers of people. Premiums basically reflect the amount of risk per capita: when everyone ends up needing big payouts, premiums are high; when most people don't, they are low. Bush's proposal creates enormous incentives for young, healthy people to opt out of normal medical insurance and into a system of catastrophic coverage plus health savings accounts. The poor, old, and sick, by contrast, wouldn't be able to afford to. But if all the young, healthy people opt out, then the premiums for those who remain -- the poor, old, and sick, mostly -- will skyrocket. At that point, the costs for those businesses who still offer normal health insurance also skyrocket, and those businesses will (quite understandably) try to move to a system in which they offer only catastrophic coverage, which is much cheaper. And what this means is: Bush's proposal has the potential to break our current system of employer-provided health care, leaving healthy and wealthy people, as well as corporations, better off, but at an enormous cost to the poor and the sick."

The upside, supposedly, is that this is part of the "ownership society", and will encourage personal responsibility. But I can't imagine why breaking the existing system of health insurance encourages our "ownership" of anything besides our medical bills. And if you own enough of them, you will stop owning a lot of other things -- your house, your car, your savings -- in very short order.

Moreover, insuring yourself against some hazard is a way of taking responsibility for dealing with it. And it's exactly the right way to deal with large and unforeseeable costs: the amount of health care costs you can insure yourself against is always larger than the amount you can prepare for by saving up money, and of course you are also less likely to end up dead or needlessly disabled. Why anyone thinks that in this case responsibility and insurance are at odds is a mystery to me.

So here's the deal: Health Savings Accounts will achieve minimal savings at best; they will introduce more market incentives into just about the last place you'd expect those incentives to work well; and they will break the existing health insurance system, leaving the old, the poor, and the sick to pay more, and the young, rich, and healthy to pay less.

Advocating Health Savings Accounts is a triumph of ideology over serious thought. They are deeply unfair, and we should oppose them.

*Hilzoy's Second Rule: there are some problems to which game theory cannot usefully be applied. There are, of course, more.

Comments

[tynic]

*applause*

[Bruce Baugh]

Outstanding! Bookmarked for later reference, when I need to make these arguments.

[Windle]

I just pulled up my Quicken account.

YTD I estimate that my HSA has saved me $1,578.54 compared to the plan I was going to get for full coverage.

Yahoo, for me and my family.

[John Thullen]

Ah, the healthcare consumer.

"The poor, however, will probably save money on checkups and preventive care ..."

That should make for an entertaining reality show. The laughter caused by the window-shopping segment alone will probably rupture my spleen and send me off on a flight-for- life from hospital to hospital to do a little shopping.

So I have this brain tumor (hey, save the donations ;)). But I'm trying to save the upfront $4648 deductible cost in case my kid's brain tumor flares up again. So, here's my offer. I'm putting the tumor up for sale, along with three chocolate chip cookies and a cinnabun. As soon as I get the $4648 bid, I will begin shopping for a suitable surgeon and oncologist, between the seizures and the slurred speech.

Look at it this way; by this method and some shrewd shopping I save the money in my account, which I transfer into my IRA which I can pass on free of the death-tax (dying something else I've been incentivized to put off because of the burden) to my heirs. Plus, thru your charity, all of you may experience a renewed sense of community and charity and love for your fellow man that you are obviously missing by just paying taxes to the government for the health care of unhealthy Wal Mart clerks who I believe should be made to jockey shopping carts around at high rates of speed during their job interviews ...

which gets me back to that spleen ruptured by extreme Kafka laughing and another bake sale.

Windle will buy the $1578.74 cookie.

Google, for me and my family.

Nice post, Hilzoy. I notice future Supreme Court Justice Alito looks askance at the regulation of machine guns across state lines by the Federal government.

Just in time. As Bob McManus might ask: "Tell me who's winning again?"

[Dianne]

"Fourth... you want to achieve savings by having consumers spend money more wisely, not by having them skimp on things like annual checkups, pap smears, and the like, which can catch diseases early, thereby avoiding both a lot of needless suffering and a lot of needless expense. But HSAs give people incentives to skimp across the board."

Excellent point! Actually, we need to think of incentives to get people to do their health maintanence exams, not invent more excuses for them to skip them. Compare the cost to society and the individual of, say, a pap smear and conization versus chemo/radiation for stage III cervical cancer or colonoscopy with excisional biopsy of an adenoma versus resection and chemotherapy for stage C colon cancer. And I'm not even going to get into the cost of treating metastatic cancer: it doesn't bear thinking about. But almost no one likes to get a pap smear or a colonoscopy. Give them an excuse--for example, that they need to save money on health care--and they won't get them...to their and society's ultimate detriment.

Also, some "unnecessary visits" from the medical point of view have social utility. For example, a person who has an upper respiratory tract infection. It's going to get better with rest and time whether they see a doctor or not. However, many employers require a doctor's note before an employee can take a sick day. If a person with a URI doesn't rest, they can develop pneumonia, sepsis, and other nasty complications. Not to mention that they'll spread it to their co-workers. So they need to see a doctor to prove to their employer that they are, indeed, sick, even though they don't need any actual treatment. Strange that it should work that way, but it does. Again, encouraging people to tough it out rather than go to a doctor, get the note, and get proper rest is going to lead to bad results in some cases. Not every case, of course, but one person dying of sepsis unnecessarily is too many.

[Neolith]

For the past three years, I've been self employed with a high deductible health insurance plan, and HSA have been an absolute godsend to my family. My premiums were $X, and with a lower deductible co-pay plan they were going to be about $2-2.5X. There are a lot of things in this article that made no sense to me as a person participating in the system. Maybe a little help?

the vast bulk of healthcare dollars are spent on people who are extremely sick and quickly blow past even a large deductible anyway. Since HSAs don't affect that spending at all, it means that, at best, their effect on the total cost of healthcare is probably pretty negligible.

If you have a high deductible account, you are openly admitting that you are worried about trips to the hospital that will rack up tens of thousands of dollars in medical bills quickly, and you will accept the smaller costs like sore throat visits and routine checkups counting on the fact that these expenses, even if nickle and dimed up to to deductible, won't destroy you. This talk of total cost of health care seems bogus, of course when put up against cancer and heart disease and severe trauma, sore throats and the like are small potatoes, but its the latter that families can actually see savings on, so isn't that the point?

The first year of self-insurance for my wife and I, we ran just over the deductible, and it was tough to pay $3000 grand, especially for not-fun stuff. If I had a HSA set up during that year, at least I wouldn't have gotten the double wammy and paid taxes on that $3000 I never really got to see in the first place. Or am I missing something here?

(A persistent unfairness in the health care system: the insurers who cover large companies tend to get much better rates. This means not only that many small businesses pay more for health insurance, but also that their workers pay more for the very same health care if they haven't reached their deductible. Small businesses tend to employ less prosperous people.

Questionable assumptions aside, I have a small business of two people, and I get Anthem BCBS. They negotiate the same prices as far as I can tell as they did when I was with a 500+ person company that was covered by BCBS. Its true that the premiums for BCBS coverage were slightly higher than the bottom feeder coverages (like, 10-15%, maybe, and often not that) but I don't see that small business cannot get competitive health care for their people. In my experience, it is certainly possible.

So we are hoping that giving consumers incentives to save money will produce savings even though those consumers will have to make decisions without good information on either price or quality. This is not, it seems to me, a recipe for success. And that's even without considering the fact that a non-trivial amount of health care decisions are made in emergencies, when detailed comparison shopping is really not an option.

The first part of this is a good point. There should be some way of getting reliable information on pricing and quality if we expect the fair market to work in any sensible way. But then the emergency discussion gets sidetracked, because expensive emergency medicine is almost sure to exceed your deductible, in which case the cost won't matter. Quality, maybe, but if I get my leg bit off swimming in Florida, I'm not going to ask to see a comparison chart among the local hospitals, and the ambulance people or medivacs aren't going to ask. Isn't discussion of emergency services a bit distracting here?

And young, healthy people have always been wise to cover catastrophic insurance, just like they've been smart to go term life versus whole, and just like people are smart to only carry the collision insurance they couldn't afford to swallow in a worst case situation, and are smart to opt out of the insurance Best Buy sells on anything you buy in their store. Insurance premiums have been skyrocketing since I've been paying attention to them (since I came of age, or the past twelve years or so), so something else is going on here. I have good ideas as to what those things are, and you probably do to.

HSA aren't a cure all, and again, if you can't cover the deductible its almost like you're uninsured anyway, so we still have the basic problem of people with insurance that does them no good. And I am in full agreement that there has to be a better way to get comparisons on price and quality to the people making the decisions; the racket they have going now is one that a car salesmen could only dream of. But I certainly don't think HSA's are evil.

[hilzoy]

Neolith: if the availability of HSAs had no effect on the availability of affordable traditional insurance, I would not think they were evil. I wouldn't think they were very likely to lower overall health spending either, but fine.

The real problem is the fifth point, adverse selection. HSAs will be better for young, healthy people. They will also not just be worse for older, sicker people, but the fact that younger, healthier people opt out of conventional insurance will drive up the cost of conventional insurance for those who stay in. That is: their choices will be affected, probably profoundly, by the choices of others.

One might say: so what? It's all free choices anyways. But the fact is that our government, under Bush, is doing a lot to make HSAs a better deal than ever, and it has talked about things like doing away with the business health insurance deduction, which would favor HSAs over traditional insurance. When the government puts its weight behind one policy over another, it's worth asking whether it's supporting the right thing.

[John Thullen]

Dianne:

Good comment, but what you don't realize is that unnecessary death is cheaper for all of us. Plus, unnecessary death creates a more moral society and makes the poor run a little faster to keep in shape and keep their heads down. Unnecessary death prevents union organizing, for example.

And don't get me started on necessary death.

When faced with a tragedy, laughter is the best medicine. Under HSAs, sepsis rates a moderate chuckle. Now, metastatic cancer is sidesplitting and I haven't quite saved enough guffaws for that, so I'm putting off my doctor visit.

I prefer impulsive shopping for the big stuff.

Speaking of necessary death, Bill Bennett looks like he needs a checkup.

[Slartibartfast]

As a guy who enjoys HSAs, I have to say that I'm in favor of them. But that's kind of irrelevant to hilzoy's point, maybe.

There's all kinds of things that can accomplish the same thing as HSAs, nearly, like making medical costs a direct reduction to gross income. That particular approach shifts oversight from the HSA steward to the IRS, though, which is probably not where the IRS wants to be.

So, what do you do? Well, you'd probably want to start by providing some sort of basic, preventative care to those who can't afford it. What that would cost, and how to structure funding, I have no idea. I'd at least like to think that a national health insurance plan that's minimalist in that sense would be much more likely to get consideration in Congress than some Grand Unified Healthcare Plan.

All of which may have already been done and undone, for all I know.

[Slartibartfast]

Oh, yeah, and HSAs don't make any sort of sense whatever for people who don't pay taxes. So, que?

[John Thullen]

Didn't we discuss favorite New Yorker cartoons, recently?

Here's one, which sums up the whole medical insurance mess, regardless of your politics:

A game show set: viewed from above. The contestant is pondering which of three curtains to choose for his prize. Wink Martindale or the great Gene Rayburn holds the microphone to the contestant's mouth in breathless anticipation. Scantily clad blondes are poised to drape themselves over the prize. The applause sign is set to begin blinking maniacally. The applause fluffer is good to go.

From our vantage point above we see the three prizes behind their curtains. On the left, a washer and dryer. Behind the middle curtain, a small speedboat and a set of water skis.

On the right, ready to stride into the giddy prizewinner's life, stands Death, hooded and robed, scythe poised for a graceful sweep.

[Francis]

Slarti: if health care had no communal benefit, then your personal experience with HSAs would be relevant.

since, however, this country still has a majority of people who believe that there is a societal component to health care (e.g., it's wrong for the poor to die from preventable causes; something should be done about the crazy homeless people, etc.), it would be nice for you to look beyond the tip of your own nose and examine the externalities caused by your preference.

[Dianne]

"Well, you'd probably want to start by providing some sort of basic, preventative care to those who can't afford it. What that would cost, and how to structure funding, I have no idea."

Currently, the system is structured in just the opposite way: emergency care is covered, but not preventative care. For example, in New York, anyone poor enough can get emergency medicaid. Emergency medicaid will pay for ER visits, hospital bills, months in the ICU, radiation, dialysis, chemotherapy, plasmapheresis, etc. It will not pay for routine follow up visits, preventative care, or a few procedures that are considered to be never justified as emergency treatment. Of course, emergency treatment is more expensive than routine treatment. An ER visit is more expensive than an office visit. Cisplatinum + radiation for advanced cervical cancer for six weeks is more expensive than conization of a mildly dysplastic cervix. And so on. So we, the taxpayers, end up paying more than we would have if we'd just offered complete public health insurance to those who can't afford it in the first place.

John T sarcastically said that unnecessary death was cheaper for all of us, but I don't think that he's checked the price of dying in an ICU lately. A slightly modified from real life example (details blurred a bit to avoid identifying info): a 27 year old non-resident of New York shows up at the ER complaining of fatigue. Testing shows that he has aplastic anemia (severe decrease in all blood cells due to failure of the bone marrow to produce the cells). The best treatment for that would be a bone marrow transplant, but he can't afford it (several hundred thousand dollars cash up front are required for anyone wishing to make a credible claim to being able to "self pay" a bone marrow transplant) and emergency medicaid won't cover bone marrow transplant because it's a "non-emergency." He was way to sick to fly home, so he got the second line treatment, ATG, an immunosuppressive treatment that sometimes reverses aplastic anemia. Unfortunately, he gets a severe adverse reaction and ends up in the ICU, where he remains until he dies (more or less of sepsis, since by this time he had no immune system whatsoever) about a month later. An ICU bed costs about $10,000 a day. ATG (I think) costs tens of thousands of dollars per dose. Then there's the cost of procedures, scans, consultants, 24 hour a day care, etc. All in all, I would be suprised if the bill to the city of New York came in at less than $1 million. If he'd gotten a transplant, it wouldn't have been cheap, but would probably have been "only" a few hundred thousand dollars. And the patient'd likely be alive today.

Ok, my example got a little out of control...as you might guess, this was someone I saw personally. Anyway, I think the easiest thing to do would simply to be to make medicaid a true public health insurance, available to all regardless of income, employment, citizenship, color of socks, etc. Don't outlaw private insurance, but let it be there just for those who either want extras (private rooms, botox, whatever) or who don't trust the public health insurance to be adequate. But make sure that everyone has at least a minimum standard of care.

[Slartibartfast]

Francis, that would have been much more instructive had it taken issue with something I said. I have no doubt that something I said irked you, I just have no idea which thing I said was the irksome part, nor do I know what about it irked.

[Neolith]

Good lord. I fail to see what HSA's have to do with "poor people" or "the crazy homeless", and even if they did, the last comment directed towards Slarti is a bit much.

Hilzoy: "But the fact is that our government, under Bush, is doing a lot to make HSAs a better deal than ever, and it has talked about things like doing away with the business health insurance deduction, which would favor HSAs over traditional insurance."

Where has Bush talked about doing away with business health insurance. This is a matter of intense interest to me and a genuinely new thought, I wouldn't mind reading more about it. I have no problem with Bush making HSA's a better deal. I do not think the widespread adoption by the young and healthy of high deductible insurance premiums are the driving force behind insurance rate increases. I do have a problem with doing away with a tax incentive for companies to be good to their employees, and would like to see more about that.

[hilzoy]

Neolith: the idea was floated here:

"To pay for those large tax cuts, the administration is looking at eliminating both the deduction for state and local taxes, and the business tax deduction for employer-sponsored health insurance."

The tax overhaul panel has proposed capping the deduction instead:

"Cap unlimited tax breaks for insurance premiums at $11,500 for a family or $5,000 for an individual. All other employee fringe benefits would be taxed."

I can't seem to figure out whether this cap would be indexed for inflation or not. If not, it would start leaving part of the cost of a normal, traditional insurance policy undeductible fairly quickly.

[Slartibartfast]

This would all be so much easier if Drum had actually linked something relevant, unless that whole thing was apropos of something in the TNR article. Which, of course, I cannot access.

[Jeremy Osner]

Ezra Klein has been blogging about HSA's and how they are not a useful solution to the US's health care problems since before I had heard of the abbreviation "HSA". If you're looking for more info about this including statistics, opinions, talking points and more, look in at his blog.

[hilzoy]

And, for the record, I would not have written Francis' comment. But I would guess that the answer to the question 'what is he talking about' would be point 5 in the post: when HSAs are more widely available, that will allow young and healthy people to save money, but it will also drive up premiums for the old and sick, even if those people do not choose to do anything differently.

Pulling people out of the group of people whose risk is pooled together changes the nature of the pool, and thereby changes the situation of those who choose to stay in it. Which is why (imho) one should note not only that there are people HSAs work well for, as long as they don't get sick in a given year, but also that those gains are necessarily paid for by losses for the poor and sick.

[Slartibartfast]

I'm still a little confused as to how HSAs change my behavior, hilzoy. As far as I personally am concerned, they change absolutely nothing other than a) my tax burden, and b) how much planning I do at open enrollment for the next year. There's exactly zero interaction between my HSA and my health insurance.

[Jeremy Osner]

A question for Hilzoy the Ethicist* regarding adverse selection: if a healthy young person is offered an HSA which will save him or her money, is s/he acting ethically to opt out of his/her conventional insurance knowing that will raise the premium for others?

* Coming soon to theaters near you! With Yeardley Smith as the voice of Hilzoy.

[hilzoy]

Slarti: oh, sorry. I was using HSA as shorthand for: catastrophic (high-deductible) insurance plus HSA, which was stupid of me. Of course, if you have an HSA and conventional insurance, then nothing changes. (But I don't think those are tax-sheltered -- you need high-deductible coverage for that.)

It is, of course, getting high-deductible, catastrophic coverage that (normally) (unless someone has several health insurance policies) leads someone not to get ordinary coverage, and this to leave the group of people whose risk is pooled in a conventional plan.

[hilzoy]

... "and THUS (not this) to leave the group..."

[Slartibartfast]

My HSA is tax-sheltered savings. There's risk, though: what I don't use, I lose. Hence, the planning remark.

[Slartibartfast]

The source of Francis' misplaced ire is now a bit more visible, though, which is always a good thing.

[Jeremy Osner]

Slartibartfast: I'm pretty sure what you have (the same as what I have) is called a FSA, "Flexible Spending Account", and that HSA's are not use-or-lose.

[Gary Farber]

"Which, of course, I cannot access."

Is bugmenot.com broken today, or is it that you don't want to violate your ethics by using it for a subscription site?

[Neolith]

Hilzoy; I hope I don't come across as flip, but that's how insurance works. Young people (males in particular) get screwed by insurance companies because I guess as a group they are reckless maniacs. That group pays more for insurance.

The sick (I'm leaving out the poor because I don't think they are directly related, indeed, HSA's can be just as good a deal for a healthy lower income person as it is for a healthy middle income person, right?) are just that, so their premiums are going to be higher. I don't see anyway to avoid that. You want insurance companies to pretend they don't know that sick people are a higher risk, or you want healthy adults to not act in their best interests and take one for the team, I guess, but then why don't we make the same insistance for manditory automobile insurance?

The response is probably because one is a matter of life and death and the other is a matter of convenience, except for most of the US, reliable transportation is a matter of life and death, or at least material well being, which is directly related.

Or would you like to see mature married drivers opt in to teenager's coverage to help carry the burden? Again, this feels crass even to my ears, but I'm just feeling this out, so I hope you humor me.

Thanks for the links. I'm not sure either had enough information in isolation to judge where they were going with that. I'm trying to plow through some of the info Jeremy volunteered.

[Frank]

Hilzoy- While we are talking about proposed Bush plans which hurt the non rich, what do you think about the plan to put a ceiling on the mortgage interest deduction? (Need a link?, the plan would hit people in blue states particularly hard.)

[Neolith]

Yeah the FSA's always were a puzzle to me. How is that don't use it, you lose it work? How can that possibly be justified. It seems like gambling with Uncle Sam. Do you play it safe, and maybe not get the tax savings you deserve, or DOUBLE DOWN and risk flushing your cash away?!? Big money, no whammies! Is it as funny as it sounds, Slart?

[Frank]

Neolith- Part of the problem is that those of the healthy young who are lucky enough to live to an old age will eventualy become sick. Unfortunately there is no similar relationship between poverty and wealth.

[Slartibartfast]

Slartibartfast: I'm pretty sure what you have (the same as what I have) is called a FSA, "Flexible Spending Account", and that HSA's are not use-or-lose.

It may in fact be the case that my...whatever you want to call it...is deceptively named "Healthcare Savings Account".

Is bugmenot.com broken today, or is it that you don't want to violate your ethics by using it for a subscription site?

None of the above. I just mistook the article for paid-subscription-only. So: c) I'm stupid.

[Neolith]

True, but one of the reasons we have escalating costs of medicine, is because we have fabulous new techniques to make us live longer and better. Historically, or for the past two hundred years of this nation's history anyway, it would seem that you had just as good a chance to be upwardly mobile as you did to live to an age to where you'd have to rely on doctors, and doctors couldn't do much to help you anyway.

Now, everyone is living longer, the medicines, quality of life, and expertise that allows us this is more and more expensive, and there are those who argue that it is harder to leave the world richer than you entered it. Where is the breaking point? Doesn't there have to be one?

[Frank]

Neolith- Good question. I wish I knew the answer. There used to be a factoid making the rounds that most of the average persons medical expenses were incurred in the last 3 months of life, averaging $90,000 in expenses the last three months. If that were true all we would have to do is figure out when those last three months were and stop trying to save people at that point. :)

[Slartibartfast]

Is it as funny as it sounds, Slart?

No. It works like this: you look and see how much money you spend every year for mundane medical expenses (regular checkups, prescriptions, etc), then plan for things you know you're going to do like get new glasses and the like. We also have some other expenses that are allowed, such as Emily's speech therapy and some kinds of physical therapy. We've never once failed to spend out our HSA/FSA (not going to quibble over terminology TWICE in one day).

[Neolith]

Yeah, but how does the losing part work. I mean, they just take your money? I know some people that have gone on end of year shopping sprees buying q-tips and bandaids so they used up all their money. It seems to me the sane thing would be if you didn't spend it all you paid tax on the remainder. Not lose it.

Frank: True enough. I think part of the liberal conservative divide on stuff like this is that some don't want to admit there are ever such things as lost causes and some are too eager to shrug their shoulders and give up to save a buck. Adjust values to where ever you are in the political spectrum and you have insta-friction. And not just in health care.

[Slartibartfast]

Yeah, but how does the losing part work. I mean, they just take your money?

They already have your money. Anything unclaimed by the end of the year is theirs to keep. I'd guess that unclaimed funds is what keeps the administration bills paid, because there aren't any other overt ways for that to happen.

It seems to me the sane thing would be if you didn't spend it all you paid tax on the remainder.

Dunno; all I know is there's an incentive to plan in advance. With Child Care Spending Accounts, there's almost complete predictability, so it's tough to lose out. I'm not sure how they administer, unless it's paid for by the employer.

[Jeremy Osner]

Anything unclaimed by the end of the year is theirs to keep.

Do you happen to know if the unclaimed bit is kept by (a) the government, (b) the FSA plan administrator (US Healthcare in my case), or (c) some combination of the two? Because I'm pretty sure it is (b) who is holding the money.

[Jeremy Osner]

I know some people that have gone on end of year shopping sprees buying q-tips and bandaids so they used up all their money.

Every January in recent years, I have seen advertisements on my commuter train from e.g. opticians and dentists, reminding people to get their new pair of glasses/dental work/whatever before the end of the month while they can still use the balance in last year's FSAs.

[Slartibartfast]

I'd guess b) as well, but I don't know for sure. Given that b) is who has it to begin with, I think it's reasonable that the government isn't going to get it as revenue, somehow, except by corporate tax.

[Windle]

Slarti,

I think your "HealthCare Savings Account" is different than the HSA passed a few years ago.

One of the reasons I switched from my MSA to my HSA is so that I wouldn't lose "my" money.

[Francis]

slarti: this "As a guy who enjoys HSAs, I have to say that I'm in favor of them" is what I found objectionable.

of course you're in favor of them, they're cutting your total tax burden.

similarly, i'm in favor of the mortgage interest deduction, because i couldn't afford my house otherwise.

I have two defenses of the mortgage interest deduction: (a) home ownership has a societal benefit and (b) the deduction is so integrated into the housing market, banking market and secondary market for mortgages that eliminating it would have a tremendous adverse economic impact as millions of people default or force their lender to take a haircut equivalent to the size of the lost deduction.

The HSA tax break has no similar justification, as hilzoy points out. To the contrary, its existence perpetuates an utterly broken system of paying for health care because it allows a powerful voting bloc to reduce its health care costs.

[Slartibartfast]

The HSA tax break has no similar justification, as hilzoy points out.

Francis, you and I obviously read completely different hilzoys. Especially considering that what she was talking about and what you are talking about are completely different.

The HSA tax break has no similar justification, as hilzoy points out.

Groovy. Take it away, and I won't mourn its passage.

[cleek]

where i work, we were just told (today) that we're getting an HRA. it's called the CDHP (Consumer Driven Health Plan - a euphamism for "high-deductible"). it's a multi-tiered system that works soething like this:

first, you spend an employer contribution ($500 per employee/$1000 family) on expenses. there's also a couple hundred available for "preventative" visits. basically that's free doctor visits.

but when that's gone, you get a rather high deductible ($1200 emp / $2400 family) to pay.

when that's met, it turns into a typical 90%/70% coninsurance setup.

H.R. presented it as giving employees a chance to "take charge!" of our health care spending, as if we've all been dying (or at least suffering) to start shopping around for the best bargains - as if medical care isn't frustrating enough without having to get doctors who've never seen you to give you prices for procedures another doctor has recommended. no, what they really want is to force people with average health to stop going to the doctor.

[Jeremy Osner]

cleek: that sounds fairly close to what Ezra was advocating a few months ago as a better idea than plain-vanilly HSA + high-deductible insurance -- if memory serves. I don't have a link handy but it seems to me he argued pretty persuasively in favor of the employer contribution plus high deductible.

[jcricket]

It seems like what's being lost is one of hilzoy's primary points: That because of the nature/profit motive of the insurance industry, the industry will always function the opposite way which most of us would like it to. HSAs simply compound that trend by, as hilzoy points out, removing the healthy people from the pool. They are a good solution if the only alternative is a twice-as-expensive plan for your relatively healthy family.

Instead, we could combine some spending pragmatism and a notion of the "common good". If we want to, we can cover everyone's preventative care and provide good emergency care at a cost of 1/2 (or less) of what we're paying now (as a percentage of GDP). It's called universal health care.

Switzerland, Germany, the UK, Canada and Japan all provide models we could learn from. They all spend less as a percentage of GDP and less per person to provide universal coverage that achieves higher levels of customer satisfaction that our system. Sure, each system has (unique) problems, but the surveys I've read indicate that few citizens in those countries would trade their program for ours.

Perhaps we could study those systems, learn from their mistakes, and introduce a system that's better (or at least as good).

[hilzoy]

Neolith: I know that's the way insurance works. But I don't see why giving tax breaks for HSAs only if you have a form of insurance that compounds the problem is the way government ought to work. Likewise for capping the business deduction on employer-sponsored insurance at a level that will shortly, if it does not already, make conventional insurance not fully tax deductible while catastrophic health insurance is.

[Windle]

Francis: "home ownership has a societal benefit and "

I would suggest that if you truly cared about those less fortunate than yourself then you would have to be against a mortgage deduction also to be consistent.

Don't most poor people rent?

Couldn't your tax dollars do more for society be being redistributed to renters who can't afford their own home?

I can envision a world in which we take those tax dollars you get each year and use them to help renters and the poor purchase their own home.

I would argue that even if there wasn't a mortgage deduction most of those who could purchase a home would.

You are obviously for the tax breaks that help you. That's great for you. Why is it acceptable to you to punish those poor renters? I bet they would love to get a loan using your tax dollars.

Lifting up the poor in this manner would have huge impact on society.

Something stinks in that post of yours!

[Jeremy Osner]

When you run out of arguments in defense of your worldview, a good stalling tactic is to accuse your opponent of hypocrisy.

[Windle]

Jeremy,

The substance of your post is lacking to say the least.

I'm sure Francis can explain in more detail why he favors tax deductions for himself that hurt the poor, but opposes ones for others that he views as hurting the poor.

[jayann]

Anyway, I think the easiest thing to do would simply to be to make medicaid a true public health insurance, available to all regardless of income, employment, citizenship, color of socks, etc. Don't outlaw private insurance, but let it be there just for those who either want extras (private rooms, botox, whatever) or who don't trust the public health insurance to be adequate.

rather like the UK system (except that National Insurance payments have been stolen by successive governments). I have cheap private insurance as a backup; I'm ideologically opposed to it but glad a bank manager talked me into taking it out now I'm in Wales, where waiting lists are long.

jcricket, I'm not happy with the NHS as it is now but when it was thought I had breast cancer I had world-class investigations and care very rapidly indeed, for free. I would not swap our system for yours, and I oppose Blair's manic attempts to make our system more like yours. I agree with your comments .

[California Health Insurance]

I think health savings plans are great and can be helpful towards health insurance.

[Gary Farber]

Folks might want to check out this piece on Sarf Africa's experience. (You probably need to use bugmenot.com, unless your ethics cause you to forbear.)

[Gary Farber]

Anyone want to do anything about the spam above?

[Gary Farber]

"...Today, some 150 "medical schemes" (the telling term South Africans use for insurers)...."

This idiotic quote, however, demonstrates that the writer, David Adler, is unfamiliar with British (and, obviously South African) English, and is sufficiently stupid as to make me doubt anything else he says. How ignorant and foolish.