An excellent ongoing debate on HSAs is raging at Ezra Klein’s blog.
Ezra is engaged in a discussion w libertarian/conservative Adrienne and others about the role of and impact upon society of HSAs.
Here’s an excerpt
” (Adrienne) If your ultimate goal as a health policy wonk is to push for government-financed health care, then criticizing HSAs and the consumer-driven health care approach is your bread and butter, the overwhelming evidence that many people like having the HSA option notwithstanding.
(Ezra) Well, yeah. If yesterday I was paying to help sick, old people not go bankrupt and today I’m not, I’ll probably be a happy camper. At least till I get sick and/or old. I’m sure the healthy young things populating HSA’s are ecstatic to have lower premiums, but I’m similarly sure that HSA’s are a bad idea. And since they will eventually destroy regular insurance if widely adopted…”
Leaving aside the ideological asides, the debate provides good perspective on the pros cons and disagreements about same. There’s also less twisting of facts and perceptions than one normally finds in left-right debates.
My perspective is once you strip aside the labels and ideology, it is blindingly apparent that HSAs and CDHPs cannot and will not reduce health care inflation – they just do not address the key drivers – aging, technology, over-utilization…
So, if you want to debate HSAs on their merits, go ahead – just don’t confuse them with medical cost containment.
Jan
29
in 2005 I searched out two actuaries deeply engaged in analyzing, piloting and implicitly promoting the concept of HSAs. In sum, this is what I learned:
First, the HSA device can be hijacked by Wall Street as a tax shelter unrelated to any attempt to improve health outcomes, healthcare costs, or consumer satisfaction. The idea, laid out in Barron’s some time ago, is that the household load up as much money as possible each year, but not spend a dime, paying for medical costs out of poacket, so that the HSA account grow over the years.
Second, HSAs may very well be effective in the domain of outcomes/cost/satisfaction, in three ways listed below in probable size of impact:
A. self-rationing on purely elective uses of care
B. smart shopping (selecting an MRI provider 1/3 the cost of another). This incidentially works against hospital-controlled services.
C. Early detection and management of chronic conditions which if left poorly treated can lead to secondary conditions perhaps as bad the as the initial one.
All of these potential improvements may add up to a 20% reduction in healthcare costs.
Peter —
A. This might actually lower costs, but I don’t think people who use a lot of “elective” health care will move into HSA’s, and, if they do, they likely will keep going to the doctor in any event.
B. When you need an MRI, how likely are you to effectively shop around, or maybe wait a week to get a better rate?
C. Ignoring routine and preventative care will actually INCREASE the cost of acute care later.
All in all I think HSA’s are more for Wall Street than Main Street…
Exactly, Jim.
Peter, Points A and C are unfortunately the same point. Unless your average HSA member has extensive medical training they won’t be able to differentiate between “elective” and “preventive” medicine.
Who enjoys going to the doctor so much that they find reasons to go? I believe the more typical person is a hypochondriac who genuinely believes he needs all of the medical services he uses. An HSA isn’t enough to change the emotional calculus that goes into the decision about whether to go to the doctor or not.
The famous RAND study showed that when folks were given more responsibility for paying for their care, they did forego care. But they elected to forego just as much necessary care as they did unnecessary care. As a result, you can easily conclude that switching to a consumer-driven model may (MAY) give you a short-term bump downward on the cost-trend curve, but in the long run, people who have been foregoing necessary care will come back and bite the system with higher costs for improperly-cared-for conditions.
In other words, Peter’s “C” is actually the foreseeable (if not unintended) consequence of his “A”.
And as for “B,” seizing such cost-saving opportunities will require educating and informing consumers. Education and information don’t come free. Ask anyone who has a kid in college they’re paying for. Therefore the investment needed to inform every user of the system that they can save a buck on a stitch by choosing someone other than the doctor their family has gone to for years will require investment in infrastructure and processes that will negate the gains that might be had.
And even then, people might not switch doctors anyhow, even if they know the cost differential. Ask any benefits consultant: nothing moves market share like flopping a big, fat, provider manual down on the table when you’re meeting with a new or existing client. People want to stay with their doctors. CDHPs couldn’t knock them off that idea with a 2-by-4.
You know, I was thinking about this. Managed care was supposed to do exactly what HSAs are doing, except that with managed care, things like research and best practices were deciding which care was truly preventive and which care was frivolous and with HSAs, the size of a person’s income is deciding how to ration care.
What happened? I know the story, the backlash, the stories about people who couldn’t get needed care because HMOs were all about the bottom line, etc., but considering where we are right now, it seems like tightly managed HMOs have to be preferable to HSAs. But it looks like we won’t go back to that.
excellent contributions and thoughtful observations. Thanks for advancing the dialogue.
Joe
This is an interesting debate. As a past participant of a CDHP – I would have prefered to stay with it. I had control over what I spent and when I needed care, it was available. The down side was that the employer really knew nothing about it and therefor could not help educate the employee on how to effectivly use it – even after a seperation from employement.
In regards to the current system – I have heard comments from older folks such as “I might as well just die, I would be better off since I can’t afford my medication” The current system is not helping people to get affordable care, and many become locked into employement situations simply to have care of some form. I have heard this called the “golden handcuff” in some circles.
I am not sure this is the complete answer, but there has to be a better system some where.
One of the problems is that the lower HDHP premiums (required for HSA participation) will also increase loss ratios — this is just basic math. And higher loss ratios mean higher premiums in the long run. In other words, it’s borrowing from tomorrow to pay for today.