One of the oft-cited rationales for Health Savings Accounts and Consumer Directed Health Plans (HSAs and CDHPs) is their potential to reduce the number of individuals without health insurance (or, as my neighbor says, the “individually self-insured). While HSAs may have some benefits in terms of increasing consumer awareness of costs, for two rather obvious reasons, HSAs will not help reduce the number of uninsured in the US.
Unsurprisingly, most of the people who are uninsured would have coverage if they could afford it. And while HSA plans may be less expensive than comprehensive plans, they are still beyond the reach of most in the lower-income brackets.
For those in those brackets who purchase HSA plans, there remains the issue of funding the deductible. For an individual or family at the median income of $46,326, a typical deductible will consume 5%-10% of their gross, pre-tax income, a burden that pushes their total cost of health coverage into the “completely unaffordable” range.
The second reason (not that you need another one after figuring out that HSA plans are just too costly for most of the people currently without health insurance) lies in their favorable tax treatment.
The main benefit of HSA (health Savings Accounts) plans is their tax-exempt status. Funds put into HSAs are not taxable and accrue interest tax-free, making them a great tax-avoidance scheme for those looking to reduce their tax burden. (that”s one of the reasons we have an HSA plan)
That’s wonderful, but only if you actually pay taxes. Turns out that over half of the uninsured (55% to be precise) pay no taxes. Another 16% are in the 10% bracket, and 23% more hit the 15% level.
Which leaves me wondering how exactly expensive, tax-favored plans are going to help address the problem of access to care.
Another thank-you to the Commonwealth Fund and Karen Davis for providing the data.
Personally, I think HSA plans just cloud the healthcare reform debate, and I wish they didn’t exist. I do think high deductible plans could go a long way toward making health insurance more affordable.
Indeed, I think we would be better served if ALL health insurance plans had high but manageable (for most people) deductibles. To deal with the affordability problem for low income people, we could provide a sliding scale subsidy toward paying the premium up to, perhaps, 300% of the federal poverty level (which Massachusetts is doing) and also offer means tested help in covering the deductible.
In most large insurance pools, 5% of the people account for 50% of claims costs in any given year. This suggests that there are large numbers of healthy people (especially among the young) who consume little or no healthcare in most years. Helping them cover their deductible should not be a budget buster.
What about for the working uninsured — those who may not have access to employer-sponsored insurance because of the nature of their work, self-employment, etc.? Is the individual HSA a better fit for that group than the uninsured at large? And would that make a significant dent in the number of uninsured overall?
Self-employed people can buy health insurance with pretax dollars as it is a legitimate business expense reported on Schedule C. I do not think there should be a tax preference for the deductible. If we provide subsidies to buy health insurance to people with income up to 300% of poverty, there is no reason why self-employed people whose income falls within that range could not qualify for the subsidy as well. If insurance were manadatory, as in Massachusetts, it should be available at reasonable rates because the adverse selection problem would be largely eliminated.