Health Coverage
'm not an expert in health insurance, but noise about the topic has grown almost unbearable as we approach the President's State of the Union. Speculation is that he will heavily promote Health Savings Accounts as a better way to pay for medical care in the United States.
I'm not sure if there is a political middle ground on the topic of health care finance. On the one hand, you have free-market types who believe that the way to improve health coverage is to move to a more market-driven system. That means that people will have to make their own health care decisions, and live with the results (good or bad). On the other side, you have people who believe that it is a moral imperative to ensure that everyone gets basic medical care, regardless of income, intelligence, or luck.
The two positions are mutually exclusive. If you want to have a market-driven health system, then you have to let people make mistakes. That's inherent in a market. And you can't bail out people who (through bad luck or ignorance) happen to make a bad decision, since to do otherwise removes the incentive to make the right decision.
A health savings account system is promoted as a sort of middle ground, with a high-deductible insurance plan combined with a tax-advantaged savings account to cover medical expenses up to the deductible on the insurance. The devil, though, is always in the details.
I've spent a lot of time looking at HSAs as an alternative to the traditional medical coverage I provide my employees. As currently designed, there are a number of drawbacks:
I have an employee with chronic health problems. Unless the company subsidizes everyone's out-of-pocket expenses to a substantial degree, his out-of-pocket expenses under an HSA will be substantially higher than they are today. In my mind this violates the fairness test: there's nothing he can do about his chronic condition, he can't afford the extra cost, so it isn't fair to penalize him. If we were to subsidize the medical expenses enough to make this employee whole, then we would spend substantially more on health care than we do today.
As an aside, you will note that nearly everyone promoting the use of HSAs is young, rich, and/or healthy enough that they are likely to come out ahead under this scheme.
The fundamental premise of HSAs is that people who have to pay for their own medical expenses will make better decisions. But it is almost impossible for a consumer to find out how much health care costs before going to the doctor. In fact, the doctor might not even know. Our crazy system uses an intricate web of negotiated rates, and the price you pay will depend on which doctor you see and which health coverage you have. Until it is easy for consumers to get meaningful cost information, it is impossible to make informed decisions.
Much of the cost of providing health care in the U.S. does not go to optional treatments. I heard a statistic recently that 80% of medical dollars go to treat chronic and/or catastrophic illness. I don't know if this is the right number, but it is certainly a high proportion, and you can't significantly cut the cost of our medical system without addressing this point.
From what I've heard, the paperwork of actually using an HSA can be nightmarish. Some plans are better than others, and this is generally getting better, but if someone in your family is hit with a sudden illness, the last thing you want is to be worrying about filling out the right forms. And just as with any other kind of insurance, the insurance company has an incentive to deny claims whenever possible--and an overwhelming paperwork burden is one mechanism that works to the insurance company's advantage.
I think that HSAs are an intriguing experiment, but I am skeptical that they are a "magic bullet" for reducing health care costs in this country. The fundamental problem is that health care doesn't respond to market forces in the same way as, say, laundry detergent or copper futures. In the U.S., we have one of the most market-driven health care systems in the developed world (most developed countries have some sort of national health care system), yet we spend about 15% of GDP on health care as compared to about 10% in most developed countries. That doesn't speak well to the ability of market forces to control health care spending overall.
So how do other countries control spending? They negotiate big discounts on drugs (essentially free-riding on the higher prices U.S. consumers pay), they limit access to doctors and expensive treatments, and they don't offer the latest and greatest technology. Every society has to ration healthcare somehow, since it would crush any economy to provide every possible treatment to everyone who wanted or needed it. In the U.S. we ration based on your employer's willingness to pick up the tab. Elsewhere they ration based on how old or sick you are, or how willing to wait in line (without dying first).
HSAs don't fundamentally change the way we in the U.S. provide healthcare, they just shift the burden around a little.