Health Savings Accounts

 When the president gave the State of the Union address in January he mentioned Health Savings Accounts or HSA.  He indicated that it would help employers offer health care to their employees.  Further more the administration claims the plan will tame medical costs, turn patients into smarter medical consumers (you are supposed to comparison shop, more on that later), and make insurance affordable for more people.  When I wrote an article on the speech I knew very little about this health care plan.  In fact, HSA are so new there is little evidence of their impact.

 The basics are two parts.  First is the insurance policy (the monthly premiums are cheaper than traditional insurance) in which the consumer pays a few thousand dollars up front before the coverage begins.  And, the coverage is more limited in what procedures it covers.  Secondly, a special investment account is set up for the consumer. And, the consumer, and sometimes the employer, contributes money, tax-free, for current or future medical expenses.  Out-of-pocket expenses for this year including deductibles, co-pays, and co-insurance can be up to $5,250.00 for an individual.  For a family it is $10,500.00.  The consumer can invest in the tax-free account each year up to the amount of their plan’s deductible.  Any money left at the end of the year is carried over.

 Okay, there is the basic outline.  If you are healthy and are affluent this may work for you.  You can save for future medical expenses.  In addition, it is portable and can be kept when changing jobs.  Also, since it is your hard earned dollar the incentive is there to shop around for medical treatment.

 The down side is if you don’t have the money saved it comes out of pocket.  The costs can be significant.  Another negative is shopping for the costs of medical procedures.  Most hospitals are not forthcoming with exact costs of procedures.  And, if it is released it is cryptic and hard to understand.  In fact, the lack of information has created opportunity for some.  A new company will sell you the cost of 42 different procedures for a nominal cost.  But really, if it is an emergency do you really care what it costs?  Perhaps the most egregious part of HSA is the impact it will have on traditional insurance and the infirmed in general.  As healthy people move from traditional insurance to HSA the experience rating of traditional insurance will go up.  In other words, as people leave traditional insurance there is less people to spread the cost of taking care of the infirmed.  In addition, as more employers use this HSA the more pressure it will put on traditional insurance.    

 In my opinion, this is bad public policy.  The ever shrinking middle class will be forced into tough decisions.  Pay ever increasing traditional insurance premiums.  Or take a chance on HSA.  And, hope you will have enough saved to take care of medical expenses.  Keep in mind half of bankruptcies occur because of medical expenses.  The only way this will “tame medical costs” is because people will visit the doctor less.  And, it doesn’t seem very affordable to me.   

 Jim Fitzgerald