Several months ago, I discussed Health Savings Accounts, a health care reform instrument currently being advanced by conservatives. I put forward my main argument against them: HSAs encourage patients to get less heath care coverage, not more. This in turn will encourage people to use medical services less, because there will be more out-of-pocket expense to them. It is hard for me to see how the general population benefits in any way from having less access to health care, rather than more.
Proponents argue that there will not be decreased access because employers will pay less money for insurance, and thus pass on this savings to their employees by paying higher wages. Better-paid employees will then have more money for health care. At this moment, I have to pause to contain my laughter. Next time you are at a gas station, ask the attendant if his salary went up last time oil prices rose. Go to Wal-mart and ask the cashier how much her wages increased last time Wal-mart’s quarterly earnings surged. Employers do raise wages when overhead costs fall, but only when labor shortages require it. Look at it from another point of view – if you got a raise at work, would you go to McDonald’s and offer to pay $1 more than the going price for a Big Mac? I didn’t think so.
I am not morally opposed to HSAs. I believe in experimentation, and see no reason not to try them. For a subset of patients, HSAs make sense. If you are young and healthy and rarely see a doctor, an HSA is probably to your benefit. With an HSA, you buy a smaller insurance package with a high deductible, which costs a lot less, and you put money aside in a tax-advantaged savings account for incidental expenses. For people who are healthy, health insurance is truly insurance, that is, financial protection against catastrophic financial loss. You don’t file a claim against your homeowner’s insurance policy for a broken window; you just reach in your own pocket and pay for a new window. If a tree falls on your house and caves in your den, you file a claim.
But for the elderly or the chronically ill who need regular medical care, it is hard to see a benefit in the HSA. Let’s say you have diabetes, and that your medication and doctor’s visits run $6000 a year. If you buy an insurance plan with a $5000 deductible, you will meet that deductible every year. Not only will you have to stuff $5000 into your HSA every year, but you will also face higher insurance premiums because your insurer knows it will have at least $1000 in payouts annually. So where do you come out ahead? In the tax breaks the HSA offers you? If the government lets you deduct the cost of all types insurance premiums in the first place (as it should), that benefit is a wash. If the government refuses to allow people in traditional plans to deduct premium payments, then the government is penalizing you for choosing a traditional plan over an HSA. Does that sound fair to you?
The government could adopt the position that HSAs are better for society than traditional plans and therefore could encourage this sort of transfer payment, but it seems like a slap in the face of free markets. If I want a traditional plan, why should I have to take a tax hit to get one?
Another problem with the HSA is that it favors the wealthy. Before conservative readers protest this point, hear me out: If you are making $15,000 a year, your marginal tax rate is 15%. If you save $2000 and put it into an HSA (not an easy thing on $15,000 a year) your total tax savings will be $300 a year. A tax break of $300 a year is not going to markedly improve health care in this country.
HSAs expose, rather than solve, the ugly truth about health care. A person’s earning potential and his health care needs do not necessarily match up. Someone could make $25 million a year and only need $250 in medical services. Or a person could make $25,000 a year and need $250,000 in medical services. There are some people who will never be able to put as much into the system in insurance payments as they get from it. HSAs do nothing to address this problem. They seek to reduce costs for people who can pay in enough to cover their own expenses, but this is hardly everyone. What is an HSA going to do for a person who makes $7 an hour cleaning rooms at a hotel who is diagnosed with breast cancer? If she couldn’t afford health insurance before, why would she be able to afford to put aside $5000 in personal savings now?
HSA advocates love to argue that HSAs will result in widespread improvement in quality of care because it will encourage consumer-driven medicine. In other words, because patients are spending more out-of-pocket money for health care, they will shop around, looking for low prices.
This will never work, for two reasons. First, patients are not always in a position to shop around. If you need your appendix out, you need it out tonight. When you land in the Emergency Room at 2 AM, there will probably be only one surgeon on emergency call. Are you going to turn that doctor down and writhe in pain for 5 hours until the cheaper surgeon comes to work at 7AM?
The second reason consumer driven medicine will not work is that medical billing is so complicated. As a doctor, I could offer the cheapest fee for an office visit in town for $30. Then, I could charge the highest fee for a shot at $100, or a lab surcharge for blood draws. Heck, I could charge for parking. How are you going to figure that all out? If you have diabetes, need to see the doctor 4 times a year, and need bloodwork twice, a foot exam once, two sick visits for colds and flu, two nurse blood pressure checks, and two phone consultations, will this cost you more with Dr. Smith or Dr. Jones? I do not think most patients will find out. They will go to Dr. Smith just because they like him better, which is the same thing they do now. And even if they go through this careful calculus and find out that Dr. Jones is cheaper, Dr. Jones could blow the whole decision out of the water by ordering a single test, say, an MRI of the brain, that Dr. Smith would not have ordered under similar circumstances.
It is bad enough that insurance companies pressure doctors to make medical decisions based on cost. At least we have the knowledge to make the tradeoffs. Most patients do not have the knowledge to decide if their headaches can be adequately managed by a $75 internist, a $200 neurologist, or a $600 neurosurgeon. Nor can they decide if they should pay $2,500 for a gallbladder surgery today, or if it is safe to wait a week for the $1,900 surgeon to come back from vacation. If you really want to be put in the position of having to decide, HSAs are for you. This is the intent of “consumer-driven” medicine.
In traditional health plans, there is a built-in system for handling such mind-bending problems. It is called the primary care physician. In most sensible health plans, the cheapest thing a patient can do is get an outpatient appointment with a primary doc. This doc then negotiates the system for the patient, getting him to the right services for the least cost. A primary care doc can decide if chest pain can be managed by a simple antacid pill ($80), a referral to a gastroenterologist ($200), a cardiologist ($1000), or a hospital admission ($10,000). HSA plans do not pay for family doctor visits. There is no benefit to a health care plan that effectively ignores the most cost-effective aspect of our medical system.
Family doctors don’t just treat sore throats and wipe noses. They get to know you during those routine visits, so when an important and expensive medical choice has to be made they can save you precious time and money. HSAs discourage this kind of care.
HSAs are already in operation. My feeling is that they will run the same course, though not as spectacularly, as HMOs. They will be widely adapted and hailed at first, but when the ugly truth about them emerges, patients will rapidly desert them if they can, or complain loudly about them if they can’t. HMOs were supposed to save medicine. Instead they were a disaster. They failed because they tried to cut medical costs by denying patients the care they wanted.
The HSA is the same. It presents itself as a tidy little bank account, a benign personal choice. But it is set up, as HMOs were, to save health care dollars by limiting access to care.
The solution to America’s health care problem is more access, not less. The more comfortable patients are with their doctors, the better they will take care of themselves, and prevent the high tech disasters that fill our ICUs and drain our collective bank accounts.
Proponents argue that there will not be decreased access because employers will pay less money for insurance, and thus pass on this savings to their employees by paying higher wages. Better-paid employees will then have more money for health care. At this moment, I have to pause to contain my laughter. Next time you are at a gas station, ask the attendant if his salary went up last time oil prices rose. Go to Wal-mart and ask the cashier how much her wages increased last time Wal-mart’s quarterly earnings surged. Employers do raise wages when overhead costs fall, but only when labor shortages require it. Look at it from another point of view – if you got a raise at work, would you go to McDonald’s and offer to pay $1 more than the going price for a Big Mac? I didn’t think so.
I am not morally opposed to HSAs. I believe in experimentation, and see no reason not to try them. For a subset of patients, HSAs make sense. If you are young and healthy and rarely see a doctor, an HSA is probably to your benefit. With an HSA, you buy a smaller insurance package with a high deductible, which costs a lot less, and you put money aside in a tax-advantaged savings account for incidental expenses. For people who are healthy, health insurance is truly insurance, that is, financial protection against catastrophic financial loss. You don’t file a claim against your homeowner’s insurance policy for a broken window; you just reach in your own pocket and pay for a new window. If a tree falls on your house and caves in your den, you file a claim.
But for the elderly or the chronically ill who need regular medical care, it is hard to see a benefit in the HSA. Let’s say you have diabetes, and that your medication and doctor’s visits run $6000 a year. If you buy an insurance plan with a $5000 deductible, you will meet that deductible every year. Not only will you have to stuff $5000 into your HSA every year, but you will also face higher insurance premiums because your insurer knows it will have at least $1000 in payouts annually. So where do you come out ahead? In the tax breaks the HSA offers you? If the government lets you deduct the cost of all types insurance premiums in the first place (as it should), that benefit is a wash. If the government refuses to allow people in traditional plans to deduct premium payments, then the government is penalizing you for choosing a traditional plan over an HSA. Does that sound fair to you?
The government could adopt the position that HSAs are better for society than traditional plans and therefore could encourage this sort of transfer payment, but it seems like a slap in the face of free markets. If I want a traditional plan, why should I have to take a tax hit to get one?
Another problem with the HSA is that it favors the wealthy. Before conservative readers protest this point, hear me out: If you are making $15,000 a year, your marginal tax rate is 15%. If you save $2000 and put it into an HSA (not an easy thing on $15,000 a year) your total tax savings will be $300 a year. A tax break of $300 a year is not going to markedly improve health care in this country.
HSAs expose, rather than solve, the ugly truth about health care. A person’s earning potential and his health care needs do not necessarily match up. Someone could make $25 million a year and only need $250 in medical services. Or a person could make $25,000 a year and need $250,000 in medical services. There are some people who will never be able to put as much into the system in insurance payments as they get from it. HSAs do nothing to address this problem. They seek to reduce costs for people who can pay in enough to cover their own expenses, but this is hardly everyone. What is an HSA going to do for a person who makes $7 an hour cleaning rooms at a hotel who is diagnosed with breast cancer? If she couldn’t afford health insurance before, why would she be able to afford to put aside $5000 in personal savings now?
HSA advocates love to argue that HSAs will result in widespread improvement in quality of care because it will encourage consumer-driven medicine. In other words, because patients are spending more out-of-pocket money for health care, they will shop around, looking for low prices.
This will never work, for two reasons. First, patients are not always in a position to shop around. If you need your appendix out, you need it out tonight. When you land in the Emergency Room at 2 AM, there will probably be only one surgeon on emergency call. Are you going to turn that doctor down and writhe in pain for 5 hours until the cheaper surgeon comes to work at 7AM?
The second reason consumer driven medicine will not work is that medical billing is so complicated. As a doctor, I could offer the cheapest fee for an office visit in town for $30. Then, I could charge the highest fee for a shot at $100, or a lab surcharge for blood draws. Heck, I could charge for parking. How are you going to figure that all out? If you have diabetes, need to see the doctor 4 times a year, and need bloodwork twice, a foot exam once, two sick visits for colds and flu, two nurse blood pressure checks, and two phone consultations, will this cost you more with Dr. Smith or Dr. Jones? I do not think most patients will find out. They will go to Dr. Smith just because they like him better, which is the same thing they do now. And even if they go through this careful calculus and find out that Dr. Jones is cheaper, Dr. Jones could blow the whole decision out of the water by ordering a single test, say, an MRI of the brain, that Dr. Smith would not have ordered under similar circumstances.
It is bad enough that insurance companies pressure doctors to make medical decisions based on cost. At least we have the knowledge to make the tradeoffs. Most patients do not have the knowledge to decide if their headaches can be adequately managed by a $75 internist, a $200 neurologist, or a $600 neurosurgeon. Nor can they decide if they should pay $2,500 for a gallbladder surgery today, or if it is safe to wait a week for the $1,900 surgeon to come back from vacation. If you really want to be put in the position of having to decide, HSAs are for you. This is the intent of “consumer-driven” medicine.
In traditional health plans, there is a built-in system for handling such mind-bending problems. It is called the primary care physician. In most sensible health plans, the cheapest thing a patient can do is get an outpatient appointment with a primary doc. This doc then negotiates the system for the patient, getting him to the right services for the least cost. A primary care doc can decide if chest pain can be managed by a simple antacid pill ($80), a referral to a gastroenterologist ($200), a cardiologist ($1000), or a hospital admission ($10,000). HSA plans do not pay for family doctor visits. There is no benefit to a health care plan that effectively ignores the most cost-effective aspect of our medical system.
Family doctors don’t just treat sore throats and wipe noses. They get to know you during those routine visits, so when an important and expensive medical choice has to be made they can save you precious time and money. HSAs discourage this kind of care.
HSAs are already in operation. My feeling is that they will run the same course, though not as spectacularly, as HMOs. They will be widely adapted and hailed at first, but when the ugly truth about them emerges, patients will rapidly desert them if they can, or complain loudly about them if they can’t. HMOs were supposed to save medicine. Instead they were a disaster. They failed because they tried to cut medical costs by denying patients the care they wanted.
The HSA is the same. It presents itself as a tidy little bank account, a benign personal choice. But it is set up, as HMOs were, to save health care dollars by limiting access to care.
The solution to America’s health care problem is more access, not less. The more comfortable patients are with their doctors, the better they will take care of themselves, and prevent the high tech disasters that fill our ICUs and drain our collective bank accounts.