How to Make HSAs Actually Work

How to Make HSAs Actually Work

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First, let me candidly admit that I have no idea if putting Health Savings Accounts (HSAs for short) at the center of the Trump healthcare rework is a good idea. I do, however, have some insights into what made Bush-era HSA plans fail.

Bush-era HSA’s were unavailable to many Americans, because their health insurance companies and employers ultimately made the decision about whether they would be able sign up for an HSA. Many employers elected not to participate in HSA’s by not purchasing health plans that “came with an HSA”.

I was working at the UT School of Biomedical Informatics during the Bush administration’s attempt to deploy HSA’s. I wanted to research and understand how HSA’s would impact the healthcare system, and I knew that the first step was to sign up for one myself. 

But the University of Texas health plan at the time did not offer an HSA. A little investigation showed that I could not just go to any bank and sign up for an HSA. If I had been able to get an HSA, then I would have been able to take it to another employer if I changed jobs… apparently.

I am not really sure because I was never able to sign up for one.

If they are going to work as a mechanism for healthcare reform, HSA’s must be ubiquitous. In order to be ubiquitous they need to operate smoothly and at the convenience of the consumers, rather than the insurance companies or employers. To be smooth, HSA’s are going to have the following characteristics:

  • Any consumer should be able to go to any consumer financial institution that they use currently for banking purposes and get an HSA. It should just be another account type after savings, checking, money market, etc etc. 
  • Spending money from the HSA should be done using standard debit card, ATM AND credit card mechanisms. That will ensure that consumers can instantly make healthcare purchase decisions using a mechanism they already understand. 
  • Decisions about what is appropriate purchases must be fully automated. If I try to purchase movie tickets using my HSA it should fail instantly. If I go to the doctor or pharmacy, it should work instantly. Implementers will need to pay special attention to places like grocery stores where you can purchase both healthcare purchases and non-healthcare purchases at the same time. 
  • Some healthy lifestyle choices should be partially covered by HSAs. Say $50 per month on gym memberships and another $50 per month on provably healthy food options. If these basic lifestyle changes are not incentivized, HSA’s will have lost one of their core potentials. It does not take much money to get a big change in preventative behavior.
  • HSA providers should be able to experiment with even more clever financial incentives. Perhaps the $50 or month that can be spent on a gym should only work if you prove that you actually went to the gym that month.
  • It should be very simple to transfer HSA funds from one bank to another. This is critical because many of the issues that I am listing are implementation details that will be deployed by HSA providers and not by the Federal Government. Moving to “better” HSA plans has to be simple in order to ensure that there is ongoing competition in their operation.
    The launch of Obamacare was one of the most painful government program launches in US history. Republicans tend to criticize Obamacare for its fundamental design, which they say is unfair. But in many cases, small details in the tactical on-the-ground implementation of Obama’s program was as much to blame for any of it’s problems as any of the design flaws that conservative critics point out.
    There is no reason why a Trump-inspired healthcare reform plan will not suffer from the same implementation hiccups. Will the Trump administration will need to suffer their own healthcare dot gov dot floundering, before they wise up to the underlying reality:


    For healthcare reform, the devil is in the details.

 

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8 Comments on "How to Make HSAs Actually Work"


Member
Feb 25, 2017

Everyone who would contribute to a traditional or Roth IRA should first max out the annual limit to an HSA since it has the same or better tax advantages. The money going it is tax deductible regardless of whether on itemizes. The money can come out at age 65 taxed but without penalty. But it can always be used tax free to pay out-of-pocket medical costs except for premiums. But this could change with reform.

“Any consumer should be able to go to any consumer financial institution…and get an HSA.”

One mostly can do this today, and they come with debit cards that only work for healthcare classified merchants. So you can’t purchase bandages at grocery stores, so what? It’s better to leave the money in the account as a tax free investment vehicle.

Member
Steve2
Feb 25, 2017

I added an HSA as an option for our group. As I expected, only the young and healthy signed up. The plan is administered through a private entity, Aetna. What, exactly, would a Trump administration do to force Aetna into making the HSA work better? Why doesn’t Aetna already have the incentives to make the plan work well? I think Mark Pauly had it correct, that HSAs aren’t very likely to make much difference in health care.

Steve

Member
Mar 2, 2017

Steve,
I have the same questions about how to make the program more effective.
I do not think it is just a question of incentive tho. What Aetna can offer is likely to be something that they have to do in a highly regulated manner. While there are lots of things that a Trump administration could do, what I think they could do is substantially de-regulate what things can be paid for using and HSA. Having said that, Trump, like Obama before him, just does not have any information about the results of wide-scale system change. Different ideologies result in different tenants of faith about what “should” work. But what “will” work is much harder to define.

-FT

Member
Allan
Feb 25, 2017

Steve, HSA’s are dependent upon the rules that govern and the insurance that surrounds them. I don’t think Pauly rejected HSA’s. If he didn’t reject them that means they are of use and used appropriately have great use.

What is the reason the older members of your group didn’t sign up for HSA’s? Was it because the underlying insurance plans destroyed the HSA’s value?

I think HSA’s work better in freer markets where there is more competition and where regulations don’t inhibit them. We have to recognize that insurers weren’t anxious to sell high deductible insurance which limited their premiums. Today we have those high deductible policies eating up financing previously more available. That was the unintended consequence of Obamacare and too much regulation.