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POLICY: Health savings accounts-the likely impact

Over at Medpundit, Sydney Smith quotes the WSJ on health care cost breakdowns and argues that HSAs will allow market intervention in the share of spending that goes to doctors and pharmaceuticals, and will bring both that spending under control and enforce market discipline on the providers to give us stuff we want.  The WSJ thinks that what the consumer wants is flash computer-based customer service and they may well be right. There are though a couple of problems with this, and it takes a nerdy wonk like me to point them out. First, it’s unclear exactly what the HSA can be used to pay for (OTC drugs? I doubt it; off formulary drugs? Maybe not in Medicare) so there’ll be less of a market in which it can enforce its discipline than might be suspected. Second, about half of physician costs are connected to other costs that involve hospital stays and surgery–in other words they happen after the deductible has already been blown and the HSA spent, and we’re not talking about 33% of spending but more like 20-odd % of the "market" being "managed" by these new HSA bearing consumers–and that’s assuming that everyone gets one.  The real issue as George Halvorson points out and Milton Friedman despite his many intelligent view points gets wrong is that almost 70% of the money goes on 10% of the people.  That’s where the costs need to be controlled, and there’s nothing in the HSA that can possibly do anything about that.

Now from the other side of my mouth, here’s why I’m getting one.  I pay my own insurance and I have medical expenses that don’t reach my deductible and I’d love to pay those in pre-tax versus post-tax dollars. So for people like me, they’ll grow as a niche insurance product. But I’m only 8% of the market.  64% are in employer-based insurance and they’re beginning to flirt with consumer-directed health plans. Some of these consumer-directed health plans give  money to the employees to put in their HSA. Once employers figure out that giving real money to employees for their HSA’s means taking it away from their self-insurance pool, they’ll either find the next trendy product OR reduce markedly the amount they give so that it is way less than the deductible.  At that point all but the healthiest employees will move back to a more comprehensive plan.

Meanwhile Sydney will have to figure out why she’s creating a understandable consumer price list–and that’s not simply printing out the CPT codes– just for the 10% of patients walking into her office who are now paying with pre-tax but real dollars. My advice is to her is to mark those prices up!

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