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POLICY: HSAs Redux, and “A short response on a short bit of logic”

A couple of days back in a piece on HSAs I challenged someone, anyone to speak up for HSAs against this criticism from Don McCanne. While I’m not a straight single payer advocate like Don, we both believe in one risk pool/universal insurance. And HSAs destroy that concept. Here’s Don’s logic in full:

Imagine everyone having a health savings account (HSA) and a low cost, high deductible insurance plan. Now let’s fund our entire health care system, currently at $1.8 trillion, with the HSAs and high deductible plans. Keep in mind that 80% of health care costs are used by the 20% of individuals with serious acute and chronic disorders.

Current contributions for HSAs are capped at $2600 for individuals and $5150 for families. For illustrative purposes only, let’s assume that each individual has $2000 in an HSA. That means that the 294 million U.S. citizens would have $588 billion in HSAs. For the 20% with significant needs, their $117 billion would be rapidly depleted, having been spent of health care. The healthy 80% might use an average of $300 per person in incidental health care costs, depleting their accounts of $70 billion. The “beauty” of HSAs is that the $401 billion remaining in the HSAs of the 80% who are healthy will be converted into retirement pensions. That’s a great deal for the majority of individuals who remain healthy. But that removes about $400 billion from the $1.8 trillion that we are already spending.

HSAs will have funded $187 billion of the $1.8 trillion, leaving costs of $1.61 trillion for the catastrophic care of the 20% of individuals with greater needs. But after the HSA funds are removed from the equation, there is only $1.21 trillion left to pay for care that currently costs $1.61 trillion.

Where will the $400 billion shortfall come from? Not from most of those with greater needs since current health plans already fail to provide adequate financial security, and this would add an average additional burden of $6800 per person. The only practical solution would be to increase the premiums for the high deductible coverage to a level that would fund the full balance of the $1.8 trillion that we are spending.

There are two significant consequences of this. First, the low cost, high deductible plans would no longer be low cost. Second, there is a perversity of the fundamental principle of health insurance, in which funds of the healthy normally help to pay for care for the sick, in that, with HSAs, the funds of the sick help to pay for the retirement accounts of the healthy.

Landon Alger (the government employee you may recall from his contributions a few weeks back) took up the challenge, and just to really annoy The Industry Veteran, I’m printing it here. Interestingly enough there is a teensy bit of common ground between him and McCanne, the single payer advocate. I’m coming over all moderate and centrist. Perhaps I’d better go sit down. Here’s Langdon’s piece:

Single payer lunatic Don McCanne provides a simple example of what can happen when HSAs are applied on a macro-scale. The healthy 80% realize savings not just on health insurance premiums, but also on actual healthcare costs. They are definite winners (therefore implying a loser) that get a nifty new savings vehicle-a health pension. These individuals have no need for the single payer paradigm and would not benefit from such a system. For these 80%, the single payer system introduces inefficiencies and would add to our national healthcare expenditures.

The remaining 20% that need 80% of the healthcare dollars (these ratios are not set in stone and one of the goals of national healthcare policy should be to flatten the curve) are now definitely losing out at this point. They need the taxpayer subsidized single payer type system and aggressive, outcome-incentive based disease management programs on a national level. While it is surely difficult to implement a system where individuals must qualify into the “single payer system” (yes, I know, it’s really not pure single payer anymore), there is no definite exclusiveness of HSAs and single payer. McCanne isn’t wrong, just incomplete.

Additionally, current HSA law does have a few flawed provisions. The HSA should only be able to be used for healthcare costs, and not simply another IRA once a person gets to age 65. And at death any remaining HSA balance should be forfeited into the single payer system.

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