Michael Cannon has written a response to my response to him. Even ignoring the issue about my personal HSA, we’re really talking past each other. Cannon doesn’t think our discussion is fruitful, and in truth it’s not. He wants to discuss the vast majority of his paper which looks at the role of HSAs within our current system. To me our current system is so broken, the introduction of HSAs (at least in the limited form they now exist which is all we’re likely to get for now) is pretty irrelevant, and a minor incremental change—albeit one away from the compulsory social insurance that, he correctly states, I advocate. Frankly in the next five years neither of us is going to get our way…so this argument is about what comes next.

The argument I want to have is a theoretical one about what would happen if we had essentially a completely personalized account-based system, as he advocates in his Large HSA proposal. As I explained at length before, I think that a significant number of people would take the money and by no or minimal insurance coverage. So apparently does he.

Large HSAs would give workers far greater freedom of choice. Workers could use their HSA funds (and non-HSA funds) to purchase insurance from their employer or any other source. Alternatively, they could forgo insurance to build larger HSA balances.

Now lets just assume that over say 20 years people really do build up huge HSA balances, and so when they need the money for their individual health crisis in year 20, they can pay for it all themselves. Even accepting that this would happen and that young healthies (His “students”) could buy a cheap heavily underwritten very high deductible policy for the early years, my question is what would happen in Year One? The money that would cover the sick in a compulsory social insurance pool, would have been extracted and instead be sitting in the personal accounts of the “students”. So when the sick start incurring huge health care costs, the money to pay them must come from somewhere. Unless the people who get sick had already saved up the huge amount they need or were allowed to buy into the cheap underwritten catastrophic plans, (both of which are totally unrealistic and the latter of which would destroy those plans as a profitable business), then that money must come from the taxpayer, or the providers (in the form of non-payment for services rendered).

This is the problem that I just don’t understand about the individual account theory. This is after all about the crux of insurance, which Cannon believes can work in a voluntary, HSA-based system. I just wish someone promoting those accounts would explain why I don’t understand how they overcome that issue rather than continually ignoring it.