HSAs Save Millions, But Only For the Healthy
Business Wire
September 29, 2004
Golden Rule Customers Exceed $110 Million Saved in Health Savings Accounts; HSA Sales Reflect Growing Popularity of Lower-Cost Health Insurance
Golden Rule Insurance Company today announced that its customers have exceeded more than $110 million saved in tax-advantaged Health Savings Accounts (HSAs).
“On average, we find Golden Rule’s customers saving 45-55 percent on annual insurance premiums alone,” Andy Grim, Golden Rule vice president of marketing, said. “Our customers are getting the coverage they need without paying for coverage they don’t.”
Comment:
Step back and look at the broad picture. 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.
And that’s sick health policy!