Prof. Kahn on cost estimates of HSAs
Prof. Kahn on cost estimates of HSAs
Response to yesterday’s message that included calculations of a hypothetical
example of how Health Savings Accounts (HSAs) might impact health care spending:
James G. Kahn, M.D., M.P.H., Professor of Health Policy & Epidemiology, Institute for Health Policy Studies at the University of California San Francisco:
I really like the approach to estimating the ridiculous cost of the health savings accounts . Really drives home how it’s actually a mechanism to force costs onto sick people who don’t have the money to afford it. A few from-the-hip technical comments:
— The scale of these effects may be much smaller — if people currently in public programs largely stay in public programs and thus are unaffected by this restructuring of private insurance markets, and their costs don’t need to be covered by the catastrophic plans.
— The low medical cost load on HSAs may be somewhat mitigated: If individuals in public programs constitute the sickest / most expensive individuals (certainly true for Medicare), then the skew that drives your analysis may be much less for the population that remains and would be affected by SAs.
These two points emphasize the importance to us of keeping people in public programs, where they’re not subject to the problems you so aptly describe, and are supported relatively efficiently via tax revenues (which remain ever so lightly progressive at least for Medicaid).
— Finally, arguably, money placed in HSAs and not used for medical care shouldn’t count in the health care spending total. It’ll be spent on a broad mix of consumption and savings (for the rich healthy people who get it). — The incentives to get care will drive down utilization and costs (for those who are poorest and sickest).
So, if I’m right on these points, HSAs may waste only billions or tens of billions, not hundreds of billions. They would represent, essentially, an odious transformation — from health from the poor and sick, into wealth for the rich and healthy. Stunningly cynical and extortionate. Compassionate conservatism indeed.
Don McCanne’s response:
Jim is absolutely correct on all of his points. In fact, as I composed the Quote of the Day message, I thought that we really need a full paper on this concept. But I wanted to keep the message relatively brief. Some of the conservatives have suggested that the poor would benefit by HSAs and perhaps we could get rid of Medicaid. And then the supporters of Medicare privatization have suggested that high deductible coverage (with HSAs) would be the preferred substitution for the government-run Medicare program. So I lumped everyone in together for the analysis to demonstrate how flawed the general concept is. Excluding groups such as those in Medicaid and in the traditional Medicare program changes the numbers, but it does not change the principle that this is clearly a flawed concept.
There are other issues that I didn’t cover. HSA advocates contend that health costs would be reduced because people would not want to spend their own money on “unnecessary” care. But I decided that this would be roughly offset by the increased use by those currently uninsured who would then gain access to care.
I didn’t mention the fact that the $5000 accounts may not be actual accounts
but might be only accounting entities. Perhaps $3000 would be the limit permitted to fund the accounts and then a $5000 deductible required to be sure that the patient remained sensitive to costs. For others there may be no account but rather only a $5000 deductible that must be met out-of-pocket. But whether it’s money in an HSA account or money that the patient is responsible for but was never spent because of lack of need, from a policy perspective it’s still $5000 that each person is responsible for up front until insurance becomes available. On the health care balance sheet, the $5000 per person would appear as a liability and it would be only partially offset with the unspent mount appearing as an asset.
Also, in making the point that, for the healthy, HSAs are savings accounts that can be used in retirement, I did not emphasize that these are retirement funds that are at risk in the event of unanticipated major medical expenses. It is terrible policy to require the 30% or so with major medical needs to pay for their health care out of what they thought would be their retirement funds.
The first lesson, as I see it, is that would should recognize the flawed policies of the HSA model. HSAs attempt to address two issues, paying for health care and funding retirement, and yet they threaten affordability for care for those with greater needs, and they increase uncertainty in retirement planning. The second and perhaps more crucial point that Jim emphasizes is that we must make every effort to protect Medicare and Medicaid until they can be replaced with an even better program that includes all of us.