It didn’t take long for the left wing to realize the impact of the Health Savings Account (HSA) provision of the Medicare reform legislation. Don McCanne, president of Physicians for a National Health Program (PNHP), quoted extensively from my analysis of the measure, reprinted in this issue of Health Care News.
Sure enough, like a jack-in-the-box, Senator Tom Daschle (D-South Dakota) immediately popped up with a proposal to repeal the HSA provision. That might be worrisome if the arguments from PNHP had any merit. They don’t. They are just window-dressing for their real concern, which is that HSAs and patient empowerment will be the death of their long-cherished hopes for a nationalized health insurance scheme.
Below I paraphrase their arguments and my rebuttals:
PNHP: HSAs fragment the insurance pool.
Reply: There is no “insurance pool” in the United States. There are tens of thousands of insurance pools, none of which subsidizes the others. Each individual pool pays only the costs of its own enrollees. HSAs do not change that.
PNHP: HSAs will appeal only to the “healthy and wealthy.”
Reply: There is not a scintilla of support for this assertion, either in theory or in practice. We have seen no selection problems with MSAs or with HRAs in multiple choice settings, and small wonder–the opportunity to pay less in premiums and save money for the future is far more attractive to lower-income people than it is to “the wealthy,” and high-utilizers are the very people who have rejected managed care because they want more control over their choice of doctor and treatments.
PNHP: HSAs will result in traditional coverage becoming unaffordable.
Reply: This is often parroted, but it is never explained what is meant by “traditional coverage.” If it means major medical indemnity plans, those barely exist anymore. The blame can hardly be put on HSAs (or MSAs), but falls squarely on managed care. I doubt if PNHP means HMOs when it speaks of “traditional coverage,” since PNHP seems to despise HMOs. And in McCanne’s letter, he doesn’t seem to think very highly of PPOs either. If anything, HSAs will offer an alternative that is much closer to “traditional coverage” than anything else on the market.
PNHP: PPOs have already raised deductibles and cost-sharing, so there won’t be much premium savings in switching to a high-deductible plan.
Reply: That may be true in some cases. But the HSA will provide people with a tax-favored way of paying for the out-of-pocket costs they are already incurring on an after-tax basis. This is a benefit for anyone who currently pays taxes. There will also be a dynamic effect as costs become more visible to consumers and they begin to force the industry to develop more attractive pricing.
PNHP: The individual market discriminates against people with pre-existing conditions.
Reply: Again, that may be true, but it is irrelevant to the merits of HSAs. In fact, it would be desirable if high-risk pools also developed HSA products for their enrollees.
PNHP: The HSA administration adds another layer of costs in a system that is already wasteful.
Reply: HSA administration should be as easy and cheap as a checking account at the local bank or a bank card. Certainly this is well below the administrative cost involved in moving the same money through an insurance mechanism, with the 15 to 40 percent overhead cost incurred by insurance companies. More importantly, the administrative cost for physicians will be close to zero as they simply present a bill to be paid at the time of service.
PNHP: Once someone is eligible for Medicare, they can withdraw HSA funds with no penalty, like an IRA.
Reply: True, but this is a good thing, not a bad thing. People will be able to use their HSA funds to pay for their retiree benefits, help supplement a retiree’s income when he or she is no longer able to work, and help pay for long-term care needs, something no other plan is doing anything about.
Other arguments often raised but not included in the McCanne letter are these:
Claim: HSAs may help control costs at the low end, but they do nothing about high-end expenses where the real problem is.
Reply: That isn’t entirely true, but the point is valid. HSAs will likely create economizing habits that will not disappear once someone breaks through the deductible. But it is true that additional mechanisms are needed to address the high-end costs.
Claim: Other tax-favored savings plans (IRAs, Roth IRAs, 401ks) provide a tax advantage at one end or the other, but HSAs are tax-free both when the money is put in and when it is withdrawn.
Reply: But HSAs are not a substitute for retirement accounts, they are a substitute for a portion of health insurance coverage. Most health insurance is also tax-free when the premiums are paid, and also when the benefits are received.
Highlights of the Nashville CDHCC
I came away from November’s Consumer Driven Health Care Conference, held in Nashville, with some impressions I think are worth sharing:
- An underlying thread at this conference involved the health care establishment trying to figure out how to use the terminology of consumerism to justify continuing business-as-usual–employers who want to enforce behavioral changes on their workers trying to position such paternalism as “consumer centered” without ever giving actual consumers the power to make choices; hospitals that are still wedded to PPO “discounts” and unwilling to consider changing their billing structure to accommodate cash-paying patients; academics who try to police physician behavior from on-high in the name of “consumerism.” There is a lot of work to do.
- Perhaps the most revealing sessions were back-to-back speeches by former Speaker of the House Newt Gingrich and Congressman Jim Cooper (D-Tennessee). Gingrich has been out of politics for a few years now and was energetic, forward-looking, and enthusiastic. He has little patience with business-as-usual in health care and said the entire system is archaic and needs to “catch up with the past.” He sees technology as enabling higher quality at lower costs and believes government interference is the main impediment to change.
Cooper had been a major player in the health care battles of the early 1990s. He lost his seat when he ran unsuccessfully for the Senate, but returned to the House in last year’s election. He agrees with the need to bring market economics to health care and cited third-party payment and first-dollar coverage as problems that prevent patients from understanding risk. But he is appalled at how political gridlock in Congress prevents progress. He ticked off a laundry list of all the things Congress is failing to do and saw very little hope for changing the dynamics. His conclusion was grim and the outlook dismal.
Audio tapes of all the sessions are available on the Internet at http://www.actsconferenceproducts.com/merchant/em.asp. I believe most of the slides from the talks are available at the CDHCC Web site, http://www.cdhcc.com.
Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. His email address is [email protected]. The opinions expressed here are those of the author and may not reflect the opinions of The Galen Institute.