California Insurance Commissioner Criticizes HSAs

Published September 1, 2005

A July report from California Insurance Commissioner John Garamendi criticized Health Savings Accounts (HSAs) and consumer-directed care and stressed his preference for a universal, government-run health care system.

Garamendi, who admits in the report that he is not neutral on the topic, said consumer-directed plans “put the entire health system at risk” because they attract the young and healthy into leaner plans, leaving the older and sicker in traditional plans.

HSA experts were quick to correct inaccuracies in the commissioner’s Priced Out report.

“Once a significant number of Americans with health savings accounts are not only saving money on their health insurance, but fully vested in and in control of their own health care future, it will be an almost impossible sell politically to push these voters into government-run health care,” said Jim Knight, MD, CEO of Consumer Directed Health Care, Inc. in San Diego.

Experts Cite HSA Advantages

“[F]inancial disincentives are likely to cause many to forgo necessary treatment at early stages,” wrote Garamendi.

McKinsey & Co., however, found in its June report, Consumer-Directed Health Plan Report Early Evidence is Promising, patients enrolled in consumer-directed plans are more attentive to wellness and prevention and were 30 percent more likely to get an annual physical. When consumers in the study were asked why they had a physical examination, most replied, “If I catch an issue early, I will save money in the long run.” HSAs have a built-in incentive to encourage preventive care by allowing it to be part of the insurance contract.

It is the norm, not the exception, for consumer-driven plan sponsors to offer low- or no-cost sharing options (as opposed to financial disincentives) in the area of preventative services, according to an editorial on responding to Garamendi’s report. Such options include reducing or waiving deductibles that normally would apply.

Many employers with consumer-driven plans encourage employees to enroll and participate in programs to help spot health conditions early on, as well as to participate in programs to reduce the likelihood of health conditions worsening into more serious and expensive-to-treat medical problems. cites the example of Fujitsu America Inc., which gives employees a $100 health reimbursement account credit if they complete an online health risk appraisal. Another $100 is credited when employees enroll in a program to treat certain conditions identified by the appraisal, and a further $100 is credited when employees successfully complete the program.

Uninsured Also Benefit

Garamendi’s report continued, “Instead of bringing health care services to more people, we are pricing more people out.”

Assurant Health, however, reported in June 2004 that 29 percent of its HSA policyholders had incomes of less than $50,000, 57 percent were over age 40, and 73 percent were families with children. Importantly, America’s Health Insurance Plans found 37 percent of those purchasing HSAs were previously uninsured.

In addition, eHealthInsurance found most people with HSAs opt for more comprehensive plans that cover 100 percent of hospitalization, doctors’ visits, lab tests, emergency room visits, and prescription drugs after the deductible.

The latest eHealthInsurance data show nearly two-thirds of HSA purchasers paid $100 a month or less for their plans. And seven of the least expensive cities for health insurance for 30-year-olds–the young, healthy patients most desirable in the insurance pool–were in California.

“So, Mr. Garamendi and others who share his vision quite rightly see the fast-approaching tipping point for HSAs as a near and present danger to their plans for the future of health care in California and the United States,” Knight said.

Grace-Marie Turner ([email protected]) is president of the Galen Institute.

For more information …

John Garamendi’s July 2005 report, Priced Out, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to, click on the PolicyBot™ button, and search for document #17626.

The McKinsey & Co. June 2005 report, Consumer-Directed Health Plan Report Early Evidence is Promising, is also available through PolicyBot™. Search for document #17627.