STATE OF THE UNION: Health-care proposal causes grave concerns among top economists
BY MICHELLE L. BRANDT
Don’t count on the expansion of health savings accounts—tax-free accounts from which consumers can pay routine medical expenses—to cure our country’s health-care woes. So said two Stanford health policy experts, in response to President George W. Bush’s proposal in his Jan. 31 State of the Union address.
“These accounts are mostly just another tax shelter for high-income people,” said Victor Fuchs, PhD, one of the nation’s foremost health economists. “I don’t see them solving the significant health problems of our time.”
Laurence Baker, PhD, an associate professor of health research and policy, agreed, noting, “My view is that these accounts won’t save us that much money.”
In his speech to the Congress and the nation, Bush said he wanted to strengthen HSAs, proposing to expand the tax benefits for using them. “Keeping America competitive requires affordable health care,” the president said.
HSAs were created when Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act in 2003. The accounts were designed to shift financial responsibility of health care from the traditional insurer (typically the employer) to the individual and, in turn, help stem the country’s skyrocketing medical costs.
Proponents of HSAs contend that consumers use more health services than necessary because someone else (namely, their employer) is footing the bill. If patients pay out-of-pocket for services, the argument goes, they will have an incentive to spend less money and may help keep overall medical costs down.
Fuchs agrees that if individuals spend their own money, they’ll spend somewhat less; that’s Economics 101, after all. But Fuchs said he isn’t confident that people would be wise about what they should and shouldn’t be doing for their health. “They may cut back on useful things, as well as un-useful ones,” he explained.
If individuals skip out on certain care, such as important follow-up visits, in an effort to save money, that could lead to more illness and even further societal costs down the road.
Baker, an expert on the U.S. health-care system, added that there wouldn’t be opportunities for some individuals to scale back at all. “A lot of health-care dollars are spent by people who are quite sick and have little discretion over the care they need,” he said.
The savings accounts work by creating a pool of money from which individuals can pay their medical bills. Individuals or their employers make a tax-free contribution to the account each year, and, as is the case with Individual Retirement Accounts, the funds grow through investment earnings. Any unused funds are the individual’s to keep—which makes the account an attractive long-term investment vehicle to those with good health and extra cash.
“Some younger, healthier folks could make money on this,” said Baker.
Still, if an individual with an HSA has one too many doctor’s visits and spends all the funds in his account, he must pay for any additional expenses out-of-pocket until his deductible is met. (Each account is paired with a high-deductible insurance policy for catastrophic expenses.) This is one element that troubles Fuchs and others who believe HSAs favor wealthier individuals. “The size of the deductible that a high-income person can afford is very different than what a low-income person can handle,” said Fuchs, the Henry J. Kaiser Jr. Professor, Emeritus.
In fact, many experts would agree that HSAs are skewed toward healthy, high-income individuals.
Indeed, a well-off 35-year-old who visits the doctor once or twice a year, for instance, stands to gain a nice-sized savings account from this set-up. The same can’t be said of a 59-year-old, low-income individual with hypertension and emphysema.
Another concern about HSAs: They offer little help to the 45 million or so Americans who lack health insurance. Fuchs, who is a strong proponent of the use of vouchers to provide universal health-care coverage in the United States, hopes the rhetoric over HSAs won’t drown out discussion about health-care solutions that address this problem.
“I worry that HSAs may divert public attention and give the illusion of being something that might help,” said Fuchs. “I don’t want them to delay serious consideration of more comprehensive plans that might do more good.”