Against HSAs

Longtime readers are familiar with my skepticism towards HSAs. Fuchs and Emmanuel, in the last Health Affairs offer an excellent and succint commentary on why HSAs won't deliver:

Health savings accounts. Some incremental reform proposals have objectives other than reducing the number of uninsured people. Consumer-directed health care, subsidized by favorable tax treatment of HSAs, aims at making patients more cost-conscious, leading to usage reductions and possibly more price competition among providers. It is also said that if costs to individuals vary with use, they will have an incentive to choose healthier behavior, such as stopping cigarette smoking. Out-of-pocket payments do give patients an incentive to use less care; whether they are able to make appropriate choices is much more doubtful. The RAND Health Insurance Experiment showed that patients with a higher percentage of out-of-pocket expense use less care, but the proportion of care that experts deem "appropriate" did not vary with the extent of insurance coverage.

There are several reasons for thinking that HSAs, or large deductibles in general, would not have as favorable an effect on utilization as advocates claim. First, a large fraction of health spending is accounted for by a small proportion of patients—patients whose spending levels will be far above their deductible. Second, even for those who have not yet exceeded their deductible but expect to do so before the end of the year, any particular test, visit, or procedure will effectively be free because the patient’s total outlay (the deductible) would be the same, regardless of whether or not they get the particular service. Third, a considerable amount of care is elective with respect to timing. People who have exceeded their deductible have a great incentive to undergo in the same year all of the tests and other procedures that they are contemplating because there will be no cost to them. Finally, a deductible that might be reasonable for a high-wage worker would be unreasonable for one making much less. Thus, there will be pressure to have the deductible vary with income, and that will give rise to other problems, including increasing the administrative costs of such plans.

Great points, and one that should have been obvious to me but I never quite realized: If 20% of Americans account for 80% of spending, how much, really, can be saved? If the majority of people are spending hardly anything, and the rest would blow their deductibles regardless, net savings will be small. Why punish 80% with high deductibles ($2,000 at least for individuals) should they be unlucky enough to get sick that year when the other 20% will spend their deductibles anyway? Put that way, the whole thing is really twisted. We're making life harder for the generally healthy by charging them expensive deductibles when they're the ones using the least care. Only in American health care would this be a good idea.

If you're new to the HSA debate, I recommend my Campus Progress column summarizing the rules and controversy around HSAs.

Comments

[Trapier K. Michael]

I agree with Fuch's main point - that HSAs won't have the affect on utilization some predict. And I agree with the three points he makes to explain why.

But, at least here, I don't see him saying that changing utilization habits is a bad idea, just that it is difficult. What IF that 20% could disperse its risk aversion across the 100% AND still spend every dollar (not just the deductible) with the same stewardship they have over their HSA dollars?

Wouldn't that influence providers to compete for those dollars and continually raise quality and lower cost to do so?