Back to Basics: Health Savings Accounts
In the debate about health care reform, a lot of jargon and acronyms have been thrown around as potential solutions for the complex problem of health care reform. Some have argued that the left has focused on coverage but not cost reduction while the right has focused on cost reduction but not coverage. One thing that would address both has not been emphasized enough in the debate: health savings accounts (HSAs). The Show-Me Institute has long written about how HSAs can be an effective part of reforming health care insurance.
A recent Show-Me Institute policy study about the health care debate highlighted the benefits of HSAs:
HSAs empower individuals to monitor their health care costs and create incentives for individuals to use only those services that are necessary.
Either employers or employees can place money into an HSA before taxes, and that saved money can then be used to pay for any out-of-pocket medical expenditures. Typically, these accounts are used with high-deductible insurance policies that have low monthly premiums, so consumers of health care have an economic incentive to spend wisely. The money in an HSA rolls over every year, so there is no rush to spend the money by a certain date. Once a person has covered medical expenditures up to the amount of the yearly deductible on the policy, the insurance company begins to cover expenses instead.
A health savings account brings health insurance back to its original purpose, as a backup plan to hedge against catastrophic health care costs, like cancer or a car crash, rather than as an insulator from routine, expected health care costs. Part of the problem with health care, as Chrissy mentioned in a recent blog post, is the lack of personal responsibility that the current system fosters. The incentive structure is not aligned to reward people for healthy behaviors. Because health insurance plans pay for every doctor’s appointment or procedure, there is little accountability from patients to monitor their own health and conserve their use of health care resources. This results in what the Show-Me Institute’s study by Arduin, Laffer & Moore Econometrics called a “health care wedge” that drives up costs.
The type of high-deductible policy that generally accompanies an HSA gives customers a fiscal incentive to look for good prices and to stay healthy. When customers have control of their own health care money, doctors and hospitals who hope to attract business must respond in kind by reducing inefficiencies and unnecessary costs. Health savings accounts are also independent of employment; they follow customers even after the loss of a job, which addresses a major flaw of the current employer-based system.
There are many other issues to consider when it comes to health care reform, but HSAs would go along way toward realigning incentives and putting health care decisions in the hands of the patients. Missouri is lucky to have H.B. 818, the Missouri Health Insurance Portability and Accountability Act passed in 2007, which encourages HSAs. Hopefully, national reform will follow the Show-Me State’s lead and incorporate HSAs into the new plan.