Health Savings Accounts Are A Scam
Posted on August 2nd, 2008 by Jason Rosenbaum in Profits Before People
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Health savings accounts, touted as the latest "free market" solution to our spiraling health care costs, is nothing but a scam to give more money to insurance companies and the rich.
Health savings accounts by definition favor the wealthy and/or the healthy. For those that never go to the doctor, or who can afford the high out-of-pocket costs incurred when using health savings accounts (you need to pay $1,050 as an individual or $2,100 for a family before your insurance will cover the rest), health savings accounts are great. Wealthy and/or healthy individuals can put a bit of money away, tax free, into their health savings account and then draw from it to pay their astronomical out-of-pocket costs when they decide to go see a doctor. If you're healthy, the doctor's visit doesn't happen very often. If you're wealthy, who cares if it happens very often, you can afford it.
For the rest of us, however, health savings accounts don't work. If we get sick and see the doctor often, we have to pay those huge costs often; that means we have to save a lot of money in that health savings account. For those on fixed incomes, or even those just barely scraping by (and that's a lot of us in today's economic climate), putting away even $4,000 in a health savings account is out of the question. Health savings accounts don't work for the same reason tax credits don't work: Those who don't have a lot of cash to save are forced to put away money they don't have a bit at a time to pay for their care. With tax credits, they get repaid at the end of the year. With health savings accounts, they don't pay taxes on that money. But either way, they need to save over the course of a year to get that payoff. For a lot of folks, this just isn't a realistic option - there's simply nothing to spare.
Is it any wonder, then, that health savings accounts haven't been embraced by most Americans? Jason Roberson at The Dallas Morning News reports:
Today, with only 5 percent of the 114 million Americans covered at work opting for such health plans, their future is in question. In Texas, regarded as the birthplace of the HSA, only 387,000 people have signed up out of the 12 million with employer-provided insurance.
Proponents point to small companies – including some in Texas – that have used the lower-cost plans to offer coverage for the first time.
Meanwhile, critics argue that the plans benefit only the healthy and wealthy, with sick patients who can't afford deductibles of more than $2,000 doing without care.
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Despite the tax benefits, patients have not been enamored of the trade-off. Few have signed on at companies now offering HSA plans as a new option, according to the Commonwealth Fund, a private New York City foundation focusing on the nation's health care system.
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On the other side, Stacy Pogue, a policy analyst at the Center for Public Policy Priorities, an Austin-based advocacy group, argued that HSAs favor healthy people, who don't worry about a deductible, and the rich, who have the money for a big deductible and like the tax incentives.
In fact, a May report from the Government Accountability Office found that taxpayers with health savings accounts averaged an adjusted gross income of $139,000 in 2005 vs. $57,000 for other filers.
Health savings accounts, by favoring the wealthy/healthy, redistribute wealth in the wrong direction. Insurance companies pay out less money, as our out-of-pocket costs are higher. The rich who can afford to pay the costs stay fat. The rest of us are forced to pay more of our hard earned money for health care and the gap between the rich and poor rises. This is redistributing wealth towards the rich, a venerable American tradition.
People who work hard, who pay their taxes, and who get sick out of no fault of their own deserve better.
And health savings accounts do nothing to address underlying problems. Insurance companies can still deny care at will, even after people are forced to pay thousands out of pocket. Health care access is still determined by your wealth - the more money you have the more health care you can buy. And health savings accounts do nothing to lower the actual cost of health care, they only serve as a small deterrent for people to see a doctor in the first place.
John Goodman, president of the National Center for Policy Analysis in Dallas and "father" of the health savings account admits as much:
"If a mother wakes up in the middle of the night with a sick child, we want her to think about the cost of the emergency room visit," said Mr. Goodman, dubbed by many the "Father of Medical Savings Accounts."
That's an amazing admission. Proponents of health savings accounts like Goodman want mothers with sick kids thinking about how much money is in their bank account instead of the health of their child. And here is where the differences of opinion become intractable: I believe that when a child is sick, the only thing that should be on a parent's mind is healing and comforting. Parents should be consulting their doctor, not their check book.
Paul Krugman agrees with this basic assessment of the failings of health savings accounts, and he points to a further problem:
But for people whose income puts them in high tax brackets, these accounts are a very good deal; making the premiums deductible turns them into a great deal. In other words, health savings accounts will offer the already affluent, who don't have problems getting health insurance, yet another tax shelter. Meanwhile, health savings accounts, in the view of many experts, will actually increase the number of uninsured.
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In the case of health savings accounts, the key side consequence is a reduced incentive for companies to insure their workers. When companies provide group health insurance, healthier employees implicitly subsidize their sicker colleagues. They're willing to do this largely because the employer's contributions to health insurance are a tax-free form of compensation, but only if the same plan is offered to all employees.
Tax-free health savings accounts and premiums would provide healthier and wealthier employees an incentive to opt out, accepting higher paychecks instead, and would lead to higher insurance premiums for those who remain in traditional plans. This would cause some companies to stop providing health insurance, or raise employee contributions to a level some workers can't afford.
Not only to health savings accounts redistribute wealth upwards, they undermine the basic notion of risk-sharing that our current health system is based on.
So, to recap:
- Health savings accounts allow insurance companies to keep more money.
- They offer tax shelters to the wealthy,
- while hard working Americans pay more out of pocket,
- and parents are forced to worry about their bank accounts instead of the health of their children.
In short, health savings accounts are a scam.
(also posted at MyDD)
I am interested in your viewpoint.
I have had an HSA, as well as a family (3 children) and I am not in the upper tax bracket by any means. However, I have to say I'm thankful that (a) I am NOT putting more money in the insurance company's pockets as I'm paying about 30% LESS in premiums - which I wouldn't have the opportunity to save or spend regardless of my health status and (b) I do have the health insurance coverage to handle catastrophic costs (such as the back surgery and baby I had last year.)
As for the HSA, my employer did put in some money (thanks) and I threw in the amount that I would have otherwise paid in additional PREMIUMS for the high coverage plan… about $80/month pre-tax.
The deal is, I spent the $1,100 required for my deductible - no cost for preventative care of course, just the big stuff. Sounds like a lot I know. However, with the premiums savings of over $900, that brought my risk down to $200 which was actually bearable and also available in my HSA tax free (make that $150 or so due to tax savings…?) I still have about $300 in my HSA…
This year, I am not having a baby and certainly hope to NOT have back surgery again… so that $900 that I WOULD HAVE spent on premiums is now going to my HSA… for whatever may (or may NOT) happen next! Having some savings for retirement sounds pretty good too… who knows.
I can tell you that my modest salary and costs (healthcare and otherwise) of raising children do NOT support higher taxes to fund a money-draining, entitlement-encouraging national health care program. Of course there is not a one-solution fix to this… we do have to provide help to those unable to provide it for themselves, I agree… that doesn't mean HSA's are BAD, however… they are just another choice!
So… My last remaining question is, recognizing that you are an insightful, smart person, and the HDHP/HSA thing does not work for everyone (actually, is there really an expectation that it is supposed to work for EVERYONE?) what is your proposed solution for managing the astronomical (your word) health care costs long term in this country? Please… let us working folks know because if there's something better, I'll back it in a minute!
Thoughtful responses are always encouraged, thanks!
On HSAs, well, they can work for folks who are relatively young, healthy, and/or wealthy. For those, like yourself, who don't go to the doctor very often, HSAs can indeed make your total out of pocket costs very bearable. But think about what you'd be paying in deductibles if you were sick, or if you had to go to the doctor all the time for years. The situation changes pretty rapidly.
And that leads me to a point about risk sharing and costs. As you point out, health care costs are skyrocketing. Simply transferring those costs from private insurance to public programs wouldn't really solve the problem. Costs need to be lowered.
The most effective way to lower overall cost is risk sharing.
Right now, in this country, folks with low risk (young, healthy, wealthy) can get away with no insurance, programs like HSAs, or bare-bones private plans. They don't pay in a lot to the system, and they don't take out a lot either. But, when folks get old and/or sick, or lose some of their money, suddenly it's a different situation.
Under our system, these folks are not covered, get hit with sky-high fees, and tend to do things like only go to emergency rooms, which is way more expensive than prevention.
To lower costs, prevention and risk-sharing must be practiced. Folks who are young and/or healthy should pay into the system just like those who are not, sharing risk across the country and banking insurance payments for future costs. That's really the whole theory behind insurance, you pay a bit now to reap benefits later.
HSAs, along with all sorts of other practices, poke holes in this risk-sharing net, allowing the healthy and/or young to stay out of the risk pool and dumping the sick and/or old on public rolls. That's just not fair, that the government only handle those that are least able to pay, in a manner that is least efficient (emergency room care).
So, yes, we must lower costs. And we can lower costs by spreading out risk.
Actually, depending on the structure of the QHDP attached to the HSA, an HSA may be a better option for a sick person than a traditional plan.
Take for instance a person who has cancer and must go for radiation 1 per month, chemo 1 per month, for a "check up" once every 3 weeks (each over 4 month period), then opthamologist (cancer treatment related visit). The person would also have at least one MRI and one CT. Add in an ER visit, say, 3 perscriptions, and one out patient surgery. Certaintly these aren't unusual services. The person also as 1 wellness visit.For the sake of argument, lets say the radition is $300 per visit, the chemo $280, the check up $280, the opthamologist $100, the MRI $500 and the CT $800. The ER was $2000 for the facility charge, and each perscription is $150. The out patient surgery is $2000 for the facility, $1500 for the physician and $250 for the assistant. Let's add $200 for the doctor visit (and who wouldn't love these prices!)
Take two different plans-a $2700 deductible 100% qualified high deductible plan, and assume the employer contributes $50 per year.
The other a $1000 80% PPO plan with $25/50 copays and a $2000 coins max (deductible not included). Perscripions are $10/50/60 75%. The PPO costs $100 more per month.
Under the PPO Plan
Radiation 4x$50 copay= $200 member pays
Chemo 4x$50 copay= $200 member pays
Check up 1x$50 copay =$50 member pays
Ophthamologist 1x$50 copay= $50 member pays
MRI $500-applied to deductible= $500 member pays
CT $800-applied to deductible =$800 member pays
ER 1x$150= $150 member pays (let's assume the plan pays 100% for er services after the copay)
Perscriptions 3x$60 = $190 (no generics available)
Outpatient surgery $2000 fac- $700 deductible member pays
1300×20%= $260 member pays
1500 physx20%= $300 member pays
$250 assistantx20%= $50 member pays
Wellness visit 1x$20=$20 member pays
That is a total member portion of $3470, but an additional $400 needs to be considered due to the additional premium cost. That makes the total pay $3870.
Under the QHDHP the member would have:
Radiation 4x $300= $1200 deductible member pays
Chemo 4x $280=$1120 deducitble member pays
Check up 1x$280= $280 deducitble member pays
Ophthamologist 1x$100 =$100 deducitble member pays
MRI $500-plan pays member pays $0
CT $800-plan pays member pays $0
ER $2000 plan pays member pays $0
Perscriptions 3x$150 plan pays member pays $0
Outpatient surgery $2000 fac- plan pays member pays $0
1300 plan pays member pays $0
1500 plan pays member pays $0
$250 plan pays member pays $0
Wellness visit plan pays member pays $0
The member would pay only $2700–and if the member uses the employer contribution of $600, they would be spending only $2100 for medical expenses.
$2100 compared to $3870 is a savings for folks who are seriously ill. In fact, that example is a very conservative example for folks with serious illness.
That said, HSA's aren't great for everyone. People like me who fall between the use there benefits a lot and do not use their benefits at all, do not get as great a value. And for families the "family deductible" can be a challenge if only one of the members has a serious illness.
I'm not sure what numbers you're comparing, but HDHP/HSA works out to be better for most, if not all, families even those with sick people. The premiums+copyaments on traditional plans usually come out higher than premiums+out of pocket max (which includes deductible) with hdhp/hsa plans. Take any insurance company, such as bcbs, cigna etc. and compare the traditional/hdhp within each company, to get an idea.
I can see both sides of this situation. It is fine that HSAs exist with traditional health insurance plans, in other words, employers offer a choice. However, my company just decided to eliminate the usual choice of a traditional PPO and provide the option of an HSA only. This is not so good for my family and myself, since I have a chronic illness. I will probably not be taking my kids to the doctor in the future unless the circumstances are dire and I will be cutting back on my blood pressure medication/doctor visits too. And yes, I used to be one of those healthy employees in my youth who never got sick. Unfortunately getting older and genetics have a way of canceling out regular exercise and a healthy diet, both of which I have participated in for years.
HSA!!!! Not for people with 9 perscriptions every month! Today the cost for one of them was $236.00. Our premium is $464.00 a month and the total of all 9 perscriptions are over $700.00. We have all generic meds. but two…there are no generics for them. Even our deductable for meds. has doubled from the last BCBS policy we had. We were thrown into this HSA by my husbands ex-employer (he is retired). We pay half of the premium which is put into the HSA account every month. We have to pay the full cost for a perscription (no co-pay)until we have met our $5200.00 deductable. This has caused us to miss doctors appointments and blood testing because the money is used up so fast. We have even cut down on how much medicine we take a day!
HSA's are for the healthy and rich. When my husband reaches 65 he can no longer have this policy…3 long years to go!
I have not gone to my primary care physician even though i know i should have gone weeks ago. All i need is a prescription for chronic nocturnal asthma and a prescription for seasonal allergies. Right now i write this comment at 3 o'clock in the middle of the night because i can't breath easy and i'm afraid of going to the urgent care clinic due to costs. I can swing a $100 or $200 copay, but not the whole bill… So my insurance is useless to me when i need it the most, and that is right now. My employer only offers a HDHP/HSA that has a $5000 family deductible with no individual deductibles. My covered domestic partner has already incurred about $4000 in medical bills, but my HSA custodian will not reimburse us because the HSA is a tax account and the IRS doesn't recognize our relationship as a family… So my HSA is of no use when we need it the most, and that is right now.
I can count on 2 fingers how many times I have ever had to walk into a doctors office/hospital. I can count on 1 hand how many times i have ever been sick. Why should I pay for you (or risk share as you call it)? I love my HSA, nice to know when I get older (im 30 now) I will have a nice savings for health expenses. There were people at my previous employer (where we had the traditional health insurance) that would go to the doctor every time they got a paper cut. I never once used the coverage. For the average person staying healthy is not that hard. Stay out of the McDonalds everyday, put down the damn Coke and cigarettes and go outside and DO SOMETHING FOR GOD SAKES. I realize people get hit with diseases etc… that are not preventable. I do donate a lot of money to these causes (American Cancer Society for one). I should not have to pay for every Tom, Dick and Harry that feels they should go to the doctor on a whim or the lazy asses that gives themself diabetes from not doing a damn thing. Move to France or Canada with your "risk care" socialist BS.
HSA accounts have one big drawback. It's getting in because
insurance companies reject applicants for taking blood pressure medicine or seeking advice from a health care provider.So it's only for those in near perfect health. Contrary to what was said an applicant has a choice as to the deductable and type HSA compataable plan. My wife choose a high deductable HSA. It's an inexpensive PPO. Her out of pocket expenses are at negotiated. Example: $1000 charge discounted to $300 till you reach the deducatable then you only pay the copay at 80/20 it's $60. After the deductable,and the copay reaches an out of pocket limit then the PPO is usually Pays 100% of charges with coverage of 1 million to 5 million. Most affordable have low rates but very limited coverage,no max. out of pocket and no discount PPO or 100%copay
no max. out of pocket, so never