The Brave New World of Health Savings Accounts

President Bush thinks you have too much health insurance. That is, if you have any at all. He has placed Health Savings Accounts (HSAs) at the center of his health policy agenda — a decision premised on the idea that people need less health insurance, not more.

Of course, this isn’t how the administration has framed its proposals. The standard lineup of conservative boosters talks about increasing “choice” and empowering consumers; it has taken plain-speaking bloggers like Josh Marshall of Talking Points Memo to put Bush’s underlying aims so starkly.

The idea that the President thinks Americans are over-insured seems so laughable that it is easy to dismiss this argument as just a partisan interpretation of his motives. But looking at the details of HSAs leaves little doubt that their purpose is the opposite of insurance. Here’s how it works: Employers put employees in health plans, where they are responsible for more of the costs than they are at present. In exchange, workers are allowed to contribute pre-tax earnings into their own HSA, sometimes with a company match. When there are medical costs, you pay them with money from the HSA.

The idea is that once consumers are paying for health care with their own money, the market will work its magic and the health sector will become a lot more efficient, with lower prices and improved services. This perhaps works well inside an economics textbook, but there are a few of reasons why it won’t work that way in the real lives of millions of Americans.

For one, a basic premise of the HSA concept is that people with insurance are overusing health care because they are not forced to pay the full cost. If you are lucky enough to have insurance, ask yourself if that’s true. Do you run to the doctor’s office a couple times a month even though you’re not sick just because you like having your tongue depressed? Do you get that free colonoscopy you’re entitled to even if the doc says it’s not necessary? Me neither.

Getting people to use even the employer-subsidized insurance or government-subsidized care available to them is one of those issues health professionals fret about. Most people don’t enjoy receiving health care; they get it because they need it (and often don’t get it even then). If we add an additional market incentive to avoid going to the doctor, the complications afflicting people who are not getting the care they need would far outweigh — in both human suffering and cash — the savings gained by weeding out the occasional unnecessary MRI or Prozac prescription.

Market competition between firms doesn’t work very well in the world of health care, either. Much of the time, medical care is not a product where you can take the time to comparison-shop. You go to the nearest hospital when you get a bellyache, and the surgeon might end up taking your appendix out before you have time to call around to check prices. Even when a procedure is elective, consumers usually don’t have access to the kind of information that would allow them to judge the relative quality of different providers. Even if the market became more transparent, the basic problem would still be that few people besides doctors would understand enough to make an informed decision. A future when you choose your hospital for heart surgery with Amazon.com-style product reviews is hard to imagine. (“St. Thomas Health Center fixed me up great. The food’s pretty good, too!”)

So Bush and his team are relying on some very wishful thinking about what their plan can do for efficiency. But more malicious is the intentional class bias of HSAs. You can’t put tax-free money away in a health account if you need every penny to make ends meet day to day. The tax incentive on HSAs turns out to be a tax cut for people with enough cash to set aside, meaning folks who are upper middle class and higher. Everybody else just winds up paying more health costs out-of-pocket, and probably forgoing some needed care. As a sop to this inequity, Bush’s proposal offers a refundable HSA tax credit for the poor (you can get more in a health credit refund than you paid in taxes), but that wouldn’t erase the harm done to the working poor, and would still leave the lower middle class far worse-off than they were before HSAs.

Fortunately, most lawmakers seem about as interested in Bush’s HSA proposal as they were in his Social Security reforms. The White House seems to realize that it’s a hard sell — reports prior to the State of the Union address said HSAs would be a major emphasis, but they had fizzled to a mention by the time the speech was given. But if the Bush Administration somehow regains its political capital, a push for HSAs is likely.

I’ve come to terms with the fact that President Bush can’t see the real solutions to the health care crisis because of his ideological blinders; a broader program of social insurance is out of the question for him. But is it too much to ask that he leave alone the insurance that we do have?

Teague Lyons is a grad student in public policy at Johns Hopkins University in Baltimore.

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