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HSAs Again

Tim Lee quibbles with my characterization of the case for Health Savings Accounts. Fair enough. I still think that in any kind of universe where HSAs are a good idea (i.e., not the actual one), universal catastrophic insurance would be a better one. Next Tim expresses umbrage at my assertion that the Republican Party likes HSAs because they'd be good for insurance companies. I'll just note this. Health insurance companies, like most sorts of companies, have a trade organization designed to promote the interests of its members. The insurance industry's trade group is called AHIP. AHIP is a big fan of HSAs. Two possibilities present themselves -- one is that AHIP is run by idiots, the other is that HSAs would be good for insurance companies.

Generally speaking, I'm surprised by the habit my libertarian friends have of taking umbrage at the insinuation that the rightwing policy agenda is largely driven by the interests of the people who finance the rightwing policy agenda since I would think they'd be familiar with the whole public choice economics scene. The big-time Democratic Party push for single-payer health care would be driven by the financial interests of powerful groups who would benefit from such a plan except for the fact that there is no such push. And there is no such push largely because there aren't any powerful groups who seem to believe at the moment that such a push is a good way to advance their interests. If a few large employers sat down around a table with the leaders of the big unions and thought rationally for a while, I bet they could reach an accord about the desirability of a single-payer push and then soon enough we'd have single-payer health care.

It would be nice indeed of neat ideas became law just because some smart folks thought they were super-awesome, but in practice not so much.

May 24, 2005 | Permalink

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Comments

Matt, you're moving the goalposts. It might be true (as AHIP seems to think) that HSAs are good for insurance companies. Certainly AHIP would know more about that than me. But that doesn't mean it's the only, or even the primary, reason right-of-center people are talking about it. Lobbying by self-interested interest groups is often an important reason that a particular proposal does or does not get Congressional attention. But it just isn't the only reason. And in the case of HSAs, I think it's pretty clear it's not the primary motivation for Congress including them in the Medicare bill.

A more plausible explanation, it seems to me, is that they were a bone to throw to us ideologues in the process of screwing us over with everything else in the Medicare bill, which really was a big giveaway to the insurance company. Some of us were really upset about that, and I suspect the bill's sponsors hoped to placate some of the right wing ideologues by throwing HSAs into the mix. It worked on Newt Gingrich, for example.

Anyway, I'd like to see a post about why HSAs are bad. You've insinuated that they're a plot by the insurance industry, and perhaps they are, but that doesn't prove that they're not also a good idea on the merits.

Posted by: Tim | May 24, 2005 4:23:54 AM

It would be nice indeed of neat ideas became law just because some smart folks thought they were super-awesome, but in practice not so much.

Actually, isn't it specifically this that our form of dispersed-power government helps us avoid?

Posted by: TW. Andrews | May 24, 2005 5:02:59 AM

The big-time Democratic Party push for single-payer health care would be driven by the financial interests of powerful groups who would benefit from such a plan except for the fact that there is no such push.

Actually, the U.S. auto-industry has been calling for government-financed healthcare for some time. This is clearly a case of 'powerful groups' acting out of self-interest. It does not, however, make this a bad idea any more than the support of the insurance industry makes HSAs a bad idea.

As for that, I suspect AHIP supports HSAs only as a possible way of avoiding single-payer because otherwise HSAs are bad for the insurance industry. Why? Because the HSA model--catastrophic insurance with routine expenses paid out of HSA funds--tends to reduce the scope of insurance (and, therefore, premiums) compared to the full coverage alternative.

Lastly, of course, HSAs and single-payer are not mutually exclusive. In fact, that is what I'd prefer to see--single-payer insurance with significant yearly deductibles (on a sliding scale based on income) so that most people do pay routine expenses out of pocket/HSAs and DO have an incentive to pay attention to what things cost, but without any risk of being financially wiped out by medical catastrophes or losing coverage due to job losses or changes.

Posted by: Slocum | May 24, 2005 6:37:52 AM

"Actually, the U.S. auto-industry has been calling for government-financed healthcare for some time. This is clearly a case of 'powerful groups' acting out of self-interest. It does not, however, make this a bad idea any more than the support of the insurance industry makes HSAs a bad idea."

I don't think they've literally come out in favor of any kind of single-payer system and have in general failed to put their money where their interests clearly lie. Whether this is blind capitalism or a belief they can't beat the insurance companies, I couldn't say.

Posted by: Dan | May 24, 2005 6:57:55 AM

Generally speaking, I'm surprised by the habit my libertarian friends have of taking umbrage at the insinuation that the rightwing policy agenda is largely driven by the interests of the people who finance the rightwing policy agenda since I would think they'd be familiar with the whole public choice economics scene.

The point you're missing -- but then it's contrary to the dogma of the left in general -- is that interests don't have to clash (even in public choice economics).

Posted by: Larry | May 24, 2005 7:00:17 AM

I don't think they've literally come out in favor of any kind of single-payer system and have in general failed to put their money where their interests clearly lie. Whether this is blind capitalism or a belief they can't beat the insurance companies, I couldn't say.

No, they've not endorsed any particular plan--they've just called for reform. If there were a single-player plan with a snowball's chance in hell of becoming law, I have no doubt the auto manufacturers would come out strongly in favor. But any plan that relieved their healthcare burden would be fine with them--from their perspective, it doesn't have to be single-payer.

Posted by: Slocum | May 24, 2005 7:38:41 AM

So insinuation makes the case around here.

Well one of the most powerful stakeholder groups opposed to single payer system and for the longest time has been physicians.

The AMA has long hated single payer.

They hate socialized medicine.

They hate managed care.

Lately they been softening a bit, but only because they have no choice.

So what does this tell. Physicians and insurers are in bed together?

Wait they don't like each other. But both are opposed to single payer.

Your proof by insinuation method doesn't hold water.

Write about something you understand.

Posted by: avedis | May 24, 2005 7:58:03 AM

Why HSAs are bad in a short paragraph:

HSAs are good for normal, healthy, people who make enough money to make decent contributions to their accounts. They suck ass for everyone else. There is already a supplemental account available that you can contribute to at most corporations that allows you to pay for out-of-pocket medical expenses tax-free. Supposedly, the theory behind HSAs is they make patients better consumers. But you simply can't think of medical care as commodity. People don't get a root canal because they want one, but because they need one. HSA's just shift more of the cost to consumers and do nothing to solve the problem of the uninsured and also do nothing for people with chronic or catastrophic illnesses.

Posted by: Freder Frederson | May 24, 2005 8:46:02 AM

I amazed that anyone would think that health savings accounts with a catistropic insurance would work or be acceptable to most americans. What are health care costs - medical (yearly checkups, emergency visits, etc.), perscriptions, dental care, and eye care. If insurance only covered catistrophic costs none of these things were covered by insurance, the amount of money that you would have to set aside would be beyond most people's income.

Posted by: judy | May 24, 2005 8:48:42 AM

In fact, that is what I'd prefer to see--single-payer insurance with significant yearly deductibles

Does any other country do this? How does it work there, compared to all the other countries with measured-better healthcare?

I'm going to be an repetitive asshole on this one point; we do not need to theorize about hypothetical better healthcare systems, when we can steal proven ideas from other countries now.

Posted by: dr2chase | May 24, 2005 9:23:12 AM

Re: the amount of money that you would have to set aside would be beyond most people's income.

I believe that most such proosals assume that (for most people) the employer would set up the HSA for the worker in place of paying insurance premiums. So most people would not have to set aside their own money for one. Of course that does nothing for the uninsured, or people whose employers would not want to fund an HAS.

Posted by: JonF | May 24, 2005 9:28:14 AM

"Actually, isn't it specifically this that our form of dispersed-power government helps us avoid?"

Thank you T.W. Andrews.

Posted by: razor | May 24, 2005 9:48:28 AM

The default argument as I understand it is HSAs segragate healthy people from sick people. This lowers the price on healthy people, but raises the price - or in the worst case, closes down markets completely for sicker people. Just pick up a decent micro textbook and turn to the section on "insurance markets." Since helping the healthy at the cost of the sick is inegalitarian, HSAs are "bad" from the perspective of an egalitarian or a utilitarian who beleives in diminshing marginal utility of health.

Note the above argument tends to implicate rich, young, healthy citizens as the "villians", not insurance companies. It's not clear a priori what the impact of HSAs would be for insurance companies - although to the extent they are a) subsidized and b) small - with overhead and less bargaining power from buyers, maybe insurance companies can capture some rent from a HSA program.

What I do not understand is why a process Libertarian would favor HSAs over the status quo. Isn't the government subsidizing/mandating/whatever HSAs a bad thing? Yet another data point that many so called "libertarians" are just hacks for the rich and powerful, and not defenders of principle.

Posted by: wml | May 24, 2005 9:51:09 AM

It would be nice indeed of neat ideas became law just because some smart folks thought they were super-awesome, but in practice not so much.

I'm a lawyer, and--believe it or not--I've seen this happen fairly often. There are quite a number of very technical fields in law, and the technicians often have a lot of latitude with them. A good example would be UCC Article 8, which governs property rights in securities. It contains some super-awesome ideas.

Posted by: Joe S. | May 24, 2005 9:52:02 AM

wml, there are plenty of good explanations of why libertarians support HSAs as a matter of principle. Yes, our first choice would be to eliminate the tax deduction for employer-sponsored health insurance, but that's not likely to happen any time soon, so HSAs are a practical, incremental way to eliminate the distortions created by that tax subsidy, with the added benefit of giving consumers more direct control over their health care.


Posted by: Tim | May 24, 2005 10:03:38 AM

My problem with the idea that HSAs will help "the market" decide the price of medical services is that it disregards another principle of economics -- elasticity of demand. Cosmetic surgery and LASIK are frequently cited as areas where prices have been successfully reduced by a free market but those are both elastic goods. You aren't going to see the same thing happen with inelastic goods and services, like insulin or heart surgery.

Here's what I would like to see: single-payer coverage for catastrophic and preventative care, an option for employer or group-based additional coverage, and an option for a HSA to pay for other medical services with pre-tax dollars.

Posted by: Rebecca | May 24, 2005 10:35:27 AM

Why should the consequences matter at all to a process libertarian? It seems pretty plain to me that a simple subsidy to employer health insurance is less of an example of byzantine government interference in individuals freely expressing their rights of property then adding ontop of that special subsidies/mandates/regulations for HSAs. Especially if the extra subsidies are just added on (increasing overall taxation elsewhere to finance the subsidies).

Furthermore, even if the goal were to somehow approximate what the world would look like without any regulations (by piling on more and more regulations) HSAs could result in market distortions. There is no way to know whether in some "natural state" with no taxes, regulations, non-necessary state spending whatsoever what health insurance would look like. We could be in a pooling equilibrium where only one type of insurance is offered, or a separating equilibrium with special insurance for the healthy and special insurance for the poor, or maybe all health insurance markets would collapse entirely. Perhaps every 5 years the equilibrium switches.

Finally, if the goal is instead to maximize individual real automony, even if the process treads on some rights of property, then what we are discussing is not process libertarianism at all. Some argue that's the very definition of liberalism - and would go on to argue that since health is central to individual capacity to express oneself, universal state sponsored health insurance becomes neccessary in an advanced economy.

Posted by: wml | May 24, 2005 10:48:46 AM

The UCC is a nice example of an incremental, iterative process in which an interest in money results in close attention at every level by full time practitioners, and it traces back eighty years, to a pragmatist who was codifying custom and practice on the basis of custom and practice and pragmatism, not his own brilliant ideas.

Smart people, good ideas, but about as far as one can get from policy making by people gathered in a room.

Posted by: razor | May 24, 2005 11:01:40 AM

"Health Savings Accounts are in their infancy. In order for HSAs to be successful, they must meet the needs of individual participants and of the employers who offer HSAs to their employees. Unduly restrictive regulation creates a risk of stifling the HSA market. America's Health Insurance Plans supports an approach that encourages innovation of these new products.

"America's Health Insurance Plans and its member companies are committed to developing consumer choice products, such as Health Savings Accounts, that engage people in the cost and quality of their own health care, and allow them select the plans that best suit their medical and financial circumstance."

The above is from AHIP's website. Sounds pretty lukewarm to me. I don't think the health insurance industry as a whole is panting for HSAs. The usual story reported over the last few years has been that one company - Golden Rule Insurance, based in downstate Illinois - has pushed very hard for HSAs, and the rest of the industry has gone along.

Posted by: Richard Riley | May 24, 2005 11:11:02 AM

I'm going to be an repetitive asshole on this one point; we do not need to theorize about hypothetical better healthcare systems, when we can steal proven ideas from other countries now.

But we have a particular history and set of political dynmaics that are going to shape what is possible here. A British-style health system is totally out of the question, for example.

A single-payer system, I'd argue, would be much more politically feasible if it includes some form of free-market competition than if it does not.

Posted by: Slocum | May 24, 2005 1:53:37 PM

Savings accounts are a helpful way to put aside money for predictable future expenses, and therefore HSAs may be useful as ways to help people cover the future cost of routine health care and healthcare insurance premiums. Some kind of true insurance program, however, is still necessary to cover the risk of an unpredictable and unaffordable health care catastrophe. Also, as the cost of health care rises, we need some system for transferring a portion of the costs of care from the wealthy to the poor (unless we are willing to let the poor lose healthcare when they can't afford it).

HSAs, therefore, are at best a supplement to a broader health care system that provides both insurance and charity.

Posted by: Rob Lewis | May 24, 2005 3:06:58 PM

Rob Lewis,

I'm just curious what happens to people who get expensive, chronic diseases young. Properly caring for someone with schizophrenia costs about $5k per year, if they don't need to be hospitalized. You need therapy, meds and medical monitoring. That is entirely predictable. The problem is that the person probably won't be able to earn much at all.

Posted by: Abby | May 24, 2005 4:39:02 PM

avedis:So what does this tell. Physicians and insurers are in bed together?

Blue Shield and Blue Cross were set by groups of physicians to funnel money to them, so yes, physicians and insurers are in bed together.

Posted by: eduardo | May 24, 2005 5:15:40 PM

"Blue Shield and Blue Cross were set by groups of physicians to funnel money to them, so yes, physicians and insurers are in bed together."

Yeah maybe, way back in the days of fee for service indemnity. You wouldn't know it now what with the way physicians scream like stuck pigs over managed care and management of utilization.

Get real.

Posted by: avedis | May 24, 2005 6:58:09 PM

"Savings accounts are a helpful way to put aside money for predictable future expenses"

Ah, precisely! Nail on the head precision.

If we could accurately predict what our exposure to HC costs (or any other costs for which we purchase) the world would be divided into four groups.

First, Insurance premium = expected benefit (what, on average someone in your risk pool is expected to cost) + Admin. costs + risk premium.

1. People who would not purchase insurance because they would know that they would spend less than the expected benefit and less than admin. costs and therefore would come out ahead by not purchasing insurance.

2. People who are average (spend the expected benefit) would not purchase insurance and by avoiding administrative costs come out ahead.

3. People who would purchase insurance in order to gain access to goods and services becuase they would know that they are likely to spend more than the expected benefit.

3a. People with lower income/wealth who would purchase insurance because they would not only know that they would spend more than the expected benefit, but also because they would gain access to goods and services they would otherwise not be able to afford.

4. Those who don't care to purchase insurance because they are so wealthy they just don't care.

Now, no one has these predictive powers, but some can be reasonablly accurate and some can be more accepting of risk.

The young, educated, wealthy tend to be more healthy. Fact. If they were to opt out of HC insurance risk pools guess who's left, the poor and the unhealthy. Guess where premiums go. Up and away. Guess who's left with no insurance and no health care at the end of the day.

Now some of those who opt for HSAs will not predict accurately. They will not accuraetly assess risk and its value and they will be severly effected.

HSAs would lead directly to the sort of market segragation that would hurt more than it helped.

Posted by: avedis | May 24, 2005 7:16:12 PM

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