I (and others) have long opined that HSAs are thinly-disguised tax breaks for the well-to-do. Touted as a solution to the growing number of the uninsured and cited as the plan of choice for the newly-insured, HSAs have been the darling of the conservative think-tank set.
Now, the Wall Street Journal, that paragon of conservative ideology, has described Health Savings Accounts as “an astute financial strategy for the well-heeled” which “can provide a valuable source of retirement income alongside” other retirement vehicles.
The article notes that the “biggest beneficiaries” of health savings accounts “are proving to be well-to-do investors looking for another way to fund their retirement savings.”
Not the uninsured with modest incomes, not the middle-class families, not the near-poor, but the “well-heeled”.
In contrast, here’s what Grace-Marie Turner of the Galen Institute said about HSAs in 2006:
“Critics contend that HSAs will appeal only to the young, the healthy, and wealthy, but that doesn’t appear to be the case. Forty percent of HSA purchasers make less than $50,000 a year, about half are over age 40, and the biggest share of purchasers are middle-aged families with children.”
To be fair, Ms. Turner’s comments were almost two years ago, and the latest comments from the WSJ were likely based on more recent reports. But Ms. Turner’s comments were misleading even way back then in the early days of CDHPs. Her contention that critics said HSAs were for the young, healthy AND wealthy is a classic strawman. Most of the critics (myself included) based their criticism on the disingenuous marketing of HSAs as a solution for the uninsured when they are clearly not.
And now even the Wall Street Journal agrees.
Instead of mis-representing HSAs, Turner and her ilk should have been working to convince legislators and HSA marketers to alter the plan design to encourage preventive care and management of chronic conditions; income index out-of-pocket limits, and change from a deductible to coinsurance arrangement. I don’t know why these folks haven’t been pushing forward on such ideas, but it could be that these changes, which would certainly make HSA plans more useful and practical, will do little to reduce the tax burden of their wealthy backers.
It is clear that consumerism should be, and will be, a key part of the solution to the health care mess. No thanks to Ms. Turner et al.
Jan
7
Many HDHPs offer first-dollar preventive care, well-baby visits, etc. I’ve had two different HSA-eligible HDHPs with two different employers, and both offered first-dollar preventive care — without the government telling them to do so.
In any case, 20 to 25 percent of the uninsured have incomes above $75,000 a year, which in many states is enough to afford a policy. Many of these people are young and relatively healthy, and they don’t buy health insurance because they don’t want to pay the premiums for traditional PPO coverage. Giving these people access to lower-premium policies that may encourage them to purchase insurance seems like a reasonable approach.
And if your concern is with people marketing HSAs as “The Solution” to the uninsured, I have to say I haven’t seen much evidence of this.
The biggest problem with health care is its affordability. The biggest advantage of consumer driven plans like HSA’s and HRA’s are that they make health care more affordable for the majority of health care consumers. My company offers both an HRA and HSA plan in addition to a traditional PPO. The HRA and HSA plans are our most popular plans with our lowest income and youngest employees. Why? It simply is these plans are more affordable for them. Most will have very low expenses during the year (especially the young) and in a group PPO plan most will pay far more in premiums than they will ever get back in benefits in any given year because the majority of healthly employees are subsidzing a small subset of sick employees (the very nature of “insurance”). And this is the case even though our company is subisidizing 75% of the cost of the group plan.
Our employees who make over $100,000 and are older tend to pay the higher premiums of the PPO plan with its lower deductible? Why? Because they are not as price sensitive on their monthly expenses and willing to pay more to limit their “risk”. This is particularly true of older employees who know they are getting a good deal in a group plan because they will likely have higher costs than the average employee anyway.
Do HSA’s represent a good deal for the well-to-do? Absolutely! However, we find very few employees who are sophisticated enough to figure how they can make it work for them in a wealth accumlation or retirement planning context and we are in our fourth year offering both the HRA and HSA.
I believe you are really selling these account based plans short. Any insurance is risk sharing. The same with health insurance. A traditional health insurance plan requires a great number of people to pay in premiums each year to share risks with other others in the group. For most, in any one year, the purchase is a sunk cost with the individual paying much more in premiums than they will get back. The HSA and HRA still have risk sharing but the indvidual is able to share risks with themselves over a number of years. The reality is that most individuals will have many more good health years than bad health years. HSA’s and HRA’s allow someone to share the good and bad with themselves rather than with someone else. Therefore, you have the makings of an economic system that is rational and efficient. After all, it is a basic principle of economics that things tend to work out poorly when the consequences of our actions spill over onto other people. Account based plans recognize this but still recognize traditional risk sharing with out of pocket limits to protect people from financial catastrophe. Please think a little more about this.
While critics continue of so-called Consumer Driven Health Care continue to default to the same old mantra, Health Savings Accounts are no more a new tax loophole for the affluent than they are an assault on family health care benefits.
The hypocracy exists with political scientists disbelieving that individuals cannot make wise healthcare buying decisions…this is the true motivation behind health savings account criticism.
The facts lie in how healthcare in the United States is financed…with the Federal Government being the largest and most prolific purchaser. Obviously, those invested in maintaining bloated bureacracies fail to identify the billions in wasted dollars that are targeted for the healthcare of citizens, but yet, end up being wasted. Dollar control is power; once the voter has become educated as to what they can buy with their own tax-advantaged dollars, then we will see decreases in healthcare costs. By the way, after the introduction of qualified High Deductible Health Plans and HSA’s, health insurance cost increases dipped to single digits (2007 was only 6/1%); I would suggest you compare that increase with the rise in your grocery bill.
Regarding the “…tax advantages for the affluent…”, for 2008 THE MOST a family can deposit into their HSA is $5800.00 (tax-deferred). For an individual with a taxable income in excess of $150,000.000, little or no reduction in tax savings will be realized. However, for a family with a combined income of $50,000.00, that $5800.00 tax-deferred HSA deposit produces real tax savings, tax-free use of the money, and the ability to keep any money in the account that is not used.
While I understand your point, but the action you are requesting is available now…tax law provides the incentives for the items you request. I would suggest you read IRS publication 969.
The unfortunate thing about this article is that the author has no idea what he’s talking about and does not understand what an HSA is or how it works, and most unfortunate trying to make it political. Most employees in this country have health plans with High Deductibles. To be able to pay for those deductibles, as well as any out of pocket medical dental and vision expense, on a pre-tax basis is an extreme advantage for every employee, including lower income and middle class, absolutely no one can argue that, not even the author of this article. Just because the wealthy are taking advantage of HSA’s doesn’t mean it’s a plan for the wealthy, it just means the wealthy are quicker at understanding HSA’s and how they work, we all here took sociology did we not? Anyone who pays taxes will make out being in an HSA, if only they understood it, and it’s not at all hard to understand if it weren’t for people like the author of this article who spin it for political gain, absolutely shameless. EVERY employer who has a HDHP should couple it with an HSA, period!
Now, with regard to the uninsured, a good portion of uninsured individuals can afford health insurance but choose not to purchase it. HSA’s helped get more of these people to purchase a health plan, no one can argue that. Another portion of uninsured are eligible for free healthcare but just too lazy to apply, so HSA’s have no affect on them, they don’t even pay taxes for goodness sake, why should they get a tax break? And then you have the portion of uninsured where it would be a financial hardship on them to pay for healthcare premiums. HDHP’s coupled with an HSA do help make plans more affordable for this group of uninsured, but in some cases not enough. We need to get medical premiums down and the only way to do that is to bring back comsumerism in healthcare. People need to start dictating to healthcare providers what they can afford for services, not the other way around. And no matter how you look at it, HSA’s are a great start to get the consumerism ball rolling, period!
I’m pretty sure that Ms. Turner has never argued that HSAs are the “be all and end all” of health reform. But let’s face it, advocates of consumer-directed health care have to be thrilled with anything we can get, so we have cheered them before and since their implementation.
Neither Ms. Turner, nor I, nor any of the conservative think-tank crowd said “we’re done” and closed up shop on January 1, 2004, when HSAs came into existence.
There is a lot more to do.
There is a program underway in Indiana to test health savings accounts for the poor. Under the plan, someone making $20,000 a year could get health coverage for about $19 a week.
According to the report I saw, under the Indiana program, eligible residents can pay up to 5 percent of their incomes into state-subsidized “Personal Wellness and Responsibility Accounts” that cover their initial medical expenses up to $1,100. Once that deductible is reached, private insurance purchased by the state kicks in.
Eligibility is limited to adults with incomes below twice the federal poverty level. The poverty level is now $10,210 for an individual and $20,650 for a family of four.
The last report I saw said that the state had signed up 4,500 people in the first month.
Mr. Graham. Thanks for your comment. I’d note that I did not claim Ms. Turner said “HSAs are the “be all and end all” of health reform”; my point in this post is to illustrate that HSAs are a tax break masquerading as health policy.
There is indeed a lot more to do. I don’t see Ms. Turner, or Dr. Herzlinger or Pacific Research or Ms. Pipes doing it. Can you point me to information on the work that the conservative think-tank crowd has been doing to improve CDHPs?
Thanks for your blog page on HSA’s. I agree with you that HSA’s more often than not a end up being perk for high end employees.
My company recently went to an HSA driven plan and we achieved a significant cost savings – so much so that we are able to fully fund the deductible for our employees via their HSA accounts.
Our decision to fund the deductible via the HSA was only partly motivated by the savings on premiums – but also because our company does not believe in sticking it to our employees. It’s obvious that less inclined employers will use the HSA driven plans to reduce their costs and to transfer those coast to their employees all under the guise of a consumer driven concept.
There is no way most line employees are going to be able to comfortably cover higher deductibles let alone maintain an HSA. All of this is done under the guise of a consumer driven plan which enables the “consumer to make a wise decision”. This is gratuitous at best.
Many of our employees are low end folks for whom affordable health care is absolutely essential and may result in significant out of pocket costs if they have to fund the accounts themselves.
It’s interesting that a lot of the folks touting HSA’s have either not been in the trenches or they are lining their pockets with pay increases based on reducing costs. Come see how the real folks live.
Hal Anjo, DPA, SPHR
True — you didn’t say Ms. Turner called HSAs the be-all and end-all of health reform. What you did say is that Ms. Turner has been “misleading” people about HSAs and “misrepresenting” HSAs. That’s so much nicer….
Here’s something else you said:
“Her contention that critics said HSAs were for the young, healthy AND wealthy is a classic strawman. Most of the critics (myself included) based their criticism on the disingenuous marketing of HSAs as a solution for the uninsured when they are clearly not.”
A classic strawman? Far from it. Let me direct you to Senator Kennedy’s campaign Web site: http://www.tedkennedy.com
Here’s a direct quote from what he calls “the facts on HSAs”:
“Several studies have found that if those who are young, healthy or wealthy move to health savings accounts while those who are not remain in the traditional insurance plans that provide the benefits and security they need, traditional insurance will become unaffordable, leaving those who most need protection at greater risk of becoming uninsured or underinsured.”
You may want to re-think your original post.
Greylock –
No need to rethink the post; it remains accurate.
I would note that Sen. Kennedy’s concern is valid. He is referring to the issue of adverse selection, a well-documented problem that has been discussed at length on this blog. I would also note that my post said “most of the critics”, not all.
Sen. Kennedy’s concern, while not specific to my blog topic, is yet another reason HSAs as presently conceived are highly unlikely to help solve the problem of the uninsured; they are little more than a tax break for the wealthy.
Which you may recall was the original topic of the post.
Joe,
I think the problem some of us have is your comment that “HSA’s are a tax break masquerading as health policy”. I think I fairly showed in my post that it is difficult to make that case when you look at my company’s experience.
By your logic, you can make the same case for the income exclusion for employer paid health care premiums. Why not say the sane thing about the home mortgage deduction and the charitable contribution deduction? Those are big tax breaks also but they are masquerades as well.
I don’t know about the think tank experts but I know my company and several others pushed very hard for a number of the common sense changes in HSA’s that you mention in your post. Some of the enhancements that were made at the end of 2006 were a result of that lobbying.
The fact is that today no one is even attempting to try to bring anything to DC to improve HSA’s because the Democrats have made it clear that any proposal is dead on arrival. Why waste the time and effort? The Democrats will do nothing to improve HSAs because they do not want anything to get in the way of a government solution to health care. That is why you don’t see anyone talking about it. It is that simple. To be honest, you should recognize that before criticizing HSA proponents.
Industry surveys show individual policies that are HSA-qualified cost 20 percent less than non-HSA-qualified plans.
They also show about 25 to 30 percent of individuals purchasing HSA-qualified policies were previously uninsured.
Clearly some of the uninsured have voted with their wallets for a solution. These people now have lower-premium, higher-deductible policies that protect them from catastrophic medical bills, and in most cases these same people also got first-dollar preventive care too.
And for what it’s worth, most of them probably don’t give a hoot what conservative think-tanks or liberal health-policy bloggers think.