Monday, January 30, 2006
The Truth About Health Savings Accounts
by - Judd Legum, Faiz Shakir, Nico Pitney, Amanda Terkel and Payson Schwin
The American Progress Action Fund
According to news reports, President Bush will use tomorrow's State of the Union address to promote "health savings accounts" as a solution to America's health care crisis. Health savings accounts (HSAs) were dramatically expanded in the 2003 Medicare prescription drug bill. Generally speaking, they are tax-free savings accounts combined with high-deductible insurance policies that people obtain through their employers or buy independently from insurance companies. "In exchange for paying at least the first $1,050 of their medical expenses each year (or for families, a deductible of the first $2,100), consumers are supposed to benefit in two ways: lower monthly premiums and the ability to put pretax dollars into a savings account that grows tax-free." But, multiple studies have shown that HSAs are likely to increase the number of uninsured and increase health care costs, all while costing taxpayers tens of billions of dollars. In other words, President Bush is proposing to do for health care what he's already tried with Social Security -- placing more of the cost burden on individuals, while making the system more attractive to the wealthy but less effective for ordinary Americans who need health coverage most.
HSAs WILL NOT ADDRESS INCREASING RATE OF UNINSURED AMERICANS: According to the Commonwealth Fund, health savings accounts are "not likely to be an important contributor to expanding coverage among uninsured people" because most of uninsured Americans "do not face high-enough marginal tax rates to benefit substantially from the tax deductibility of HSA contributions." Another study by the Center on Budget and Policy Priorities found that Bush's proposal "would induce some currently uninsured individuals to purchase insurance, but also would encourage some employers to drop health insurance or to reduce the amounts they contribute toward their employees' health insurance costs, since employers would know their workers could get a tax deduction if they purchased coverage on their own. The number of people who would lose coverage due to actions that their employers would take would likely exceed the number of uninsured people who would gain insurance." [Commonwealth Fund, April 2005; Center for Budget and Policy Priorities, 5/10/04]
LOW- AND MIDDLE-INCOME AMERICANS GAIN LITTLE OR NO TAX SAVINGS FROM HSAs: "Low- and middle-income uninsured people will gain meager or no tax savings" from health savings accounts, according to a Commonwealth Fund study. Currently, roughly 50 percent of uninsured adults pay no federal income taxes, meaning that "tax incentives for high-deductible health plans would have little impact on uninsured adults." Moreover, "uninsured people in the middle income tax bracket would see potential savings of just 3 percent to 6 percent on a typical high-deductible health plan premium of $2,000." [HealthDay News, 4/20/05; Commonwealth Fund, April 2005]
HSA USERS PAY MORE OUT-OF-POCKET COSTS: Individuals with "consumer-driven" health plans (CDHPs) and high-deductible insurance plans (HDHPs) are "more likely to spend a larger share of their income on out-of-pocket health care costs plus premiums than those in comprehensive health plans. According to one study, "more than two-fifths (42 percent) of individuals with HDHPs and 3 in 10 (31 percent) in CDHPs spent 5 percent or more of their income on out-of-pocket costs plus premiums in the past year, compared with about 1 in 10 (12 percent) in comprehensive health plans." [Commonwealth Fund/Employee Benefit Research Institute, December 2005]
HSAs COULD COST TAXPAYERS $41 BILLION OVER TEN YEARS: The health savings accounts envisioned by President Bush will cost American taxpayers roughly $41 billion over ten years, according to government studies. The Bush administration estimates that the provision of the Medicare drug bill that established health savings accounts will cost $16 billion over the next decade. President Bush has also proposed an additional tax deduction on the accounts, which both the Bush administration and the Joint Committee on Taxation estimate will cost roughly $25 billion over the same period. [Center for Budget and Policy Priorities, 5/10/04]
HSA USERS MORE LIKELY TO AVOID, SKIP, OR DELAY HEALTH CARE BECAUSE OF COSTS: Individuals with "consumer-driven" health plans (CDHPs) and high-deductible health plans (HDHPs) -- both elements of health savings accounts -- "were significantly more likely to avoid, skip, or delay health care because of costs than were those with comprehensive insurance, with problems particularly pronounced among those with health problems or incomes under $50,000." According to one study, "about one-third of individuals in CDHPs (35 percent) and HDHPs (31 percent) reported delaying or avoiding care, compared with 17 percent of those in comprehensive health plans." [Commonwealth Fund/Employee Benefit Research Institute, December 2005]
HSA USERS MORE LIKELY TO HAVE DIFFICULTY PAYING MEDICAL BILLS: Individuals with high-deductible insurance plans (HDHPs), which are mandatory with health savings accounts, are "more likely than those with traditional medical coverage to have difficulty paying their medical bills. Forty-nine percent of consumers with deductibles above $500 per year wound up with outstanding medical debt, vs. 32% with regular coverage." [WebMD Medical News, 1/27/05]
HSAs WILL UNDERMINE EMPLOYER-BASED HEALTH CARE SYSTEM: The current policy of promoting high deductible plans (including the proposal for a new tax deduction for individual high-deductible policies) will weaken the employer-based health care system by providing employers with financial incentives to "cash-out" health benefits, sending employees to the individual market. This market cherry-picks the healthy and creates barriers to coverage for the sick. In other words, this policy undermines the purpose of insurance (whether health, homeowners, car, or any other type), which is to pool risk. With most health insurance -- employer coverage, Medicare, and most other countries' systems -- the healthy subsidize the unhealthy, to ensure that overall premiums are reasonable and that everyone covered by the plan receives the health benefits they need when they get sick. Outside factors such as heredity, the environment, and plain luck also play a role, even among those of us who eat healthfully, exercise faithfully, and keep stress to a minimum. [American Progress, 8/11/04; Commonwealth Fund, April 2005]
COST SAVINGS ARE ILLUSORY: HSAs are supposed to save costs by discouraging people from obtaining unnecessary health care. But about 70 percent of costs in the U.S. health system are for the top 10 percent most expensive people. These people's costs are well above the deductible and are usually require hospitalization or are chronically illy. A high deducible won't change their behavior. [New Yorker, 8/29/05]
HSA EXPERIMENTS HAVE FAILED IN OTHER COUNTRIES: Just as Americans learned of the pitfalls of Social Security privatization from experiences in Chile and the UK, so we can learn about the flaws of President Bush's health care proposals from South Africa and Singapore, which both implemented versions of HSAs. A study by the Harvard School of Public Health analyzed the health savings accounts enacted in Singapore and found they had "caused financial hardship for Singapore's citizens and...adversely affected the cost-effectiveness of its health care system." Likewise, in South Africa, which has "a decade's worth of experience with similar consumer-driven health plans," the cost of specialty care has increased 43 percent, the cost of hospital care is up 65 percent, and uninsured rates have "continued to grow rapidly." [Harvard School of Public Health, August 2001; "Medical Error," The New Republic, 11/7/05]
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by - Judd Legum, Faiz Shakir, Nico Pitney, Amanda Terkel and Payson Schwin
The American Progress Action Fund
According to news reports, President Bush will use tomorrow's State of the Union address to promote "health savings accounts" as a solution to America's health care crisis. Health savings accounts (HSAs) were dramatically expanded in the 2003 Medicare prescription drug bill. Generally speaking, they are tax-free savings accounts combined with high-deductible insurance policies that people obtain through their employers or buy independently from insurance companies. "In exchange for paying at least the first $1,050 of their medical expenses each year (or for families, a deductible of the first $2,100), consumers are supposed to benefit in two ways: lower monthly premiums and the ability to put pretax dollars into a savings account that grows tax-free." But, multiple studies have shown that HSAs are likely to increase the number of uninsured and increase health care costs, all while costing taxpayers tens of billions of dollars. In other words, President Bush is proposing to do for health care what he's already tried with Social Security -- placing more of the cost burden on individuals, while making the system more attractive to the wealthy but less effective for ordinary Americans who need health coverage most.
HSAs WILL NOT ADDRESS INCREASING RATE OF UNINSURED AMERICANS: According to the Commonwealth Fund, health savings accounts are "not likely to be an important contributor to expanding coverage among uninsured people" because most of uninsured Americans "do not face high-enough marginal tax rates to benefit substantially from the tax deductibility of HSA contributions." Another study by the Center on Budget and Policy Priorities found that Bush's proposal "would induce some currently uninsured individuals to purchase insurance, but also would encourage some employers to drop health insurance or to reduce the amounts they contribute toward their employees' health insurance costs, since employers would know their workers could get a tax deduction if they purchased coverage on their own. The number of people who would lose coverage due to actions that their employers would take would likely exceed the number of uninsured people who would gain insurance." [Commonwealth Fund, April 2005; Center for Budget and Policy Priorities, 5/10/04]
LOW- AND MIDDLE-INCOME AMERICANS GAIN LITTLE OR NO TAX SAVINGS FROM HSAs: "Low- and middle-income uninsured people will gain meager or no tax savings" from health savings accounts, according to a Commonwealth Fund study. Currently, roughly 50 percent of uninsured adults pay no federal income taxes, meaning that "tax incentives for high-deductible health plans would have little impact on uninsured adults." Moreover, "uninsured people in the middle income tax bracket would see potential savings of just 3 percent to 6 percent on a typical high-deductible health plan premium of $2,000." [HealthDay News, 4/20/05; Commonwealth Fund, April 2005]
HSA USERS PAY MORE OUT-OF-POCKET COSTS: Individuals with "consumer-driven" health plans (CDHPs) and high-deductible insurance plans (HDHPs) are "more likely to spend a larger share of their income on out-of-pocket health care costs plus premiums than those in comprehensive health plans. According to one study, "more than two-fifths (42 percent) of individuals with HDHPs and 3 in 10 (31 percent) in CDHPs spent 5 percent or more of their income on out-of-pocket costs plus premiums in the past year, compared with about 1 in 10 (12 percent) in comprehensive health plans." [Commonwealth Fund/Employee Benefit Research Institute, December 2005]
HSAs COULD COST TAXPAYERS $41 BILLION OVER TEN YEARS: The health savings accounts envisioned by President Bush will cost American taxpayers roughly $41 billion over ten years, according to government studies. The Bush administration estimates that the provision of the Medicare drug bill that established health savings accounts will cost $16 billion over the next decade. President Bush has also proposed an additional tax deduction on the accounts, which both the Bush administration and the Joint Committee on Taxation estimate will cost roughly $25 billion over the same period. [Center for Budget and Policy Priorities, 5/10/04]
HSA USERS MORE LIKELY TO AVOID, SKIP, OR DELAY HEALTH CARE BECAUSE OF COSTS: Individuals with "consumer-driven" health plans (CDHPs) and high-deductible health plans (HDHPs) -- both elements of health savings accounts -- "were significantly more likely to avoid, skip, or delay health care because of costs than were those with comprehensive insurance, with problems particularly pronounced among those with health problems or incomes under $50,000." According to one study, "about one-third of individuals in CDHPs (35 percent) and HDHPs (31 percent) reported delaying or avoiding care, compared with 17 percent of those in comprehensive health plans." [Commonwealth Fund/Employee Benefit Research Institute, December 2005]
HSA USERS MORE LIKELY TO HAVE DIFFICULTY PAYING MEDICAL BILLS: Individuals with high-deductible insurance plans (HDHPs), which are mandatory with health savings accounts, are "more likely than those with traditional medical coverage to have difficulty paying their medical bills. Forty-nine percent of consumers with deductibles above $500 per year wound up with outstanding medical debt, vs. 32% with regular coverage." [WebMD Medical News, 1/27/05]
HSAs WILL UNDERMINE EMPLOYER-BASED HEALTH CARE SYSTEM: The current policy of promoting high deductible plans (including the proposal for a new tax deduction for individual high-deductible policies) will weaken the employer-based health care system by providing employers with financial incentives to "cash-out" health benefits, sending employees to the individual market. This market cherry-picks the healthy and creates barriers to coverage for the sick. In other words, this policy undermines the purpose of insurance (whether health, homeowners, car, or any other type), which is to pool risk. With most health insurance -- employer coverage, Medicare, and most other countries' systems -- the healthy subsidize the unhealthy, to ensure that overall premiums are reasonable and that everyone covered by the plan receives the health benefits they need when they get sick. Outside factors such as heredity, the environment, and plain luck also play a role, even among those of us who eat healthfully, exercise faithfully, and keep stress to a minimum. [American Progress, 8/11/04; Commonwealth Fund, April 2005]
COST SAVINGS ARE ILLUSORY: HSAs are supposed to save costs by discouraging people from obtaining unnecessary health care. But about 70 percent of costs in the U.S. health system are for the top 10 percent most expensive people. These people's costs are well above the deductible and are usually require hospitalization or are chronically illy. A high deducible won't change their behavior. [New Yorker, 8/29/05]
HSA EXPERIMENTS HAVE FAILED IN OTHER COUNTRIES: Just as Americans learned of the pitfalls of Social Security privatization from experiences in Chile and the UK, so we can learn about the flaws of President Bush's health care proposals from South Africa and Singapore, which both implemented versions of HSAs. A study by the Harvard School of Public Health analyzed the health savings accounts enacted in Singapore and found they had "caused financial hardship for Singapore's citizens and...adversely affected the cost-effectiveness of its health care system." Likewise, in South Africa, which has "a decade's worth of experience with similar consumer-driven health plans," the cost of specialty care has increased 43 percent, the cost of hospital care is up 65 percent, and uninsured rates have "continued to grow rapidly." [Harvard School of Public Health, August 2001; "Medical Error," The New Republic, 11/7/05]
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