- - Wednesday, October 31, 2018

ANALYSIS/OPINION:

This week, the administration proposed loosening restrictions on employee accounts designated for health care. Perfect timing. Employees are now selecting 2019 benefits, and health care is the most valued of all.

Although health savings accounts (HSAs) can be key to expanding affordable, quality care, HSAs are poorly understood and still need further reform. HSAs allow individuals to set aside money tax-free for health expenses. They strongly reward saving, and they position patients to directly buy their own health care. This stimulates competition among doctors and hospitals, which generates lower prices and better value for all patients. Here are the top fallacies:

“The main purpose of HSAs is to provide a tax benefit to cushion the blow of high health care expenses.”

HSAs induce price consciousness in patients by directly rewarding patients when spending less for health care. That forces providers to compete on price. Insurance premiums drop, because premiums mainly reflect medical care pay-outs. Costs also decline for Medicaid and Medicare. The fundamental purpose of HSAs is to lower the price of care for everyone, including people without HSAs.

“An HSA is just another tax benefit for “the rich.”

Two-thirds of HSA holders earn less than $75,000 a year. The median household income for an HSA account holder is only $57,060. In comparison, about 85 percent of the existing income tax subsidy for health benefits go to the top one-half of income earners.

“HSAs are not effective in reducing medical care prices.”

It’s proven — the cost of care comes down when people have savings to protect in HSAs — by 15 percent annually on average. When HSAs were added to high-deductible plans (HDHPs), savings increased to up-to-double the savings that HDHPs produced alone.

“HSAs are not very useful, because procedures and hospitalizations exceed HSA limits.”

Most health care is small, non-catastrophic, and scheduled. The median total office visit costs $108 including insurance; most blood tests cost less than 10 dollars; most generics (about 90 percent of all prescription drugs) cost a few dollars per month. Among privately insured, almost 60 percent of expenditures is for outpatient care, the type for which patients can make value-based decisions.

“Americans don’t want HSAs.”

Since HSAs were introduced in 2004, their number has skyrocketed to between 22 and 35 million. Despite the ACA’s attempt to shift consumers to more “comprehensive” coverage filled with mandates, a shift toward higher deductible plans with HSAs has continued. American consumers are approving HSAs by increasingly choosing HSAs when given the opportunity.

“Price transparency must be required by law for HSAs to be effective.”

Prices will become visible once providers understand they are competing for price-conscious patients who control the money. Other products don’t require laws to force price transparency, because no one spending their own money would buy something without knowing its price. Price transparency laws in health care don’t necessarily lead to visibility of the “price” relevant to patients — out-of-pocket costs. Even if prices become visible, patients must personally gain from paying less — they can do that through reformed HSAs.

“It’s silly to increase HSA maximums, because people don’t fund their HSAs to today’s maximum.”

Remember, today’s consumers have less money for HSA contributions, because Obamacare’s insurance regulations and the unfettered prices of medical care created higher insurance premiums (doubled from 2013 to 2017, even with higher deductibles). Despite Obamacare’s restrictions on HSAs, contributions have still been increasing. For maximum impact, HSAs should become the source of payment for as much medical care as possible.

“HSAs should be reformed, but that’s enough for now.”

Impactful HSAs require giving patients enough choices. Those choices come from eliminating regulations that limit competition among providers. Primary care clinics staffed by nurse practitioners and physician assistants are 30-40 percent cheaper than doctors with high quality and satisfaction. Medical school graduation and specialist training programs have been limited for decades, despite known doctor shortages. Non-reciprocal MD licensing by states limits competitive telemedicine. Most states also limit competition with burdensome certificate-of-need restrictions on medical technology.

“We already subsidize health care enough; expanding HSAs would create more deficits.”

Today’s unlimited tax exclusion for health benefits ($275 billion in 2016) is harmful. It encourages more health spending and subsidizes bloated coverage. Likewise, Obamacare subsidies and proposed tax credits by the GOP prop up premiums for coverage that minimizes out-of-pocket payment. This prevents patients from caring about price, reducing the need for providers to compete.

Instead, tax reform should remove counterproductive incentives by capping health deductions and limiting them to HSA contributions and catastrophic coverage premiums. The tax revenue decrease from any HSA expansion would be more than offset by these new limits — so HSA expansion would reduce deficits.

Widespread HSAs with higher deductible insurance would change most health care episodes into direct payment and create substantial downward pressure on prices. Congress should make HSAs more valuable and maximize their power on expanding affordable, quality health care.

That means opening up HSAs to everyone, including seniors, the biggest users of health care; doubling maximum allowable contributions; expanding uses to include elderly parents and over-the-counter drugs; eliminating required insurance deductibles; permitting tax-free inheritance; repealing harmful tax incentives; and abolishing anti-consumer barriers to competition among providers.

• Scott W. Atlas is the David and Joan Traitel Senior Fellow at Stanford’s Hoover Institution and the author of “Restoring Quality Health Care: A Six Point Plan for Comprehensive Reform at Lower Cost” (Hoover Press, 2016).


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