Health Care and Ownership Society Continued from page 3... Page: 1, 2, 3, 4

How will HSAs affect the Medicare program and its beneficiaries?

HSAs were created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. That suggests that lawmakers expect HSAs to eventually interact with the Medicare program. Since the account balances in an HSA must build up over time, it might be decades before HSAs impact the Medicare program. It is most likely that HSAs will simply give the elderly an additional cushion of money to be spent on health care. That could include purchasing elective procedures or drugs not covered by the Medicare benefit package, or paying for out-of-pocket costs (including the Part B premium and deductibles), or it could mean buying forms of supplemental health insurance to "fill in the gaps" of the benefits package.

Another possibility is that HSAs could provide a foundation for Medicare reform. If large enough numbers of young people switch over to HSAs, it could give lawmakers the option of transitioning from the current "pay-as-you-go" defined-benefit system to a defined-contribution system. In the current system, younger workers are taxed (FICA tax) and their money goes to pay for the health care benefits of those elderly currently in the program. It is assumed, though not certain or guaranteed, that Medicare will be able to provide current workers with similar benefits when they retire, since they have already paid their taxes for the program.

Under a reformed Medicare system, instead of defined benefits, workers would receive a defined contribution that they could spend on the health insurance of their choice. In addition, HSA holders could use their savings to add on to their defined contribution from the government to purchase a better health insurance plan, or supplemental coverage. An even better system would collect Medicare taxes and immediately put them into a savings account similar to an HSA, but the funds could not be used until retirement. That system has the advantage that the account would be owned by the worker and would grow in value-through investment-over the course of almost 30 years. Therefore, the individual would be much better off and more able to meet his health care needs in retirement. Unfortunately, we cannot immediately switch to that type of Medicare system, because too many current and future retirees have already paid their FICA taxes and are relying on younger worker to pay for their benefits when they retire. Although we cannot immediately switch to that system, we could possibly transition to such a system over a period of decades and HSAs could help us do that.

What can HSAs do to solve the "problem of the uninsured?"

The uninsured are those people who don't have health insurance. It is too simple an analysis to say that such people aren't insured because, "health insurance costs too much." In fact, evidence suggests that many-though not all-of the uninsured have enough financial means to purchase health insurance if they wanted to. However, this would require a tradeoff between goods that apparently such individuals are unwilling to make. That serves as a reminder that health insurance means different things to different people, since individuals have a variety of attitudes toward financial risk and their own health.

Since HSAs are as affordable as most other insurance products on the market (if not more affordable), they are especially well suited for the self-employed and small-businesses, which in some cases cannot afford other types of health insurance benefits for their employees. The more generous savings provisions of HSAs versus MSAs could expand their former market, possibly bringing in people who were previously uninsured. Additionally, those who are risk-averse and have low-incomes might choose HSAs as an option, since they can control their first-dollar health costs through the HSA and, because the premiums for HDHPs, versus low deductible health plans, are much more affordable. HSAs will not solve the so-called "problem of the uninsured," but they will provide another option to those seeking some degree of health care insurance.

Are HSAs only for healthy and wealthy people?

Some people claim that only the youngest and healthiest people will be able to actually save money and grow their account balances. Still evidence exists to suggest that is not the case. First, the vast majority of people is not chronically ill and experience catastrophic financial losses in a given year period only a few times across their lifetimes. That means that saving is possible and that savings won't be depleted, because the HDHP will limit catastrophic losses in a high cost year to the agreed upon deductible amount. Therefore, lifetime losses equal the deductible times the number of high-cost years. That would be more than offset by many more years of low spending, captured savings, and investment. In addition, research conducted by the RAND Corporation in 2000 shows that the wealthiest workers in their study chose managed care coverage, while the healthiest chose no coverage at all. Thus, those choosing the MSA option were neither the healthiest nor the wealthiest, within that population.

Can HSAs work for families?

HSAs can certainly work for families. HSAs have been marketed to both individuals and their families; the only difference is the cost of premiums and deductibles within the HDHP and the annual amount of contributions that can be put into the HSA. While deductibles for individuals range from $1,000 to $5,000, deductibles for families range from $2,000 to $10,000 per year. Families can contribute up to one hundred percent of the deductible or a maximum amount of $5,150 per year-whichever is less. As with all health insurance products, families using HSAs must budget their resources and plan for variability in their health care needs from year to year. For example, if a family is planning on having a baby, they might switch to another HDHP with a lower deductible for a two-year period surrounding the pregnancy. Families can get just as much protection using HSAs as they would with other types of health insurance.

How do HSAs relate to the concept of an ownership society?

The cornerstone principles of an ownership society are responsibility, liberty, and prosperity, which are realized by extending the responsibility and the freedom of ownership of property to more people. HSAs extend the benefits of an ownership society to vastly more Americans. Too many insurance products in the market today don't function like insurance, but function like pre-paid health care-an individual pays high premiums up front to offset the varied cost and scattered consumption of health care services throughout the year. With HSAs, the consumer gets insurance protection through the HDHP, and manages short-term and long-term health care expenditures using the HSA. Because the account holder owns the money in the HSA, he is much more likely to take care of both his health and savings.

If property is the means through which liberty is exercised, then HSAs play the critical role in an ownership society of giving account holders more choices and control. Because they own their health care dollars, HSA holders have a degree of leverage that others don't have. If a managed care organization won't cover a procedure, then people have to pay out-of-pocket anyway, or sue their HMO or PPO. An HSA owner can use his savings to go out-of-network and get the care he chooses. Lawmakers are also hoping that HSA savings will eventually allow future Medicare beneficiaries to "fill the gaps" in the Medicare program's benefits package.

Property creates incentives for creating value, which ultimately can lead to prosperity. An HSA owner can shop around for value and better prices in the marketplace, because he owns and controls the money in his account. Such consumer savvy leads to saving more money, getting more health care per dollar spent, and achieving a higher level of health quality and satisfaction. Finally, extending ownership of property places individuals at the center of decision making over the use of resources that allows them to enjoy the responsibility, freedom, and prosperity that ownership makes possible. By establishing an HSA, an individual opens the door to the benefits of ownership.

As HSAs become more popular and more widely used, more Americans will achieve better health care value, quality, and satisfaction. As HSAs achieve a greater share of the health insurance market dominated by third party payers, price sensitive individuals will seek out information about the actual cost of medical goods and services, formerly masked by the third party payer system. As this information becomes more widely known and disseminated price discovery can occur, leading to information markets for prices and quality data about health care providers. Those effects will improve the health care market, making it more competitive and efficient.

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