The White House claims to have made health care the centerpiece of its agenda for 2006 by virtue of its mention in the State of the Union address Tuesday night. The main health care proposal, however, promises little for those who have little. Instead, it amounts to another reduction on the taxation of capital of the wealthy.
Bush proposes that Congress increase the amount of mony that people are permitted to deposit in health savings accounts (HSAs) each year and that it provide tax incentives to those who fund HSAs on their own rather than through employee benefit programs.
HSAs were first introduced in 2003. The rationale offered--giving people who need health care more control over their own health expenditures. They should buy high-deductible insurance to cover catastrophic needs (annual deductions of at least $1,050 for individuals), and fund their "everyday" health needs out of savings reserved for that purpose and allowed to grow, tax free. The savings earns income in the account but that income is never taxed if used for medical expenses. The money can be taken out tax-free at any time. After 65 money may be withdrawn and used for other purposes, but those withdrawals will be subject to tax. With more information about health care providers, patients can "comparison shop" for the best and cheapest care, the same way they would when buying a new car or a new washing machine. Given the incentive to grow their reserves and the choice of where to spend their own dollars, the argument goes, consumers will spend them more wisely and health care costs will go down.
This naive picture of the relationship between consumer decisions and health care costs leaves most of the difficult issues out of the equation. Many poor cannot afford preventative care and thus are likely to need much more expensive care when they come into the system. The poor will not benefit from HSAs because they will not have them--either because they do not work, their employer does not make them available, or they simply do not have the money to set aside for them. The health care needs of the poor will, however, still need to be met by the health care system.
Similarly, sick people will generally not be in a position to comparison shop, even if information on malpractice claims and performance records of hospitals and doctors and specialists is much more readily available. If someone is chronically ill, they may find they have only limited choices and generally will not have doctors vying to take care of them. They will have high exepnses and problably find the HSA approach more costly, not less costly. Doctors and hospitals much prefer to have healthy, wealthy and wise patients. If someone has an emergency illness, they will tend to be limited to health care centers that deal with that type of emergency, and they will not be in a position to have emergency room doctors and nurses compete for the cheapest and best services.
Making the right kind of information available may be doable, but it is hard to picture how unsophisticated consumers will be able to run the gamut of price comparisons for services they may not comprehend. They'll also have to retain all the separate pieces of paper that prove that they used their HSA funds for appropriate kinds of health care. Even for those skilled at looking into comparative costs, commensurability will be difficult. Doctors cannot say in advance how much treatment anyone will need--medical care is not like giving an estimate on a house-painting job. Prices change frequently, as suppliers change or new medicines or techniques are developed. One person's overnight stay in a hospital may stretch into a week for another person for the same treatment at the same hospital with the same doctors.
Furthermore, ordinary people are not medical experts. Even when they are thinking about their future medical care, they are not in a position to evaluate their needs for diagnostic tests, the skill with which they are treated, or the comparative advantages of one hospital over another. If there is a scarcity of specialists in a particular area--say, dermatologists in Champaign Illinois--then merely getting in to see a doctor will require all the shopping skill that even sophisticated medical care seekers can muster.
Who, then, is served by extending the availability and power of HSAs? Like most of Mr. Bush's tax proposals, the object of the HSA bounty is the wealthy upper-crust of American society. They have money in reserve that they would use for their health care anyway, but they may take advantage of one more way to have their capital expand on a tax-free basis. Their use of HSAs will do nothing to reduce costs, but will add to the federal deficit by reducing tax revenues. As Sarah Rubenstein noted in a Wall Street Journal article (Feb 2, 2006 at D1), "HSAs are more comparable with 401(k) plans or other retirement accounts." So wealthy participants may just treat their HSA as another tax-favored investment fund.
Other beneficiaries of increased federal subsidies of health care for the better off through HSAs are the big financial institutions that will serve as HSA account custodians--companies like J.P. Morgan Chase, Wells Fargo, and Fidelity Investments. They will at the least earn a tidy management fee on the taxpayer-subsidized accounts, and probably a good many other fees besides.
"[B]anking fees can be high. There may be fees for setting up the accounts, monthly or annual administrative fees, transaction fees, withdrawal fees and investment fees." Id.
Employers are another group that benefits from HSAs. They may cut back on their traditional health care benefits, forcing their employees into this system. The employees will have higher-deductible insurance that will pay for less of their health care, and that should mean (at least) lower premiums. But in some cases where HSA accounts and related high-deductible insurance has been made available at the workplace, employers have not reduced the amount employees are charged for their coverage. See id.
Who does the Wall Street Journal article recommend HSAs to?
"If you're healthy enough to avoid a lot of expenses that would come under the deductible, this type of plan may work for you. Also, the wealthier you are, the more you will save in tax dollars by putting away money in the HSA."
As noted in today's New York Times editorial, "The Lopsided Bush Health Plan," the availability of HSAs may leave even more Americans without any kind of health care benefit.
"The great danger is that health savings accounds could accelerate the erosion of traditional employer-provided insurance, as companies try to reduce their health expenditures by shifting more of the costs onto workers. If the healthiest employees jump to tax-free accounts in large numbers, they will leave traditional health plans saddled with sicker and older employees, whose needs will force a rise in premiums, making comprehensive coverage even harder to sustain."
Bush's plan, in other words, won't do a thing about the 45 million ordinary Americans who have no health care protection today. It won't reduce the cost of health care generally because it doesn't do a thing to attack the "root causes". Id. It won't make it easier for those who are chronically ill to find the kind of care that they need without the endless bureaucratic hassles that mark our current health care system. If anything, this additional tax-expenditure boondoggle for the upper-crust who make hundreds of thousands annually will make health care even harder to secure for most ordinary Americans.
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