IN THIS ISSUE:
- If Hospital Competition Won't Come to America
- Commonwealth's Latest Thoughts on HSAs
- CRS Also Has Some Thoughts on HSAs
If Hospital Competition Won't Come to America
This Sunday, 60 Minutes featured a story on "medical tourism," particularly Americans going to India and Thailand for surgical services, including hip replacements, heart bypass operations and cosmetic procedures. The cost for these services is a fraction (one-eighth to one-tenth, according to the report) of what they cost in the States and the facilities and personnel seem to be world-class. A video of the report does not seem to be available on the CBS web site, which is a pity because the visuals are breathtaking. If competition won't come to America, Americans will go to where the competition is.
SOURCE: An abbreviated transcript is available at – www.cbsnews.com
Commonwealth's Latest Thoughts on HSAs
The Commonwealth Fund has published another in a series of papers attempting to undermine innovations that empower health care consumers to make their own decisions. This time it is an argument that HSAs would do little to reduce the numbers of uninsured. HSAs were not enacted as a program for the uninsured. They are expected to increase efficiency in health care financing, reduce costs, and provide a way for people to begin saving for future health care needs. To the extent they may help currently uninsured people gain coverage, it is just icing on the cake.
But it is worthwhile thinking about the extent to which HSAs could lower the numbers of uninsured in the country. Early experience indicates the effect could be substantial, with vendors reporting that at least 30% of HSA buyers were previously uninsured. Unfortunately, this paper, written by Sherry Glied and Dahlia Remler, completely ignores the empirical evidence to come up with a pre-ordained conclusion.
The authors cite, for instance, earlier work suggesting that each 10% reduction in premium cost leads to 6% of the uninsured gaining coverage. But they "assume a much lower response rate to HSA-induced reduction in premiums, or a take-up rate of 0.1." Why do they assume that? Because "high-deductible coverage is likely to be much less valuable to uninsured people than more generous standard coverage." This ignores the fact that for many HSA-qualified programs, the actual out-of-pocket exposure is roughly the same as it is for "more generous" coverage, due to the co-insurance requirement of the PPO.
I think the original estimate of a 10% reduction in premium costs leading to a reduction in the numbers of uninsured by 6% is suspect to begin with. But the reduction from a 6% take-up rate to a 1% take-up seems arbitrary, and the authors make no effort to justify it. If you start with an assumption that few people will buy something, your conclusion that few people will buy it is hardly surprising.
More important to their argument is the idea that HSAs are attractive solely because of the tax savings. They argue that since lower-income workers pay no income taxes, HSAs will not be attractive to them. This argument assumes that the only reason someone would change from paying $6,000 in health insurance premiums to paying $4,000 in premiums and saving the other $2,000 is to gain a tax advantage. It ignores that some people might find that saving $2,000, which would otherwise have gone to an insurance company, is attractive in itself.
Now, the authors do make the point that people all along could have purchased high-deductible coverage, saved on premiums, and put that savings into a tax-deferred account such as an IRA, even without the HSA law. That is true, and it is true, as the authors say, that few people chose to do that in the past.
But it is also the case that it would have taken some real effort to make that happen in the past. High-deductible plans were much less common and were offered by insurance companies that were not well-known. The average consumer was unlikely to create a do-it-yourself HSA for all the same reasons they don't cut their own firewood or change the oil in their cars themselves. Today, HSAs are entirely mainstream, with major vendors educating consumers and marketing packaged products that include substantial patient support services.
But the authors illustrate that they are not looking at the full picture when they say, "The usefulness of HSAs as a means of expanding coverage centrally depends on two features: the expected level of out-of-pocket expenditures under a high-deductible plan? and marginal income-tax rates."
In fact, there are many other reasons for thinking HSAs could have a profound effect on the numbers of uninsured, for example:
- The possibility of saving money that would otherwise go to an insurance company means that the "value proposition" of having coverage has changed.
- For the first time ever, people will have a dedicated source of funds to pay for their insurance coverage when they lose their jobs and hence lose their employer-sponsored coverage.
- The fact that people can minimize their monthly premium payout and fund the HSA when they have the money to do so is enormously attractive to anyone who has surges of income rather than a steady paycheck. This includes seasonal and agricultural workers, consultants, temporary workers, and anyone who lives on commission, such as real estate agents and other salespeople.
The authors conclude, "Our analysis shows that the HSA provisions alone are likely to increase the number of newly insured adults by fewer than 100,000." Well, at least they are putting out a testable hypothesis, and it should be just a matter of days until we see how valid this analysis is. The insurance trade association, America's Health Insurance Plans, soon will be releasing new numbers based on a survey of member companies. What I'm hearing is that one million people have already signed up for HSAs and at least 30% of those were previously uninsured. That would mean 300,000 uninsured have secured coverage through HSAs in just 15 months – triple the Commonwealth estimate. Wow! Maybe Commonwealth will rethink its assumptions.
CRS Also Has Some Thoughts on HSAs
The Congressional Research Service has also released a new look at HSAs. CRS is a credible and well-respected organization, so it is less inclined to engage in biased analysis than Commonwealth. But the authors, Bob Lyke, Chris Peterson, and Neela Ranade, make some of the same analytical errors as the Commonwealth authors. They say, for instance, that "HSA plans are not likely to make a big difference in the number of uninsured."
Why do they say that? Because, even though affordability is the biggest reason for not purchasing coverage, "the reduced cost of high deductible health insurance generally will not make a difference." And, "Many uninsured are in the 10% or 15% tax brackets and would not find the tax advantages of HSA contributions a compelling reason to buy the insurance."
Once again, the authors completely miss the value of flexibility and the opportunity to save money that would otherwise go to an insurance company. Even if we assume only higher-income people would benefit from HSAs, a footnote on the same page of the report notes that "about one-third of the 43 million people without coverage for all of 2002 had household incomes over $50,000." Would reducing the uninsured by one-third be considered "a big difference in the number of uninsured?"
The CRS report is also concerned about selection. But in an interesting slight-of-hand, it goes from saying in one paragraph, "If HSA plans mostly attract people who are healthy, adverse selection may become a problem," to the following paragraph: "Adverse selection is not caused by HSAs themselves; rather it results from different responses to the requirement that HSA contributions can occur only when individuals have a HDHP."
So, the issue goes from being hypothetical in one paragraph to an established fact in the next paragraph. But there is very little support for the hypothesis, and no evidence of selection being a problem in reality. There are many anecdotal examples of HDHP premium savings exceeding the cost of the deductible, as we have reported frequently in this publication. If someone can reduce premiums by $2,500 by raising the deductible by $2,000, this should be attractive to the sick and the healthy, the young and the old, the poor and the wealthy. It is impossible to say how common this is, but there is enough anecdotal evidence of it that it is a grievous error to simply assume that selection will be a big problem.
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