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Health Care First-party Payments

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Andy Laperriere makes the case for Health Savings Accounts combined with high-deductible health insurance policies.


more than 10% of the cost of a visit to the doctor -- $40 billion per year -- is wasted on paperwork. Most of these costs would disappear if patients paid for their doctor visits directly (with a debit card, for example), which would be the case for most consumers who choose high-deductible plans with a health savings account.

For Discussion. What might keep HSA's from becoming mainstream?


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COMMENTS (13 to date)
Boonton writes:

Over on www.DiscountHealthInsurance.com I ran a few quotes for myself. As someone pricing health insurance privately you would think that a HSA type policy would be really low cost. Instead I find that HMO type policies are often low cost. Why is this?

Well the problem with medical care is that it isn't the consumer doing the demanding. It is often the doctor who tells the consumer what he needs. The doctor, though, has a conflict of interest. He can make money for you or his friends if comes down on the side of recommending stuff 'just to be safe'. HMO's, in theory at least, have the resources and financial interest in countering this conflict of interest.

Will HSA's offer the same value?

Joe Kristan writes:

People are amazingly reluctant to make the move. One law firm I know of made HSA - type policies available to their attorneys. One of their tax people ran the numbers and concluded that they couldn't possibly lose with the HSA deduction, combined with lower premiums. The worst downside was a small advantage.

Yet not a single attorney took the HSA option. If you have this problem with a well-educated and informed group, that's scary.

I have an HSA myself, and it's great. I'm not sure what it will take - maybe just time and a slow process of education will eventually start to turn things around. InsertTextHere

Bob writes:

Boonton,

HSAs are too young for us to have a good handle on how they will be priced. Of course, an HMO that rations care may still end up significantly lower. The question is whether the rationing cuts waste or cuts care. I don't know but I will be amused if the opponents of HSAs trot out HMOs as the superior alternative after years of HMO-bashing.

Your point - doctors' incentives are no different than auto mechanics' - is correct. But so what? Does anyone have data on how many people pre-pay for auto service (buy a service contract when they buy the car)? Or thoughts about why medical care should be different?

Boonton writes:

Warranties on new cars are quite popular and more than a few people are driving around in cars covered for 100,000 miles or up to ten years. In effect they have prepaid their autocare costs. I'm not sure the situation is exactly the same since it isn't as easy to do your own medical are as it is car care. Even doctors will often have their own doctors.

The conflict of interest problem with doctors has in the past been countered by the guild mentality of doctors. The profession was viewed as a calling and I suppose cultural sanctions held the profit motive somewhat in check. Nowadays you may want to look at if this culture is being eroded by high pressure drug reps from the pharma companies.

Economically, though, medical care seems to suffer from a disconnect on both sides. The demanders are often not the people paying for it (even without insurance) and the suppliers are often not the people directly collecting the money.

Mark Horn writes:

I would switch to an HSA if my company offered them, but they don't. In the meantime, the amount that my company subsidizes the current stock of health insurance options, makes getting an independant HSA cost prohibative.

I don't know how many companies offer HSAs. But if the vast majority of america doesn't have access to one through their company, the vast majority of america isn't going to switch because the costs don't make sense.

spencer writes:

I would love to see your comments on article in
http://www.washingtonmonthly.com/features/2005/0501.longman.html

on the veterans hospital system that the article calls the best care anywhere.

The article focuses on the advantages the VA has over for profits systems in implementinjg new systems that provide much more efficient and widespread use of "best pratice" that private systems can not seem to do beause the private
systems are short run profits maximizers

Mcwop writes:

If you have a pre-existing condition, then an HSA may not be attractive. My company offers an "HSA-like" option, and I have a pre-existing condition. I will have $2,860 in drug costs this year. Even with the company contribs, it would be tough for me to fund the HSA and pay my drug costs (the drug plan and health plan are comingled). In fact, I would more than drain the savings portion each year. I opted for the Blue Cross PPO plan. The numbers worked out better.

Lawrance George Lux writes:

Short Critique of Health Savings Accounts:
1) Health Underwriters will continue to raise Deductibles and Co-Payments to absorb all yearly contributions to HSAs. This leaves lower-Wage Employees with Deductibles and Co-Payments of too large magnitude to manage. Patients still have the problem of unmanagable health care Costs.
2) Health insurance companies still will not have the incentive to act as Patient advocate against the health care industry; they make a healthy profit in letting Health Care Costs rise.

HSAs are a non-Solution to the Health Care crisis being faced by increasing numbers of Americans. We need the introduction of a standardized basic medical care policy. lgl

Boonton writes:

HSA's can work out quite nicely with my (often posted) proposal for health care reform. Basically establish a universal voucher funded with a dedicated tax, require insurance companies accepting the voucher to charge roughly equal premiums with modest variation.

Your voucher could fund the account with the remainder for covering the premium. In effect you would end up buying coverage for unexpected medical problems beyond your pre-existing condition while the voucher would cover all or most of the costs associated with the condition.

spencer writes:

Bob -- while those that prepay for auto services are small, it is growing in popularity. They prepay for scheduled maintence. On the other hand prepayment for nonscheduled -- ie, accidental -- auto repair costs is almost universal. And aren't auto accidents more like most health care expenditures then scheduled maintenance?

Jon writes:

The Washington Post showed one illustration of a Federal Government (civil service) HSA plan in which almost everyone came out better under the HSA plan, but those with chronic illnesses may have had a rather small net loss. One glaring problem -- the calculation seemed to omit the fact that the health insurance premiums are tax deductible.

Another likely problem, is that to attract members, the HSAs may initially offer low premiums based on optimistic projections; they will rise after there is real experience.

Finally, I should add that in a "perfect" free market, true health insurance would not exist. The health insurance system in this country is an artifact of company's circumventing wage and price controls during WWII and the deductibility of employer paid premiums. The problem with health insurance is that the contract payments are long term; their increase is difficult to predict, but the likelihood of an individual having large payments is rather predictable based on his recent history. Those with chronic illnesses would be charged the cost of their expected care; those with good genes would pay their own low cost. The "risk spreading" objective of insurance is thus defeated.

One can argue that we make people with good brains, good looks, and strong bodies better off then those without them; therefore we should do the same with people who are free of diabetes, heart disease, and other chronic ailments. This is distasteful to most people, perhaps because th e productive capacity of someone with a good brain or an atheletic arm depends strongly on his or her choices in how to use them.

Bob writes:

Spencer,

That's what I'm interested in. Traditional auto insurance is HSA-like: you pay for regular care and small problems but are insured against large losses.

Of course, as Boonton points out, the car analogy isn't great, although I'd love a warranty on my body parts, that ain't gonna happen. But I'd be very interested in service package/extended warranty (not the basic package) stats because they are a good example of people paying for certainty. Maybe people don't like HSAs because they like certainty, even if there is little or now downside to the uncertainty.

Boonton writes:
Finally, I should add that in a "perfect" free market, true health insurance would not exist. The health insurance system in this country is an artifact of company's circumventing wage and price controls during WWII and the deductibility of employer paid premiums. The problem with health insurance is that the contract payments are long term; their increase is difficult to predict, but the likelihood of an individual having large payments is rather predictable based on his recent history. Those with chronic illnesses would be charged the cost of their expected care; those with good genes would pay their own low cost. The "risk spreading" objective of insurance is thus defeated.

This gets repeated a lot but I don't see why it is true. Health insurance premiums are often adjusted yearly & there's no reason health insurance companies cannot make good predictions on how much expense their pool of clients will incur in a year. Even if premiums were not tax deductible I don't see why health insurance would cease to exist. Even the HMO model is not unprecedented in insurance. Auto insurance companies have long sponsored programs to improve automotive safety. In principle an HMO is the same thing except taken to a larger extreme.

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