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Health Care is Zero-Sum?

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Kevin Drum writes


The bottom line is that if HSAs are a better deal for healthy people, then inevitably they're a worse deal for sick people. And if you take healthcare seriously, it's sick people you should be concerned about.

His argument is that with HSA's, healthy people can keep more of the money that they would otherwise devote to health care. But that means that the pool of people not electing HSA's will include fewer healthy people, and their insurance costs will go up.

To me, the "panacea" in health insurance--if there is one--is not HSA's per se. It is catastrophic health care coverage, instead of "insurance" that covers too much Grey-area medicine. Because HSA's tend to be complementary with catastrophic insurance (in part by legislative intent), and because I think that health expenditures among the elderly are predictable, I think that there may be a case for HSA's. What I mean by the latter argument is that all of us can expect to be sick as we age, so none of us is in the "healthy" pool from that standpoint.

Note that our family has an HSA with catastrophic coverage, and we are anything but healthy. So pulling us out of the "regular pool" is not raising anyone else's health care costs.

Catastrophic health insurance probably is a positive-sum reform. There is plenty of evidence that people are more conservative in their consumption of health care services when they share more of the costs.

What (potentially) sick people need is long-term catastrophic health insurance. HSA's do not provide that, but they are consistent with it.

Thanks to Tyler Cowen for the pointer, and for plugging my forthcoming book, which focuses on long-term catastrophic health insurance, not on HSA's.


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COMMENTS (6 to date)
John Thacker writes:

Surely some of the HSA users include healthy young adults who otherwise would choose to not purchase health care at all. I know people in this situation, who could afford health care but choose not to because the health insurance offered is not a good deal for healthy young people. (Especially since in the case of true catastrophe they won't be denied treatment.) If that were happening (and several surveys indicate that a reasonable proportion of the uninsured fall in this category), wouldn't that be a case for restructing insurance so that it's a better deal for healthy people than currently, so as to get them to choose to buy into the system?

Robert Schwartz writes:

People just do not seem to realize that when you rely on insurance to pay for routine expenses, you are only incuring administrative costs not transfering wealth. The insurance industry must take in a dollar and a half (at least) for each dollar it pays out. You cannot subsidize everybody. The collective everybody must pay for everything. If insurance is only purchased to cover expenses that are out of the range of the normal, it will cost less and incur less overhead.

Timothy writes:

My health coverage actually acts a lot like an HSA. I pay the premium, which totals $1140 on the year, and in return I get $1000 of health care costs paid for, then fairly standard coverage after a $700 "bridge". The maximum out-of-pocket for the year is $2500. The best part is that any of the $1000 I don't spend gets rolled-over to next year, and shrinks the bridge amount. Right now I've about $955 left (I rolled over a little from last year, because my coverage started in November), and so next year I'll have essentially the first $1900 of health expenditure covered, then zero-deductible insurance. My premium is going up about a dollar a month, but that's really no big deal.

I'm basically getting $700 deductible insurance for $140 a year, with a $1000 HSA. Even for somebody like me who's young and healthy, that's a hell of a deal. Point is, that there are good plans out there...I'm lucky and mine is provided through my employer, but there's no reason not to buy something like this on the open market if it were offered.

Chris Bolts writes:

I just finished talking with a co-worker who has a catastrophic coverage plan and she loves it. She gets $2000 from the healthcare provider at the beginning of the year and has all of her preventive care, vision, and majority of preventive dental services covered. If she doesn't use the balance it rolls over to the next year, just like Robert's plan. Since my family don't consume much in the way of healthcare I might switch to it as well. I only need coverage for my migraine meds, but outside of that my family is basically healthy for the entire year. This plan, BTW, is one of the myriads of HSA or consumer driven healthcare plans that are offered by the US government.

Jody writes:

I thought one of the tenets of partially socialized medicine (which is what Medicare + typical insurance is) is prices are held down and technologies advance because they are able to leverage the effects of the market.

Wouldn't every marginal addition of an HSA, even if for a temporarily healthy person, help make the health care industry more market-like and thus be to the benefit of those in the more socialized portions of the healthcare market.

In other words, even if Kevin is right that healthier people are opting for HSAs, Kevin is only examining the negatives and ignoring the positives.

Kevin Joubert writes:

Catastrophic insurance may cut down on admin costs and that would be good. But HSA's do the opposite. Blue Cross of MD is working on this and it will be yet another layer of administrative cost.

The doctor still sends a bill to Blue Cross and is a preferred provider for blue cross. That is how BC tracks the deductibles for the year. This is what MD's do now and in return they get paid at a predictable and steady rate from the insurance company.

With the hsa's they still do all that paperwork but then must also collect from the patients rather than the insurance company; another layer of complexity to the situation.

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