Even if the administration were determined to shelter out-of-pocket payments using health savings accounts, why make them so generous? It proposes both a tax deduction and a tax credit when money goes into the accounts; savings would accumulate tax-free and could be withdrawn tax-free also. As Jason Furman points out in a paper for the Center on Budget and Policy Priorities, no other savings vehicle enjoys so many privileges. And then there's the size of these accounts. If the aim is to discipline health spending below the deductible, why subsidize savings up to $5,250 a year -- five times more than the deductible?
In sum, health savings accounts are not just about ending the tax bias in favor of traditional company health plans. The administration is proposing a new kind of 401(k), and using it as an inducement to quit low-deductible insurance. Rich people, who gain most from the tax breaks on saving, will be first to sign on; healthy people, who subsidize sicker people in company health plans, will be right behind them. Their exit may force traditional health plans into a death spiral. The loss of the subsidy from healthy workers will drive premiums up, which will drive more healthy people into health savings accounts, which will drive premiums up further.
I am skeptical about health savings accounts, but not for the reasons given by Mallaby. In fact, I would tend to dispute most of the thrust of the article.
First of all, when he says that $5,250 is too much money to shelter, I totally disagree. To start with, I think that deductibles ought to be at least $5000. Moreover, I think people need to accumulate a lot of money in health savings accounts if they're going to be able to afford health care when they get old. Unless you want to count on Medicare, which if it were a private firm would be declared bankrupt, with its CEO under investigation for financial fraud.
And if traditional health plans--which are not real health insurance--go into a death spiral, why is that not a good thing? Let people buy catastrophic insurance instead. Let the government focus on paying for health care for the poor and the really expensively sick, instead of doling out tax subsidies for employer-sponsored prepaid health plans.
Another point that I would make is that the more you make a fetish out of taxing the rich, the more likely you wind up being opposed to anything that might increase private saving. You can preach about progressivity and you can preach about the need for increased saving, but not in the same sermon.
My problems with HSA's are more that I have a general aversion to programs that are beloved by wonks and operate through the tax system. Maybe that makes them politically clever, but I think you lose a lot in terms of consumer clarity and economic efficiency.
Finally, I worry that special savings buckets might create more substitution than net saving. People who would have saved the money anyway in other accounts put the money into HSA's because they get a better after-tax return. Not whole lot of net benefit there.