Bryan Caplan  

Do HSAs Work? Singapore, Singapore, Singapore

A Hobbesian Thought Experiment... Too Virtual to be True...

In an otherwise wise addendum to his latest NYT column, Tyler takes a swipe at Health Savings Accounts:

By the way, I think that HSAs are ineffective as health care reform and that the so-called "right" is floundering on this issue, just to get in my equal opportunity smack on the blog.
While I'd prefer laissez-faire, HSAs are a vital component of Singapore's amazing health care system. Singaporeans get great health care for a quarter of the U.S. cost, largely with market and market-like incentives. But almost no one pays attetion to this policy miracle. So as much as I dislike the rhetorical technique of repeating oneself thrice, I don't know what more I can say to Tyler's dismissal of HSAs than "Singapore, Singapore, Singapore."

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COMMENTS (11 to date)
Pedant writes:

Actually, you only repeated yourself twice.

Carl Shulman writes:

"Singaporeans get great health care for a quarter of the U.S. cost, largely with market and market-like incentives."

First, as a percentage of GDP, the numbers you gave (from the Undercover Economist) in that post put total Singapore health care spending at closer to a third than a quarter of U.S. Second, you again fail to mention an over-65 citizen population approximately two thirds the size of the U.S. one, and millions of healthy young guest workers who increase GDP but do not consume much health care.

Combined with government public health measures against infectious disease and tobacco, these factors explain most of the difference in health spending as a fraction of GDP, and are not market incentives or market-like incentives in healthcare in the sense that HSAs are.

It's standard practice for health economists comparing systems to adjust for demographic and lifestyle factors to make comparisons between health care systems, and these things have been pointed out to you in the past, so why not talk in terms of (the smaller) differences in demographics-adjusted spending that might actually be attributed to healthcare policy?

Carl Shulman writes:

On the other hand, Singapore's healthcare expenditures grew more slowly than the economy (which tends to grow much faster than the U.S. regardless) from 2002 to 2005 while the U.S. share grew.

Also, checking back, the Singapore's Success numbers give a percentage 0.05% closer to 1/4 than 1.3 (I input 14.3 rather than 14.6 for the U.S. fraction of GDP).

Lord writes:

Given the healthcare system we have HSAs can't work because we have no market in healthcare. No pricing information is available. No competition exists between providers. No information is available as to effectiveness. No incentive exists to control costs. It is just one huge failure. HSAs alone are insufficient overcome this, though they could be part of the solution.

Mike Feehan writes:

"HSAs can't work because we have no market in healthcare"

I know you are probably an intellectual, and all, so my experience won't count with you. But, for others, here is my experience so far.

I see a specialist in addition to my family doc. Just over a year ago, I started a job where the only options are high-deductible plans. I signed up for a plan with a family deductible of 3,500. My monthly payroll deduction is a LOT less than in my previous job. I also contribute to a separate HSA.

After my next scheduled doctors' appointments, and after I received the bills in the mail, I called their offices and told them I was in a new insurance plan, and I am paying the full bill. I asked for a discount from their bills. It took a couple of calls before I actually spoke with the docs. Both agreed to reduce their bills, by almost 20% each.

Now, I don't claim this will solve the nation's problems, but (1) it sure helps me, (2) it tells me we CAN talk to our doctors about their charges and (3) doctors will listen perhaps because they want to help (and, maybe, avoid losing) their patients and perhaps because they can afford to reduce their charges by 20% - the recent dust-up about Medicare notwithstanding. Their reasons are less important to me than the fact that they agreed to discount their bills.

In my mind that is exactly the kind of behavior - both for me, and for the docs - that HSA-type insurance is supposed to elicit. Meanwhile I'm saving for future medical expenses on a pre-tax basis - just like my IRA.

One more thing - in my company's insurance, "preventive care" is covered at 100% - there is no deductible on that.

This post prompted me to finally blog about something I've been thinking about for a while: The best defense of Health Savings Accounts is not that they promote wise spending and bring costs down. It’s that they are a step toward a more ethical tax policy. From this type of argument, there's no need to debate back and forth about whether they "work." This mindset implies that it's legitimate for politicians to use tax policy to influence people's behavior (which the tax exemption for employer-provided insurance already does, and HSAs are a way out.)

Read the rest of it here:

Barkley Rosser writes:

Another factor here may be the ability to have a real market. Singapore is the most densely populated nation in the world. All of the medical care system is essentially there in one place, in one city. Lots of competition.

In the US we have a very decentralized system with lots of people in rural areas having only a few doctors available and barely even one hospital. Not nearly the potential for a properly competitive market.

Kurbla writes:

It is not lack of the free market, see Cuba, they had slightly lower infant mortality than US last year spending $250/y/c - and there is not much of free market there.

Jody writes:

Kurbla: Apples, oranges. Infant mortality is measured in two very different ways between the US and Cuba.

David J. Balan writes:

Without prejudice to whether or not HSAs are a good idea and knowing next to nothing about Singapore, I'm struck by Bryan's preference for "laissez-faire" as his first choice. How could that possibly work? There would of course be private insurance, but what would happen when you get a chronic condition that raises your expected health costs (and hence your premium) to levels unaffordable by almost anyone? What would have to happen would be that all insurance would basically have to be lifetime insurance: your policy would have to say that you can never be dropped, and if you become sick enough that other insurance is no longer an option, your current insurer would have to insure you forever. (And what happens if you're *born* with an expensive condition? Would parents be buying lifetime policies for their unborn children?)

Does anyone think that could work? Could it possibly be efficient to foreclose the option that another insurance product will be a better match for you decades in the future than the one you have now? And what would prevent your current insurer, who knows you have no other options, from giving you crappy care (I hope nobody's going to say reputation effects)? Who knows if they'll even continue to be around?

There are a lot of possibly sensible ways for a health system to work, and some of them are more market-oriented than others, but complete laissez-faire strikes me as impossible; I can see no way to get around the need for some kind of government guarantee.

Gary Rogers writes:

It has always bothered me that once health care became part of the employment package everyone accepted it as the way things should be. Proposed healthcare solutions always involved requiring all employers to provide health insurance and the government picking up the rest of the population instead of recognizing the fact that it does not need to be that way. HSAs do nothing more than shelter private health care spending from income tax, but require a fairly complex administration system. This is another case where we continue to extend a familiar model even though it does not serve our best interests. If we are going to exempt health care from taxes, lets just simplify the tax code so we don't need special savings accounts for each thing the government decides should get special treatment.

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