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Do Health Savings Accounts Lower Costs?

Ken Jacobs, chair, UC Berkeley Center for Labor Research and Education | February 26, 2010

Consumer directed health care has been touted as an important means of achieving health cost savings. The theory is that the more people pay out of pocket for health care, the more prudent purchasers they will become. One of the major tools to achieve this has been high deductible health plans with Health Savings Accounts (HSA).

HSA skeptics have argued that since 80 percent of health costs in any given year are from 20 percent of the consumers, whose costs go well beyond the high deductible, high deductible health plans cannot have a dramatic effect on overall health spending.  (There is also good reason to believe high deductible plans discourage needed care for low- and moderate-income families).  Many of us scratched our heads as insurance brokers told employers that they could save a lot of money by switching to high deductible plans and putting the difference between the deductibles  into an HSA for their employees. The only way this could work is if HSAs attracted a much healthier pool than the rest of the market, which would drive up costs in more traditional plans.

Today’s front page article in the San Francisco Chronicle should give HSA advocates pause.   Blue Shield of California sent out notices this week to small business, raising rates as much as 76 percent.

“We were paying out more in claims than we were collecting in premiums,” said Aron Ezra, spokesman for Blue Shield, which is a nonprofit insurer based in San Francisco. Ezra said he didn’t know how large the increases were or how many customers were affected.

Ezra said Blue Shield regrets having to raise rates.

“We lose membership because fewer people can afford to get it,” he said. “It does not help us. We only do it to be able to collect enough money to pay out.”

California insurance experts say other health insurers have had to raise their small-group rates, particularly for HSAs.

“Every carrier has been mispricing the product because we don’t have the data,” said Steven Lindsay, a lobbyist for the California Association of Health Underwriters and an insurance broker.

Some of the savings from  health savings accounts turns out to have been illusory after all.

Comments to “Do Health Savings Accounts Lower Costs?

  1. then call the life insurance carrier and tell them that he wants $3 million of coverage. The same scenario in health insurance means don’t expect health reform to lower your health insurance costs

  2. I have a HSA and a ‘consumer driven health insurance plan.’ My employer pays some large amount that I would NEVER be able to afford (about $8K) in premiums for my ‘high deductable, or consumer driven insurance plan.’ My employer also pays about $11K for those of my fellow employees who have a more ‘traditional’ plan. My employer puts the difference between their ‘traditional’ plan and my ‘consumer driven plan'(about $3K),into my HSA. I also pay into my HSA, and any monies I pay into it, I do not pay income taxes on.

    I opted for my HSA because I was offered a choice between paying some relatively moderate amount of my total premium to the insurer, or paying approximately that same ‘premium’ amount to myself in a HSA. If I paid a premium for the traditional plan, that money was gone, whether I needed health care or not. If I paid that same ‘premium’ to myself in the form of a HSA, then I had the money until I needed it to pay what essentially is a 100% co-pay, on the first $5K of healthcare I consume each year, and 20% on the next $3K in healthcare. IF I pay $8K out of pocket in any one year, the insurer pays all the rest of the bills for that year. The balance in my HSA always roles over into the next year. I can pay a max of about $6,500 into my HSA, but could, if I had numerous and/or expensive health problems, pay out $8,000 per year from my HSA. So, if one is relatively heathy, the math works. Otherwise not.

    Supports of HSA claim that as a consumer, I will drive medical costs down by shopping around, and/or otherwise not spending money I don’t need to spend. The reality is, I cannot spend the HSA on anything but healthcare. When I need healthcare, I spend from my HSA. “Shopping around” for medical care can itself, be expensive. Plus, who has time to spend going to two or three healthcare providers each time services are needed? So, I don’t shop around. Nor do I forego healthcare to say money. I can’t spend the HSA on anything else anyway. So, it is unclear to me how I am driving down the cost of healthcare. Besides, any pennies I saved is such pursuits would be dwarfted by what I already save because I am luck enough to have employer provided healthcare. I recently had a procedure that cost me $5K and my insurer $3K. The same procedure would cost a person without health insurance $17K. Being lucky enough to have health insurance saves money. Having and using a HSA does not seem to me to be driving down the costs of health care. Yes it saves me money in insurance premiums, but my employer is spending the same amount on me, whether I opt for consumer-driven healthcare, or a traditional plan.

    I got on board with the HSA-consumer driven insurance as soon as it became available. Some of my fellow workers never will be able to afford it. If I start spending more from my HSA than I put in each year, eventually I will have to move back to a traditional plan, and pay an ever growing premium to go along with what my employer pays.

    So yes, in I am doing better under this scheme for now, but it does not seem to be saving my employer, who still is the paying the premiums, any money. And no, the use of HSAs does not seem like it could really be driving down the cost of healthcare.

  3. This is a complicated subject simply because there are so many options available in healthcare. This is compounded by the entitlement mentality that has become pervasive in our society.

    As the Baby Boomers age and begin to be a net draw upon society’s
    resources, I expect that we will see a significant shift in the distribution of wealth and better understanding of this ponzi like scheme.

    The early users will gain the greatest benefits. As the bubble progresses, there will be a dash to use the available resources and those at the end of the train will be taxed heavily and have premiums elevated to astronomical rates to feed the system.

    Politicians are not in a position to do much about this because the voting constituents are aging with the general population and would throw them out if they went against the tide.


  4. Health Savings Accounts were never meant to be the magic pill to solve our healthcare crisis. Yet they do make consumers think about the cost of healthcare since they are spending their own money under the high deductible. Consumers have been trained to expect their health insurance plan to pay everything above a small $15 copay, and not caring what the insurance company will pay after the co-pay. Consumers with Health Savings Accounts (HSA)do care about the cost up to their deductible. The problem is that our government placed strict restrictions on HSA eligible plans so low maximum annual out of pocket costs would attract people with high expenses. Choosing between a low deductible PPO plan that has a $4,500 annual out of pocket maximum and a $3,000 deductible HSA eligible plan that pays 100% after the deductible is a no brainer. The older the consumer the higher premium savings between the plans, encouraging that consumer to logically choose the HSA eligble plan. This adverse selection would cause an insurance company to have more claims resulting in higher rate increases.

    Our government should allow high deductible health plans (HDHP) that are HSA eligible more flexibility in plan design. We can design a plan that will not be adversely selected by consumers and rate increases could be reasonable. Unfortunately, our government health reform program adds more adverse selection by allowing consumers to get guaranteed coverage after they are told they have an expensive health condition. What if our government told life insurance companies that they must guarantee issue life insurance regardless of insurability? A consumer would wait until he was told he had 6 months to live, then call the life insurance carrier and tell them that he wants $3 million of coverage. The same scenario in health insurance means don’t expect health reform to lower your health insurance costs

    Gary L. Whiddon

  5. We used HSAs for several years and they did help. But higher limits on them would have been nice. More education is also vital. I know that many of my friends, including fellow members of the Baby Boomers Generation caring for elderly parents, don’t understand HSAs and don’t have time to learn about them. Yet it’s so vital for them to help them with their caregiving expenses.

  6. One of the prima tools to achieve this has been lofty deductible wellbeing plans with Wellbeing Fund Accounts.I really had no idea about that link with economic welfare.

  7. The theory is that the statesman people pay out of pocket for upbeat repair, the more sensible purchasers they leave become. One of the prima tools to achieve this has been lofty deductible wellbeing plans with Wellbeing Fund Accounts.

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