Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Health Savings Accounts, Immediate, and Later

The Presidential campaigns just started, we don't even know the final candidates. We can't, therefore, predict if the election decides the health issue or the health issue decides the election. As one of the originators of Health Savings Accounts, my own position may be a foregone conclusion. But millions of people enrolled in HSAs. They will remain a factor, no matter who gets nominated or elected.

Simplicity is a banner we fly. Instead of a thousand-page law, we offer the simplest of proposals. No matter what the disease, the HSA (Health Savings Account) will probably pay for it. It's only about money, not elastic "service" benefits. It consists of health insurance with a high deductible. That's good, because of the higher the deductible, the lower the premium. Since poor people may be unable to afford a high deductible, it's then linked to a sort of Christmas savings account where you can save up the deductible. After that, coverage is complete.

It's true, a poor person is incompletely covered during the first few years, but it's also true young people have little risk of an expensive bill until they get older. So although millions own these accounts, the majority signed on between the ages of 25 and 45. Simple, simple, simple. It tells you something when forty percent have never made a withdrawal for health, apparently preferring to let the account build up, rather than spend it on small health bills. These people aren't fools, they know heavy expenses lie ahead of them. But they also know interest rates are starting to rise, and they all have experience with paying bills on credit. There are a few who can never accumulate a thousand or so dollars in their whole lives, but subsidies for the poor are a commonplace if America wants to provide them. In an HSA arrangement, subsidies present no steep barrier to later saving, because of an underrecognized feature. If you haven't had a big illness by the age of 66, and then receive Medicare, you get to keep what's left. The incentive seems to work. People with Health Savings Accounts spend 30% less on health than those with other health insurance.

So Health Savings Accounts are not only cheaper, they are the only health coverage which helps your retirement if you don't get sick. They already exist, so if something makes other health coverage collapse, they could immediately substitute. You aren't at the mercy of politics or economic disasters. So, if threatened by loss of insurance, HSAs are as safe as you can get. So the only criticism is lack of tax deductibility for the high-deductible insurance, but that could be remedied by a one-sentence amendment. True, the deposit and age limits haven't been extended in decades, but then we haven't had a Republican president for almost that long, either.

So Health Savings Accounts are already about as good as you can get with divided government, but the present form is far from exhausting their potential. In the first place, we are slowly coming into the era when interest on deposits amounts to something worthwhile. The use of "passive" investment with stock index funds could provide a dizzying reduction in effective costs.

Furthermore, the advance of science hints at more novel uses of unspent health money for retirement purposes. Five or ten diseases account for the majority of health costs, so if somebody cures a disease we could fight the political battle to pay for increased longevity, with reduced health costs. Eventually, the far future contains a vision of constraining serious health costs to the first year of life and the last year of life. Even at present, those two years account for twenty or more percent of health costs, but because they affect 100% of us, they cost so much. By some scientific magic, we can dream of basic costs as only a quarter of present costs, not extended infinitely into the future. It wouldn't be easy to retain such savings as retirement income, because the government always wants to divert savings into battleships. Nevertheless, recasting the image as creating value in retirement, instead of a bleak period of uselessness, sounds like a desirable vision thing, to me.

Originally published: Monday, January 18, 2016; most-recently modified: Tuesday, May 21, 2019