Philadelphia Reflections

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

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Health (and Retirement) Savings Accounts: Steps To Lifelong Health Insurance
If you are a fast reader, we will begin with a ten-minute summary of Health Savings Accounts. At first, it covers future revenue, then spending projections follow. No matter how medical care changes, cost and revenue must remain in balance.

Well, What About Catastrophic Health Insurance, All by Itself?

To have a Health Savings Account, you must also have a high-deductible insurance policy by law, and naturally, there are premiums for it. Since I favor just about everyone having a Health Savings Account, I also favor everyone having Catastrophic insurance, as Scott Gottlieb and James C. Capretta advocate in a recent Wall Street Journal Op-ed article. Unfortunately, it is not entirely clear what that might cost, but we could find out by learning what it must cover.

Salesmanship. It's true the vendors of catastrophic insurance have been reluctant to advertise prices or even quote them over the phone. That's an unfortunate feature of many big-ticket items sold on commission. Desiring to save price for the last item of discussion, salesmen frequently leave room for discounting their commission against the customer's guess at the lowest possible price. Everyone who has bought an automobile is familiar with the issue; it's not in the salesman's interest to be up-front with his best offer. When it's included in the Bronze plan of the ACA, they quote the minimum price at about a hundred dollars a month. But that is not the whole pricing problem with Health Savings Accounts.

Boundaries. It comes down to rules for the product's boundaries. I fought hard for the HSA law, and am proud of it. Unfortunately, it contains a clause requiring customers to be employed, which cuts out policies for children. It also terminates at age 65, when Medicare ends your cost worries, but creates the unique ability to roll unspent HSA money into retirement funds. Essentially, "employment" limits health insurance to the middle third of an average lifetime, where only a third of health expense is found. Without a transfer mechanism, that makes life insurance difficult. So within the fixed limits, there also exists an unnecessary second uncertainty about its permanence. In the past, a significant portion of insurance profit comes from people who drop their policies. Why wouldn't they drop them, when they threaten to lose usefulness? People do make wrong choices, but in general, they know their best interests. Make it an option, and price it accordingly.

Compound Interest Grows with More Time. When allies want to make catastrophic insurance universal, apparently without required linkage to Savings Accounts, one has to worry it might pass in a form making other proposals politically more difficult. It considerably reduces attractiveness to subtract years from compound interest that way. Especially during sixty years of employer-based insurance, where custodial costs might be 0.1%. The proponents of catastrophic alone probably would not object to widening its age and employment limits, but you never know how negotiations could turn out. Custodial cost isn't hard to fix, but meanwhile, a final price must be stated, so I have a proposal.

Cost. There's no price mentioned for just leaving an account in the background whenever it shows zero spending activity for minor custodial cost. Remember, it provides an access route to retirement funding and greatly enhances yield. It's thus a valuable feature for both parties if dual coverage is permitted. In fact, a base price for zero spending activity, plus additional surcharges for months in use, might significantly improve present premium structures, which depend too much on sharing profits with a broker in order to reduce premium cost. The suggested option would approach charging ten dollars a month without activity, twenty-five dollars a month for outpatient spending, plus five hundred dollars a month for hospitalization. Internal subtraction from account balances could eliminate new billing costs; a short period of experience would restore predictability, as it does in banks.

Taxes. Dual coverage is commonplace in coinsurance, supplemental insurance, etc. so there is little reason to prohibit it here. Instead of catastrophic insurance firmly outside a tax-exempt savings account, as at present, the configuration might better become catastrophic with tax exemption, included within an HSA twin package. That would make an HSA equal with employer-based insurance as a matter of Constitutional tax equity. Instead of potentially offering everybody a chance to become a virtual millionaire if he is frugal, stripping the two apart in the suggested way might only leave coverage for the ultimate benefit of hospitals, the most expensive component of our present system, it is true. But that would eliminate year-to-year carryover, thus crippling innovations which greatly outweigh the nuisance.

Playing it Safe. and Shooting for the Stars. The proposal inadvertently implies: No funding for retirement, no removal of obstetrics from employer coverage, no male-female equalization, no Medicare buy-out option, no mechanism for lifetime coverage. It's a retreat, not a courageous advance, to split the Health Savings Account and discard such enormous potential. At the very least, we should all be fighting to permit HSA as a dual optional addition to any health plan, at any age, disregarding employment status. When we first find out what its mandated extent would be, we'll be able to estimate its cost.

And something else needs to be said. All of the first part of this book concentrates on using HSAs to transfer funds from the profitable age groups to the expensive ones. Without the linkage to an account, there is no way left to substitute for hospital cost-shifting, a growing evil. At the same time, it is necessary to restrain medical prices from rising. As Justice Cardozo observed, sunlight is the best disinfectant, so hidden cost-shifting tempts honest people into crooked behavior. Open-book accounting is better. Saving for your own old age is better than using the government as a bank to subsidize people you never met.

Originally published: Wednesday, December 28, 2016; most-recently modified: Friday, June 07, 2019