Health Savings Accounts

Monday, June 5th 2006
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Health Care Blog takes on the Cato Institute’s, defense of Health Savings Accounts.

According to Mathew Holt,

[Canon] suggests that basically the healthy members of the group are better off moving into higher and higher deductible plans. Eventually no one will be left able to afford the “sicker” plan, so the effect will have been the movement of everyone to a high-deductible from a low deductible plan.

This ignores two HUGE issues. The first is the loss of the money from the pool to pay for the care of the sick people in it. Unless miraculously in Year 1 overall health care costs collapse, the movement of all the healthy people into a lower premium insurance product will mean that there won’t be enough money in the pool to pay all the health care expenses of its members. Why not? Because it’s the premiums from those healthy “students” that’s paying for the care for the sick “professors”. If you stop collecting premiums from the 80% of healthy people and allow them to keep them in cash, there is not enough money left in the pool to cover the care of those who get sick. The math just doesn’t work, as I showed here (and I’m by no means the only one who’s pointed this out). Someone has to make up the difference in year one. (This is BTW why social security privitization is a political non-starter because it demands more money in the first years).

You can read a brief summary of HSAs at Wikipedia, or the CRS report on HSAs, or look at nationalized health coverage proponent Jill Quadango trashing HSAs.

I really could care less about, nor am I capable of grappling with the, economic implications of HSAs. I think they’re the right thing to do whatever disparity they do (or do not) create. I take this quote from Rep. Jim McDermott, from an editorial against HSAs. Where he finds fault I find beauty:

A bedrock principle of this nation is to pool our resources and share the risk, because it benefits all. That’s why we collectively support police and fire departments, national defense and a host of other essential services. The alternative would turn back the clock to the early 20th century…

A bedrock principle which Mr. McDermott admits is itself merely a hundred years old? Less I would argue when applied to health. Quite fundamental, been around forever as you can see. Moving on though, healthcare falls something short of the police or fire department not only in terms of the comparison (which I don’t think is apt) but in terms of the fundamental role of government.