Monday, March 21, 2005

What Is It About HSA’s That I Don’t Understand?

In 2004, a federal law was enacted authorizing Health Savings Accounts (HSA’s). These are tax sheltered accounts that people can use to pay their medical expenses.

The idea, as I understand it, is to restrain the cost of health care by giving people an incentive to (a) be more careful about using medical services and (b) shop for the best value when seeking care.

In the newsletter that accompanied a recent monthly bank statement, the Shelby County State Bank in my home town of Harlan, Iowa announced that it was offering HSA’s.

The rules as summarized in the newsletter are:

· you have to be less than 65 years old (i.e., not covered by Medicare)
· you must either be uninsured or covered by a High-Deductible Plan

A High-Deductible Plan is one with a deductible of at least $1,000 ($2,000 for a family) and an annual out-of-pocket limit of $5,000 ($10,000 for a family).

The annual contribution to the fund can be the amount of the deductible up to $2,600 for an individual, approximately twice that for a family. Those 55 or older can contribute an additional $600.

I got in touch with Mark Woodring, the CEO of the local hospital, and asked him how the hospital would charge HSA patients. He said they hadn’t decided for sure, but the thinking was that any patient with insurance coverage would get the same discount that the insurance company did. Patients without insurance would have to pay full charges. I suspect that most hospitals will do something like that.

Trying to think all of this through gets a little complicated.

Somebody without insurance would presumably have been careful about using health care and shopping around already, so the HSA wouldn’t affect that.

Most insured patients would have gotten coverage through their employers, so there wouldn’t be any shopping by them for insurance.

One wonders how many people would go to the bother of finding the providers where the insurance company had the best rates (assuming that the company would be willing to tell them) and matching that up with a physician who used those providers, all for saving some percentage of the deductible.

So the rationale for all this seems a little dubious. Most likely, the main motivation for using an HSA will be to get the tax exemption (although employer-provided health insurance is already tax exempt). The bank presumably will get some fees out of it and providers will get another complication added onto an already incomprehensible system of billing and collection. Whether the total effect of all of that will be to raise or lower the cost of care is hard to tell.

Or is there something about this I don’t understand?

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