May 15, 2013


Obamacare Implodes (PETER FERRARA, 5.15.13, American Spectator)

Health Savings Accounts (HSAs) were enacted into law in December 2003. Traditional, old-fashioned insurance involves a nominal deductible, leaving the insured to pay only the first $100 or $250 each year, with the rest covered by the insurance, perhaps with a modest, limited, co-insurance fee above the deductible. That structure creates the "third party payment" problem. With the insurance company paying for virtually all the bills, neither the patient nor the doctor bears any incentive to control costs. But they both decide between themselves what and how much health care to consume, and bill the insurer. Naturally, that makes health insurance very expensive.

The concept behind HSAs is to greatly reduce the cost of the health insurance with a high deductible, in the range of $2,000 to $6,000 a year, or more. The savings from that lower expense is then kept in the HSA to be used to pay for health care costs below the deductible. Whatever the patient does not spend from those HSA funds on health care he or she gets to keep, for future health care expenses, or anything in retirement. That creates full market incentives to control costs for all non-catastrophic health expenses, because the patient is effectively using his or her own money for such costs. Since the patient is now concerned about costs, the doctors and hospitals will compete to control costs.

The insight of the godfather of HSAs, John Goodman, president of the National Center for Policy Analysis, was that the health insurance savings from a deductible in this range would be almost enough to finance all expenses under the deductible for the year. After one healthy year, the insured would have more than enough in the HSA to pay for all expenses below the deductible.

Moreover, patients with HSAs would enjoy complete control over what health care to spend their HSA funds on. They don't need to beg for the approval of a health insurance company to spend their HSA funds on the health care they want.

These are the reasons why the sick as well as the poor would still prefer HSAs. The sick would have complete control to spend their HSA funds on the health care they prefer. The poor would be fully covered and could pay themselves out of the health care savings they gain with HSAs.

Such HSAs and their incentives have proven very effective in controlling costs in the real world. Total HSA costs, including the savings to fully fund the HSA savings account to cover the deductible, have run about 25% less than the costs for traditional, old-fashioned insurance. Annual costs increases for HSAs have run more than 50% less, sometimes with zero premium increases for years.
These are the reasons why HSA accounts soared by 22% in 2012 alone, to over 8 million. Total savings and assets in the accounts zoomed by 27% to $15.5 billion. That is expected to increase by nearly three-fourths to almost $27 billion by 2015. That booming growth has continued since HSAs were adopted in 2003.

According to the National Health Interview Survey of the federal Centers for Disease Control and Prevention, about one fourth of the privately insured population is covered by HSAs, similar Health Reimbursement Accounts (HRAs), or other high deductible plans, which probably exceeds HMO enrollment by now. About half of those with private insurance obtained outside employer plans are covered by such high deductible plans.

The proof is in the pudding. As HSAs and similar plans have soared in the private market, health spending growth has plummeted. That is the result of market competition and incentives.

The Third Way works.  Now it's just a matter of letting everyone benefit.

Posted by at May 15, 2013 12:03 PM

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