January 21, 2014


Obama Should Stop Taking Credit: Health Savings Accounts Are Driving Down Costs (Peter Ferrara, 1/21/14, Forbes)

[H]ealth Savings Accounts (HSAs) were enacted into law in 2003, which is when the slowdown in health costs began.  Mr. Obama was still in the Illinois state legislature at that time.  Participation in HSAs has been growing at double digits every year since then.

HSA accounts grew by 22% in 2012, with total HSA assets soaring by 27% to nearly $15.5 billion.  Over 15 million Americans were estimated to be covered by HSAs at the start of 2013, with close to 30 million overall covered by Consumer Directed Health Plans, which include the similar Health Reimbursement Accounts (HRAs) more commonly offered by large employers.  HSA assets were projected to grow another 22% in 2013, totaling close to $27 billion.

Along with the rise of these Consumer Directed Health Plans, national health spending growth declined, slowing to 3.9% each year from 2009 to 2011, and 3.6% for 2012, almost two-thirds slower than a decade ago.  That is the slowest rate of increase since the 1960s (which was the last time the government role in health care exploded). [...]

HSAs are designed to reduce the growth in health costs by giving patients more power and control over their own health care, and market incentives to reduce those costs.  HSAs include catastrophic health insurance with a high deductible, in the range of $2,000 to $6,000 a year or more.  The premium savings due to that high deductible, as compared to more traditional, first dollar coverage insurance, would be saved in the HSA, and used to pay for health expenses below the deductible.  The catastrophic health insurance pays for health costs above the deductible.  The patient keeps any remaining funds in the HSA each year for future health care expenses, or to spend on anything in retirement.

This framework creates full market incentives to control costs for all non-catastrophic health care expenses, because the patient is effectively using his or her own money to pay for them.  Since the patient is now concerned about costs, doctors and hospitals will compete to control costs.

After one healthy year, the insured typically has more than enough in the HSA to pay for all expenses below the deductible.  Moreover, patients with HSAs enjoy complete control over how to spend their HSA funds.  They don't need to ask for approval from an insurance company to spend their HSA funds on whatever health care they want.

HSAs can be advantageous for vulnerable populations, particularly the sick and the poor.  Because they have complete control over their HSA funds, the sick become empowered consumers in the medical marketplace.  Because they can pay for care themselves out of their HSA account, the poor have ready access to a wide range of providers (unlike in Medicaid today).

HSAs and their incentives have proven very effective in controlling costs in the real world.  Total HSA costs have run about 25 percent less than costs for traditional health insurance with much lower deductibles.  Annual cost increases for HSA/high-deductible plans have run more than 50 percent less than conventional health care coverage, sometimes with zero premium increases.  A 2012 Rand Corporation study found that those covered by HSAs spend 21% less on average on health care in the first year after switching from more traditional coverage.  Rand estimated that national health costs would fall by nearly $60 billion if half of all workers were covered by HSAs.

The bipartisan deal writes itself : universal HSAs from birth until means-tested Medicare at 72 or whatever age, government funded/subsidized for the lower classes.

Call it Obamacare II.

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Posted by at January 21, 2014 5:23 PM

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