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Critics: Health savings accounts flawed

By ELLEN BECK, United Press International   |   Jan. 27, 2004 at 5:13 PM
WASHINGTON, Jan. 27 (UPI) -- Health savings accounts, hailed by conservatives as a way to reduce healthcare costs and make consumers more thrifty by requiring them to spend their own money upfront, instead could result in people foregoing necessary medical treatment, critics say.

The debate over the success of HSAs -- formerly called medical savings accounts but given a new name in the recently passed Medicare reform law -- has generated sharp political differences revolving around free market concepts and the government's -- or other third-party payers' -- role in funding healthcare in the United States.

HSAs are tax-free savings accounts that must be coupled with a high-deductible insurance policy. Generally, it is thought, they will be far less expensive but also offer less coverage than regular private plans.

Under the new law, people who have group health coverage via their employers cannot use these accounts. Hence, critics have argued, they would be far more useful if that restriction were removed as more companies pass along higher premiums and co-pays to their workers.

Unused HSA money rolls over from year to year, to be used to pay for medical care up to the plan's deductible -- at least $1,000 for individuals and $2,000 for families. Critics have said the accounts simply are tax shelters for the rich.

President George W. Bush, in his State of the Union address last Tuesday, proposed making the premiums paid for HSA high-deductible policies fully tax deductible as well.

Milton Friedman, a senior research fellow at the Hoover Institution in Palo Alto, Calif., and the 1976 Nobel Prize winner for economic science, drove home the conservative point of view Monday to a World Health Congress audience of healthcare professionals that an informal survey showed was almost half Republican.

"I predict you will see a very rapid expansion in the use of catastrophic insurance," Friedman said, adding if people have to pay the so-called "first dollar" for their healthcare they will become better informed consumers who shop around. Only in healthcare, he said, does a third party or the government pay part of regular market transactions. The third-party payer system is an offshoot of post-World War II policy, he noted, when the government exempted expenditures for medical care for employees from a company's business tax.

"We don't expect that our auto insurer will pay for our gasoline," Friedman quipped, saying the current U.S. healthcare system is "a recipe for disaster." He suggested U.S. workers would be better off if employers gave them higher wages and let them pay for their own healthcare coverage.

"If we really want to fix healthcare, we need to follow the dollars," said George Halvorson, chairman and chief executive officer at Kaiser Foundation Health Plans in Oakland, Calif. "The high ticket items drive the cost of healthcare."

He said 70 percent of the U.S. population accounts for 10 percent of the $1.6 trillion spent on healthcare each year and 20 percent requires no expenditures. For those people, Halvorson said, HSAs might work. But the 10 percent spending the bulk of the healthcare money also are medically neediest -- those with acute health problems -- a heart attack or stroke -- and those with chronic conditions -- such as diabetes or asthma. They also are the most expensive.

Senate Majority Leader Bill Frist, R-Tenn., told the Congress that HSAs will "help pout you in charge of the decision-making" in healthcare.

A $1,000 deductible would not have much of an effect on an acute care patient, Halvorson argued. A person having a heart attack or stroke is not in a position to shop around for the cheapest hospital or even the best hospital -- he goes where the ambulance takes him. A patient told he has a cancerous tumor and needs surgery -- which can cost tens of thousands of dollars -- is going to "blow right through that deductible," he said, having little effect on the cost of healthcare.

The impact of a $1,000 deductible on the chronically ill takes a different tract. Halvorson said the question becomes whether these people simply stop getting medical care. He noted one study found a 20 percent reduction in prescriptions filled when a medical savings account was in place. The low-income, as well, probably would not have the $1,000 deductible and end up with no coverage, resulting in visits to the emergency room that end up being paid for by taxpayers.

"If faced with formidable costs, many delay care, often showing up in emergency rooms," said Dr. Herbert Pardes, vice chairman and CEO at New York Presbyterian Hospital. "Delayed care can mean most costly care to the system."

He warned that HSAs will appeal mostly to healthier individuals who could threaten the group health insurance market if they pull out in significant numbers.

He, along with Halvorson, argued healthcare is not just another commodity. People who cannot pay for acute care services still are treated at hospital emergency rooms, Pardes said, a service no other industry provides.

Halvorson said the United States will reduce healthcare costs ultimately by identifying problems and implementing solutions in the acute and chronic care sectors.

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Ellen Beck covers healthcare policy for UPI Science News. E-mail ebeck@upi.com

© 2004 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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