Ellen: that's how insurance is supposed to work: risk is pooled.

Amen. Pooling risk is one of the benefits of belonging to a society in the first place.

President Bush and his cronies are anti-socialist; their preferred society would appear to consist of people who say "I've got mine, you're on your own". This is both cruel and selfish.

The idea behind HSAs that people should be cost-conscious about making economic decisions is perfectly sound in business procurement, daily household budgeting, and the like, but it flat-out doesn't work in health care, and here's why: If you're cost-conscious, the first thing you do is skip going to the doctor if you're not that sick. The end result is that you go the emergency room and the oncologist for catastrophic care instead of the GP for preventive care.

HSAs may not be perfect, but getting individuals to pay more out of their own pocket and be conscious of cost is the ONLY way the health care cost spiral will ever be controlled.

It's obvious that when there is a third-party payer (insurance or the government), neither the provider nor the recipient cares what the cost is. I am self-employed and I have a high-deductible ($10,000) plan from BCBS that costs $600 per year. I find huge disparities in cost (say from $75 to $400 for an office visit) and I've had unnecessary work costing thousands recommended (they assumed I had insurance).

One feature of HSAs is to allow participants to save up money, therefore allowing the participant to move to higher-deductible plans and therefore cut their premium cost. The higher the deductible, the more cost-conscious the participant becomes. It is a virtuous cycle.

Data point: I'm self-employed, single, and in good health other than the BP pill and the cholesterol pill I take each day. My premium (Kaiser) is $300/month, up from $150/month in 1999.

Wow, I just stumbled upon a similar post a few minutes ago by Neil Pollack.

On another note, I priced individual health insurance for myself, a healthy single 40 year old. It's 110$ per month. I think 4 years ago I was paying about 60-75$ for basically the same plan (remember, I was 4 years younger though).

I think that the ideal would be HSA-type plans for everyone. If individuals are actually paying a la carte for the first couple of thousand of dollars of health costs a year, you'll likely see changes in behavior. Making the person receiving the service the same as the person paying the bill may well result in smarter decisions.

I don't often disagree with Kuff, but he (and Max Concrete) couldn't be more wrong on this one, for exactly the reason Greg Morrow gives above.

It's simply a myth that health-care costs are high because insured Americans run to the doctor every time they get a hangnail, but I'm constantly amazed how many otherwise-intelligent folks buy into it.

The truth is just the opposite: health-care costs are high in part (hardly the only reason, but that's another rant) because we Americans delay going to the doctor until our health problems are huge and expensive to treat. The high-deductible insurance associated with HSAs will only make the problem worse!

Also, run the numbers for a sec. Suppose you have a spouse with a chronic health problem like, say, diabetes. Maybe you can get a high-deductible policy for $600 per year, but you're going to be paying close to $10K per year - your entire deductible - out of your HSA (assuming you can even afford to fund it to that tune every year)! Even with tax incentives and assuming an unlimited 1-for-2 employer match, I can't see getting away with less than $6K per year out-of-pocket on top of that "cheap" $600 insurance policy.

Of course, if you're in perfect health, you'll make out like a bandit. But see what's happened in this scenario? Healthy folks pay less, sick folks pay a lot more. The very purpose of insurance - pooling risk - has been defeated! Might as well take things to their logical conclusion and ban health insurance - including Medicare/Medicaid - entirely.

So why do Bush and the GOP push HSAs? Well, who benefits from them? Investment firms and sellers of high-deductible insurance, both major GOP contributors. Follow the money, guys.

Kuff: You're way wrong about HSAs. Couple points that haven't been made yet.

1. HSAs are HUGELY regressive because they are subsidized through individual tax deductions. How is this so? Consider the following example: John is a multi-millionaire and opens an HSA and insurance policy with a $1000 deductable. Since he's in the highest tax bracket he gets about $400 back in taxes for the $1000 he puts into his HSA assuming a 40% tax rate if he lives in a state with a state income tax. Juan works as a landscaper and day laborer and makes minimum wage. He also opens a HSA and puts $1000 into his account to fund his deductable. But since he is below the poverty level he pays no income tax and therefore gets no deduction. Both John and Juan go to the same doctor for some minor surgical procedure that costs $1000. Both pay out of their HSA. But in reality John the millionaire is only paying $600 out of pocket for the same procedure that costs Juan $1000. This is medicine in George Bush's America. The rich have their out-of-pocket medical expenses subsidized by the taxpayers while the poor are on their own.

2. If HSAs gain favor, expect convergence between insurance companies and financial institutions. I would expect insurance companies to start offering HSAs that are packaged together with insurance policies so that your Blue Cross card becomes in effect a Blue Cross Debit/Credit card for medical expenses. When you go to the doctor you swipe your blue cross card but instead of the insurance actually paying, they take the money out of your account. And if you don't have enough in your HSA account yet? They'll probably start offering credit options where your HSA card turns into a credit card at the typical 18% interest. The insurance companies will not only get your premiums to play with, they'll get your HSA deposits, and they'll get to earn interest off you too! In the end, they'll probably be so convoluted with fees that it will be like whole life insurance policies or variable annuities where you know you are getting ripped of somehow with fees and commissions but you aren't exactly sure how.

3. If HSAs gain tax advantaged status, expect many companies to shift their workers involuntarily in this direction, no matter how flawed they are. This is exactly what is happening with Medicare drug benefits. Retirees with private drug benefits through their pensions are finding themselves involuntarily switched to the medicare plan no matter how bad it is. What's stopping that from happening right now with HSAs? Simply the fact that traditional employer-paid insurance is tax deductable by the employer but HSAs are not. What Bush wants to do is swap this equation. Employer provided insurance would no longer be deductable, but HSAs would be. The result is that most of the population with traditional insurance would be dumped into HSAs against their will.

How can any of this be a good thing?

The idea behind HSAs that people should be cost-conscious about making economic decisions is perfectly sound in business procurement, daily household budgeting, and the like, but it flat-out doesn't work in health care, and here's why: If you're cost-conscious, the first thing you do is skip going to the doctor if you're not that sick. The end result is that you go the emergency room and the oncologist for catastrophic care instead of the GP for preventive care.

Umm, maybe if you're an IDIOT.

Well, I have an HSA, I'm not an idiot, and that's not how I behave.

But yes, for drooling idiots who expect cradle-to-grave security, HSAs are not such a good deal. As Kuffner's guest blogger had the courage to point out to the regulars here, however, HSAs do (in theory) take advantage of the economic rationality of individuals, and do provide an economic incentive to rational consumption of healthcare.

Kuffner's guest commenter did not point out the other incentive of HSAs -- tax advantaged savings that roll over from year to year if they are not spent on healthcare. That's a very important incentive.

The guest commenter is right to note that one of our challenges is to figure out what to do about people who don't carry insurance for whatever reason. That's not a minor problem, but it seems like some of the regulars here would rather focus on the flaws of non-socialistic reforms. That really doesn't add much to the conversation.

Thanks for the comments, guys. It's great to see some real clash on this issue, in a way that's been missing in much of the coverage I've seen so far. Also, it's kind of funny to find out that Neil Pollack and I are on the same wavelength.

I'm not going to jump in on the discussion, but I did want to say one thing: those of y'all that disagree with this post, don't blame Chuck - it's my view that's not sitting well with you.

-Ellen

That's the one hole in the HSA concept: Those in high-risk categories who can't afford their own coverage, even with a high deductible.

I think the HSA concept can be a good partial solution, but if it saves as much as the Bush administration thinks it can, then at least some of the savings should probably be used to help those who can't afford their own because they have low income and pre-existing conditions. The problem is that we can't easily distinguish between those who encounter serious chronic conditions through no fault of their own and those who have serious problems related to their own bad choices.

Kevin: HSAs do (in theory) take advantage of the economic rationality of individuals

That would make good public policy if, in fact, Homo economicus existed outside of theory. People are not economically rational. Many things other than cost-benefit inform their financial decisions.

Plus, of course, the reason we go to doctors in the first place is that we don't have enough knowledge and experience to know whether or not little Kuffie will get better on her own. Without information, the quality of the decisions of even Homo economicus goes way down.