The Clock is Ticking. My response to a blog post on HealthBeat

The Clock is Ticking. My response to a blog post on HealthBeat.

The link to the above original post on Healthbeat is found next: http://www.healthbeatblog.org/2008/05/the-clock-is-ti.html

I have copied it below with my comments in red.

May 12, 2008
The Clock Is Ticking
After being re-elected in 2004, President Bush began touting an ambitious social policy platform, the so-called "ownership society." Part of this agenda was a strong push for high-deductible health plans (HDHPs) coupled with health savings accounts (HSAs)—tax-free savings accounts to pay for health care expenses.
Like so much else that the Bush Administration attempted (author’s- Niko Karvounis- bias), the ownership society flopped (author’s - Niko Karvounis bias),, in large part because it called for the privatization of Social Security (which failed due to Democratic party disagreements, not to any failure of the Bush administration). With this failure (author’s - Niko Karvounis- bias),, HDHPs and HSAs fell out of the public spotlight. To the casual observer, the question of whether or not health care reform should move in this direction seemed to have been put to rest.
But even though they are no longer in the political spotlight, HDHPs and HSAs are actually thriving—and in fact penetrating our health care system at a relatively brisk rate (The result of free market forces at work). This is problematic (the authors - Niko Karvounis - opinion only). Not only are HDHP/HSA plans poor policy, but their proliferation also weakens the political viability of the health care reform we really need (the authors - Niko Karvounis -opinion only, not a fact).
Here are the numbers: at the end of last month, the Associated Press reported that the number of Americans enrolled in HDHP/HSA plans has nearly doubled (free market forces at work) from 2006 estimates, to around 6 million. Admittedly (by whom?), these plans still have a long way to go before they become a force to be reckoned with. America’s Health Insurance Plans estimate that enrollment in HDHP/HSA plans comprises just 3.4 percent of the private insurance market in the U.S., and in March, Employee Benefit Research Institute (EBRI) estimates that 42 percent of people who have HDHPs and are eligible for HSAs don’t even use the accounts (that is because it is up to the individual, not the government or the the employer. Its called individual responsibility).
Nevertheless, a doubling of enrollees over two years is nothing to scoff at (I agree). And while national rates of enrollment are still meager, the picture’s somewhat different at the state level. The AP reports that in Minnesota, the state with the highest percentage of HDHP enrollees, "about 9.2 percent of the state's total enrollment in private health insurance comes through high-deductible plans. Following closely behind [are] Louisiana, [at] 9 percent and the District of Columbia, [with] 8.7 percent."
State governments are also beginning to turn to HDHPs and HSAs as models for reform. Last week, Georgia passed a law—with the support of Newt Gingrich—that will give insurers $146 million in tax breaks for selling HSA plans (While I like HSA’s, I don’t understand the need for tax breaks to health insurance companies to sell them.). In Indiana, Health Affairs reports that HSAs are being coupled with Medicaid to provide high-deductible health insurance to low-income citizens. (Maybe a way for the Medicaid population to save for their future medical needs, as we do not expect individuals to remain on Medicaid their entire lives. Sort of like Welfare reform signed into law by Bill Clinton.)
In practice, the HSS/HDHP combination makes little sense for families poor enough to qualify for on Medicaid. The $1,100 deductible is more money that most impoverished families have lying around, and the requirement that they contribute 2 percent to 5 percent of their income to the HSA each month ignores the fact that families on Medicaid live paycheck to paycheck and often run out of groceries before the end of the month. (Scare tactic. Please prove that claim) They don’t have a 2 percent to 5 percent cushion to deposit in an HSA. (Not much to disagree on here, but some form of means testing and a way for each individual to save for the future to get off public assistance would be helpful. All income classes would agree with that.)
Yet while Bush was unable to broadly institutionalize HDHPs and HSAs in one stroke Social Security (which failed due to Democratic party disagreements, not to any failure of Bush administration)., it's clear that the two still have made major inroads into our health care system—and into policymakers’ thinking on reform (free market acting on its own!). With so much activity surrounding HDHP/HSA plans, projections for growth are optimistic: the U.S. Treasury Department estimates that there will be 14 million HSA policies in place across the U.S. by 2010.
Despite this healthy forecast, HDHPs and HSAs aren’t the answer to America’s health care problems (again, the author’s – Niko Karvounis -opinion only, not a fact). As I’ve noted in the past, consumer-driven health plans require a lot of out-of-pocket spending (even in the Indiana Medicaid/HSA program, the annual deductible is a not-cheap $1,100). Big expenses at the point of service encourage patients to forego necessary care—including patients with chronic conditions, who often end up needing more costly and extensive catastrophic care down the line. With HDHPs, patients save now, and pay—a lot—later (Instead we have today’s system, where people get everything and then some, and paying little for it, but at much higher premiums, without better long-term medical outcomes. Wouldn’t you rather get a higher paycheck, then insurance you don’t use?)
HDHPs and HSAs also do little for the uninsured, since most families without health insurance are low-income won’t be able to afford health coverage that asks them to pay $4,000 out of pocket before their insurance kicks in (I would like to see true data on this one. Medicaid is available for the lowest income earners. Many of the others are uninsured by choice, not due to income. If affordable coverage was available, they might not be uninsured.) (In 2005, $4,000 was the average HDHP deductible for a family). No wonder EBRI found that in 2007 only 7 percent of people enrolled in HDHP with HSAs were uninsured before they got their current plan, and just 15 percent of those in HDHPs without HSAs had no insurance before enrolling. (And what percent of people today do NOT have insurance? Is it greater than 7-15%? The 2007 estimated population is just over 300 million. If we count 47 million as uninsured that is just over 15%- numbers seem the same to me!)
Asking people to pay more is not the way to expand health insurance to those without it—especially since the higher out-of-pocket spending of HDHPs is often coupled with increasingly expensive premiums. (Not even near as expensive as todays traditional plans) In April, the Minneapolis Star-Tribune reported the story of John Gruber, a 63 year-old man who has an HDHP/HSA plan and who has continually seen his health care costs increase. Even though Gruber’s medical bills have never exceeded his deductible, his insurer Blue Cross Blue Shield upped his monthly premium from $337.50 a month to $470.50 in 2007, a 39 percent increase. His annual deductible also increased from $3,500 in ’04 to $4,100 in ’07. (Why not give the example of the many individuals with insurance that never visit the doctor, have minimal to no healthcare costs. What is the cost savings in premiums and personal healthcare costs to them? What is the profit to the insurer? )
Gruber’s case is not unique: the Star-Tribune quotes Blue Cross Blue Shield as admitting that HDHP premiums are increasing just like those for traditional insurance plans. Patients are paying more out-of-pocket and more in premiums. And don’t count on HSA savings to soften the blow of high health care costs, which have been growing faster than investment returns. (As HSA savings grow year to year, patients will have money saved up for their deductibles, while the catastrophic costs will be covered by their plan. So the problem is ???)
The only folks who can really benefit from HDHPs and HSAs are high-income earners. When you have enough money to pay for your health care expenses, high-deductible plans aren’t a problem; and if you are wealthy, you also have more money to save, making HSAs more useful. (Class warfare at its finest). Finally, HSAs offer a way to permanently shelter you income. Like an IRA, or a 401-k, an HSA gives an employee a chance to squirrel away pre-tax dollars—you don’t pay any income tax on the money the year you put it into the tax shelter.
But with the HSA, the deal is even sweeter: when employees withdraw money from the HSA to cover medical expenses, they still don’t have to pay any taxes on the either the principal or the dividends and capital gains that have compounded over the years. Moreover, "medical expenses" include items often not covered by health insurance including contact lenses, in vitro fertilization, psychoanalysis and dental work. (Coverage for items not covered under todays insurance system- Sounds terrible to me ????? So the problem is??)
As a tax shelter, the HSA has no peer, at least for healthy, wealthy Americans. (No, it works for all Americans regardless of income) Today, a family with cash to spare can sock away up to $5,800 a year, tax-free, sign up for high-deductible policy that will cover catastrophes—and then pay for check-ups, flu shots, mammograms, eye exams and the occasional childhood accident out of a separate account. (That is called choice, and in a free society, choice is to be desired and not taken away)
Why not use the $5,800 in the HSA to cover the medical expenses? Because if you don’t touch the HSA you can carry it over to the next year, contribute another $5,800 and watch the account compound, tax-free, for decades. (And the problem with that is???)
As a gift from the government (actually a remarkably generous present from other,less fortunate taxpayers), the HSA can’t be beat. (How is money that individuals earned and saved, a gift from the government. The government did not work to earn the HSA-money, the individual did. It is not the governments money to take.) A family that tucks $5,800 into an HSA for 30 years, and earns 7 percent a year on their investments, will wind up with a nest egg worth well over half a million dollars—tax free. (And the problem there is??) You can then leave the HSA to a spouse, again without paying taxes. (If your spouse happens to be, say, 20 or 30 years younger than you are, he or she can look forward to continuing the family tradition of contributing to an HSA, and watching it grow, tax-free, for another few decades). (A spouse 20-30 years younger than you. Wow. All I can say is Way to Go!!!!)
A GAO report from last week suggests that families have caught on to the benefits of using HSAs as tax shelters. In 2005 contributions to HSAs totaled $754 million, more than double the $366 million in withdrawals (And the profits of the health insurance companies over that same time period dwarfs the 754 million. Where would you rather have the money saved? In the insurers bank accounts as profits, or in your own tax free medical-health savings account.) This disparity between what people put in and what people take out of HSAs suggests that there’s a certain degree of money hoarding at work, with folks taking advantage of the opportunity to stash big bucks away in a tax-free haven. This has nothing to do with promoting healthcare or a healthier America. (What you call hoarding, others call saving for the future, so as not to have to ask the government or their employer to pay their expenses.)
Given the advantages for the wealthy, it should come as no surprise that taxpayers with HSAs earn almost two-and-a-half times as much as the average American, with an average adjusted gross income of $139,000—compared to $57,000 for all other filers.
Besides the basic injustice of a health care policy that so explicitly favors the rich and the healthy, there’s another reason to be concerned over the high-income bias of HDHPs and HSAs. Maggie has written a lot about how meaningful, system-wide health care reform is going to require a high degree of unity, and she’s right (the author’s - Niko Karvounis - opinion, not fact). But HDHPs and HSAs undermine this unity by giving high-income Americans the opportunity to "check out" of health care reform. (Incorrect assumption. It gives all Americans with HSA’s the ability to put away money for their future healthcare, instead of giving it to insurance companies for profit.)
Think about it. HDHP/HSA plans are a sweet deal for the rich. They pay for care only when they need it—a risk that they can afford thanks to their deep pockets—and they have a new tax shelter to boot. How on Earth are we going to convince the rich to pay higher taxes to fund universal health care if they settle into this cushy situation? (Here is the author’s - Niko Karvounis -biased answer for healthcare reform. Have the rich pay for healthcare for all of America. Is that the American Way???)
Unfortunately, HDHPs and HSAs are indeed becoming the pet policy of high-income earners. According to a March Employee Benefits Research Institute/Commonwealth Fund report, 31 percent of households that held these plans had incomes of $100,000 in 2007—up from 22 percent in 2005. In contrast, just 19 percent of households with high-deductible plans made under $50,000 in 2007, down from 33 percent in 2005. The demographics of HDHP/HSA plans are becoming more uniformly high-income. (Meanwhile, there was little change in income distribution of people enrolled in traditional insurance). (That leaves 50% of households with HSA’s who earn between $50,000 and $100,000- Does not sound uniformly high-income to me!)
HDHPs and HSAs run the risk of dividing our commitment to health care reform by fragmenting interests—and not just for rich people (author’s - Niko Karvounis -opinion, not fact). Like high-income Americans, employers have a vested interest in exploiting HDHPs and HSAs. (Employers exploiting – interesting use of words!) In this case, the appeal lies in the offloading of responsibility. Premiums tend to be lower for HDHP plans than for traditional health insurance, which means that employers contribute less to them. Further, employers are not required to contribute to employees’ HSAs—and in fact there’s a legal limit to how much an employer can contribute if it chooses to do so.
This is good news for employers, who are eager to minimize their health care responsibilities. (I guess it matters whose responsibility healthcare is. I always assumed that healthcare was the responsibility of individuals and families, not employers or government. Why not ask employees if they prefer higher take home salaries or more expensive health insurance?) Indeed, the proportion of U.S. workers covered by employer-based coverage fell from 51.1 percent in 2000 to 48.8 percent in 2006. HDHP/HSA plans might be a happy surprise for the rich, but for employers, they are a long-awaited backdoor exit. So it’s no surprise that firms are increasingly offering HDHPs and HSAs to their employees. The Kaiser Family Foundation reports that in 2003 less than one percent of firms offered HDHP plans with HSAs; in 2007, the share rose to 4.2 percent. Once again, this is not a whopping number, but it’s a rapid increase. (Maybe its due to the high cost of traditional plans.)
Here we have the same problem that surrounds high-income earners: how do you get an interest group to think of the greater good once they catch wind of an immediate alternative that furthers their own self-interest? (Nice rationalization by class warfare! The greater good would be to bring down costs for healthcare, by having individuals assume some individual responsibility for the costs, with government creating a foundation to help those who most need it, not a one size fits all for those who do not!) Can we really expect employers to embrace health care reform that might require mandates or some form of employer-based coverage once they succeed in disengaging from health insurance? Once they’re out of the health care business (Excuse me, but how many employers are in the healthcare business? Does Home Depot sell healthcare? Does your local mom and pop grocery store sell healthcare?), it won’t be easy to pull them back in—even as an intermediary step to universal coverage. (There you have it. Universal coverage. It is not what everyone wants. And to force it by mandating everyone into a single system will just raise costs. Look at the Massachusetts state plan and the cost overruns. Look at all the mandates in Massachusetts. Imagine that on a nationwide scale.)
It’s important to note that neither high-income earners nor employers are officially "out"—at least, not yet. HDHPS and HSAs make up only a tiny part of our system. But as these policies continue to gain ground, the fracturing of health care interests will become more and more of a problem. Wealthy Americans and businesses are two of the most influential lobbies in U.S. politics, let alone health care. If they feel that their self-interest is being served without broader systemic change, then reform is going to be that much more of an uphill battle. (Reform and change are big words being used a lot this election cycle. But the words are not as important as the type of reforms and the type of change that is being proposed)
Ultimately, we should be concerned about HDHPs and HSAs not only because they’re bad policy—which they are—but also because they get in the way of good policy ( The author’s - Niko Karvounis -opinion only- not a fact). And we should get moving on meaningful, universally beneficial health care reform before it’s too late. (I agree on the need for reform of the healthcare system, but not the present author’s vision. We need reform that will bring down costs across the board, by opening up the free market to bring down costs and increase quality. It has worked in all other areas of our economy, it can work in the healthcare system.)
Posted by Niko Karvounis on May 12, 2008.


The remarks appearing in red are by Steven Horvitz, D.O.