Mitt’s Plan to Destroy Health Savings Accounts
Tonight I went to Romney’s website for the first time to see if he add any plan on taxes. (In short..No. He plans to “maintain” the current tax rates on personal and capital gains and bring our corporate rate down to europe’s rate). Anyway, I came across this little nugget:
“he (Romney) believes that we should permit HSA funds to be used to pay for health insurance premiums”
Now, many of you may be thinking that sounds like a good idea. However, the purpose of health savings accounts is not to be a give away, but to reduce health care costs.
For those unfamilar, HSAs allow workers to put some of their own money, tax free, into an account that can only be used for health care services/medications or retirement. These accounts enable people, if they choose, to purchase the much cheaper high deductible insurance plans. High deductible plans require more money out of consumer’s pockets, but the health savings accounts are so efficient that they allow people to save enough money to cover these higher out of pocket expenses.
To illustrate, my employer gives us the option of a high deductible plan with a maximum out of pocket expense of $3000. BUT the premiums are $360 cheaper per month for my family coverage. Wait?? $360 per month x 12 months is more than $3000. So we are guaranteed to save money AND if we do not need to go the doctor’s office very often we save a lot of money. Why is the premium for high deductible so cheap it actually pays for itself???
Well, it turns out that high deductible plans made possible by Health savings accounts reduce health costs in several ways*:
1) When people pay for a procedure out of their own HSA, they have an incentive not to waste their money to get procedures they really do not need.
2) It encourages people to shop for better deals (friend found colonoscopy for $500 instead of $3500). That is, it creates competition among providers.
3) It reduces paperwork. No approvals to get. No medical claims to file, etc.
So how would Mitt’s plan destroy HSAs and drive up health insurance costs? HSAs only work to reduce medical costs because it makes high deductible plans more attractive since the HSA money can only be used for out of pocket expenses. If people could use their HSAs to buy traditional insurance, then employers will have less incentive to offer high deductible plans. The HSA benefits will be lost and health care costs will rise at an even faster pace. The economics of this are simple: anytime a person receives a service but does not pay the bill (or even know how much the bill is for!), there is less incentive to watch costs and so those costs go up.
Romney should know this and it shows a lack of understanding about how market forces work. Perhaps that is why Romney has been “surprised” by the dramatic, catastrophic cost over-runs under RomneyCare. One simple story illustrates this lack of understanding in RomneyCare. Emergency room treatments are very expensive and so Romney believed that RomneyCare would reduce the number of emergency room treatments since people could use their state health insurance plan to see a regular doctor. But what happened instead is that people— now freed from having to pay for emergency treatment under the state’s laws –made many more trips to the emergency room.
How can we rally against ObamaCare if our nominee supported a big government takeover of health care in his state? His solution has created massive budget problems for the state.
Contrary to his claims that the Federal Government would leave decisions to the state his website shows he plans for Washington to provide funds to states for the uninsured: “We can empower states to expand health care access to low-income Americans by block-granting funds for Medicaid and the uninsured” Can he promise us that there will be no regulations or strings attached to this funding? Romney is not a conservative and his plans will drive up health care costs.
*Additionally, unlike the points above which are known characteristics of high deductible/health savings account plans, there may even be a long term benefit. When people buy things out of their own pocket, they tend to be stingy. They evaluate alternatives, they consider how desireable the service is to their happiness. Providers (Doctors) wanting to attract more patients therefore seek ways to lower the price to attract more customers. They seek more efficient, lower cost methods and equipment. Equipment manufacturers respond by providing these more efficient equipment allowing doctors to offer lower costs to patients. This has been shown to be true in the two medical services where insurance is not used—cosmetic and lasek surgeries. The costs of these procedures over the last decade have actually decreased! While traditional medical costs have risen at double digit rates.