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March 5, 2008
Health Care Reform: Why Health Savings Accounts Are Not the Answer (Legislative Issue Paper: Assembly Bill 47)
Background: The Bush administration pushed through Congress some unusually generous tax breaks for Health Savings Accounts (HSA) in 2003, but only if they are paired with a high-deductible health insurance policy with a minimum deductible of $1100 for individuals and $2200 for families. (Figures are for 2008 but are adjusted annually.) This is part of a consumer-driven health insurance approach designed to counter the growing movement in the U.S. for some form of universal health coverage, which exists in all other developed countries. Assembly Bill 47 would give HSAs generous tax breaks at the state level as well to promote this approach to health care reform. Fiscal estimates for AB 47 indicate that it would cost Wisconsin $39.1 million in lost tax revenue in the first three years alone—funds that the state would otherwise use for vital public services and education. It is fair to ask whether this expensive initiative offered to address the health care crisis provides the path to affordable, quality health coverage for all residents of our state. Republican legislators are especially promoting the generous state tax treatment for HSAs. Their premise is that health costs are rising because too many people access the health care system unnecessarily. People will hesitate to see a doctor if they must personally pay at least the first thousand dollars or more and they will also be forced to shop around for the cheapest health care. The following points explain why this is the wrong path to health care reform:
employer-based HSA/high-deductible single insurance policy was $1,923 and the average for a family policy was $3,833, according to the 2007 Employer Health Benefits Survey by the Kaiser Family Foundation and the Health Research Educational Trust. Both are considerably higher than the minimum deductible required under federal law. For middle- and lower-income workers, it is almost impossible to accrue sufficient savings to pay for health costs required by such extremely high deductibles. Though employers will save money by offering high-deductible insurance plans, they are not required to use any of the savings to help fund an employee’s HSA. According to the Kaiser survey, about two-thirds of employers contribute nothing to HSAs paired with single health plans and 47% contribute nothing to HSAs paired with family plans. When they do contribute, it is significantly less than the deductible.
not eligible for Medicaid or Medicare access health coverage through traditional, comprehensive group health plans offered by their employers. If the HSA/high-deductible insurance plan is encouraged, younger and healthier employees are likely to take a chance and choose that option with the substantial tax breaks and lower premiums. The loss of these individuals from the broad risk pool will raise the cost of the traditional, comprehensive health plan in that workplace. This is because most who remain in the traditional plan are there due to greater medical needs—either
related to chronic health problems or the need for quality family coverage—and the premium rates are based on the claims experience for the group. Because group plans in the workplace are the major source of comprehensive health coverage, any public policy that will distort the risk pool and result in even higher premium costs for quality coverage is reckless.
already been shifted to individuals and working families. Proponents of AB 47 and the consumer-driven health insurance approach argue that people do not have enough skin in the game, which is a barbaric phrase they use to argue that people should feel more financial pain when they access health care so that they don’t seek medical treatment unnecessarily. The other justification is that if individuals (rather than insurance companies or HMO’s) pay medical bills directly, they will “shop around” for the least expensive treatment, helping to create a more effective “market” in health care. These are major rationales for HSAs, but the premises are inaccurate. A 2007 survey by Towers Perrin, a national benefits consulting firm, shows that out-of-pocket costs have roughly doubled for employees over the past five years. Those costs average $900 for an individual employee and $3,132 for family coverage. Other studies document substantial cost-shifting to workers as well. Given that employee wages have stagnated (when adjusted for inflation), higher health care costs absorb a substantial portion of income and people are feeling significant financial pain now. As to the shopping argument, are those without medical training really supposed to “shop” for medical care and still get the best and most effective treatment? Can we really get good quality health care at Wal-Mart?
for the “consumer-driven” approach to health care reform. The HSA/high deductible approach has limited potential for cost containment. Most health care costs are for expensive procedures or treatments—often related to catastrophic major illnesses, chronic conditions or end-of-life care—where costs will exceed the deductibles under these policies and be paid by insurance companies. The top 10 percent of health care users account for 70 percent of total health expenditures, so the HSA/high-deductible insurance approach will not control rising health costs, but will discourage people from getting timely and needed medical attention—and force them to absorb much more of the cost if and when they do get appropriate medical care.
unprecedented in the entire federal tax code. The contributions to the account are tax-free (subject to adjusted yearly limits), the interest earned is tax-free, and the distributions for medical expenses are tax-free. The account funds may be used to purchase stocks, bonds and other investments, so Wall Street is enthusiastic about HSAs, along with banks which will profit from the account fees. Aside from the unprecedented triple-tax benefit, the funds can be withdrawn without tax penalty for non-medical purposes beginning at age 65. (Enrollees do pay income taxes on these withdrawals, but they are likely to be in a lower tax bracket at that time.) AB 47 would provide still more tax breaks which mainly benefit those at higher income levels.
Assembly Bill 47 does not address the basic elements of the health care crisis. It is time for legislators to focus on how everyone in Wisconsin can have affordable, quality health care.
March 5, 2008 DN/JR/ls:opeiu#9,afl-cio
Sources for Assembly Bill 47 Issue Paper:
Kaiser Family Foundation/Health Research & Educational Trust Employee Health Benefits 2007 Annual Survey (www.kff.org/insurance)
US Treasury (www.ustreas.gov/offices/public-affairs/hsa/)
Center on Budget and Policy Priorities, “GAO Study Confirms Health Savings Accounts Primarily Benefit High-Income Individuals,” by Edwin Park and Robert Greenstein, September 20, 2006. “A Brief Overview of the Major Flaws with Health Savings Accounts,” April 5, 2006. “Health Savings Accounts Unlikely to Significantly Reduce Health Care Spending” by Edwin Park, June 12, 2006 (www.cbpp.org/hsa-overview.htm)
Government Accountability Office, “Consumer-Directed Health Plans: Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans,” GAO-06-798, August 8, 2006. Government Accountability Office, “Consumer-Directed Health Plans: Small but Growing Enrollment Fueled by Rising Cost of Health Care Coverage,” GAO-06-514, April 28, 2006
“Savings Accounts for Health Costs Attract Wall Street: Banks and Brokers Court the Medical Equivalent of 401(k) Programs”, New York Times, January 27, 2006
Wisconsin Companies, Employees Pay More For Health Care Benefits, Associated Press, October 2, 2007, article on Towers Perrin study
“Health Care Providers Feel Pinch: High-Deductible Plans Push Up Unpaid Bills”, Milwaukee Journal Sentinel, January 1, 2007
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