Health Savings Accounts and Adverse Selection

This is a few days old but I happened to stumble upon it from a link from a conservative site which launched a rather specious criticism of Ezra Klein’s criticism of Health Savings Accounts.

Ezra notes something everybody involved in health care knows, but it is always good to have the documentation. A small number of patients account for the bulk of the spending. Ezra demonstrates this with this graph from Kaiser:

HSA’s work by having individuals save money in tax free accounts for routine medical care, and they are sold along with a catastrophic insurance plan. Money in one’s HSA is used until the high deductible catastrophic plans kick in. Ezra’s argument is relevant as the incentives for spending money are lost once the sickest individuals exceed the high deductibles of HSA’s and their catastrophic coverage kicks in.

While significant, this isn’t the most important argument against HSA’s. The most important argument against HSA’s is almost lost in a single line in Ezra’s post. “They do nothing but disincentivize basic care, which doesn’t cost much anyway.”

Several landmark studies, such as the Diabetes Complications and Control Trials and the UK Prospective Diabets Study, have clearly established the fact that more aggressive care of diabetes early will reduce long term complications. Unfortunately many patients (and some doctors) don’t take problems such as diabetes and hypertension seriously since they have no symptoms in the early years and feel fine. Even when people have health care coverage, it is difficult to get many diabetics and others with chronic diseases to receive adequate care. The more people have to pay out of their own pocked, the less likely they will spend money when they feel fine. While this should not be controversial, I have reprinted some of my old posts from Light Up the Darkness and The Democratic Daily which link to further evidence of these assertions under the fold.

By making people pay out of pocket for basic preventive care and for treatment of chronic diseases, you are increasing the chances that people won’t pay attention to their cholesterol until after they’ve had their first heart attack. People with diabetes, hypertension, and hyperlipidemia, all assymptomatic for years, will be more likely to ignore these problems despite all the evidence that early and aggressive treatment reduces long term complications.

This leads back to the small number of people who do account for the vast majority of health care spending. HSA’s not only don’t reduce spending there, as Ezra points out, but will actually increase the number of such high risk patients. We’ll have more diabetics who allow their sugar or blood pressure to be out of control for years, increasing their risk of catastrophic outcomes. Less people will take modern medications which can lower cholesterol to a point which not only prevents but can actually reverse blockage in coronary arteries.

It is far more economical to treat diabetics and others with chronic diseases early than it is to pay for bypass surgery, dialysis, amputation of limbs, and post-stroke care when the long term complications of uncontrolled diabetes or hypertension catch up with them. HSA’s provide perverse incentives to treat populations in a far less cost effective manner. While the health care system needs repair, any fixes should concentrate on increasing the likelihood that chronic diseases are treated early when it is most economical as opposed to creating incentives to postpone care.

More information on Health Savings Accounts under the fold.

(Originally posted at Light Up The Darkness)

Evidence against Bush’s health care plans

The Commonwealth Fund has come out with data verifying what I’ve been arguing for a long time. Republicans often advocate increasing out of pocket payments for health care so that consumers would be more judicious in spending money. The problem with this is that people tend to avoid medical expenses if it comes out of their own pockets, regardless of the value of the health care. The same is likely to occur with Health Savings Accounts. This would likley lead to increased costs in the long run as preventative care and treatment of chronic diseases is ignored. It is far more cost effective to treat problems such as diabetes and hypertension early than to pay for bypass surgery, dialysis, or long-term care following a stroke.

The Commonwealth Fund compared health expenses among people in high-deductible plans as opposed to those in lower-deductible plans. Among their findings are that:

About half of insured adults with a high-deductible health plan have medical bill problems or debts, compared with less than one-third (31%) of those with lower-deductible plans, according to new research from The Commonwealth Fund. Individuals with high-deductible plans are also more likely than those with lower-deductible plans to experience access problems such as not filling a prescription, or skipping a medical test, treatment, or follow-up when needed, due to cost.”Health savings accounts coupled with high deductible health plans have potential pitfalls, especially for families with low incomes or individuals with chronic health conditions, who are at greater risk of accruing burdensome medical debts and facing barriers to needed health care,” said Commonwealth Fund President Karen Davis. “The evidence is that increased patient cost-sharing leads to underuse of appropriate care.”

Health Savings Accounts Will Increase Number Of Uninsured

Posted by Ron Chusid
February 15th, 2006 @ 10:12 pm

Not only will Health Savings Accounts worsen health care by reducing preventative care and routine care of chronic diseases, a new study shows the plans will also increase the number of Americans without insurance:

A new analysis by one of the nation’s leading health economists finds that the Administration’s proposals to expand tax breaks for Health Savings Accounts (HSAs) would cause a net increase in the number of uninsured Americans.

The analysis, conducted by Jonathan Gruber of M.I.T., projects that while 3.8 million previously uninsured people would gain health coverage through HSAs as a result of the President’s proposals, 4.4 million people would become uninsured because their employers would respond to the new tax breaks by dropping coverage and they would not secure coverage on their own. The net effect would be to increase the number of uninsured Americans by 600,000.

Differences Between Democratic and Republican Healthcare Solutions

Posted by Ron Chusid
August 24th, 2005 @ 12:50 am

Malcolm Gladwell (who I also referred to on another topic a few days ago) has an important essay on health care in the New Yorker. Gladwell first outlines many of the problems of our current system:

One of the great mysteries of political life in the United States is why Americans are so devoted to their health-care system. Six times in the past century—during the First World War, during the Depression, during the Truman and Johnson Administrations, in the Senate in the nineteen-seventies, and during the Clinton years—efforts have been made to introduce some kind of universal health insurance, and each time the efforts have been rejected. Instead, the United States has opted for a makeshift system of increasing complexity and dysfunction. Americans spend $5,267 per capita on health care every year, almost two and half times the industrialized world’s median of $2,193; the extra spending comes to hundreds of billions of dollars a year. What does that extra spending buy us? Americans have fewer doctors per capita than most Western countries. We go to the doctor less than people in other Western countries. We get admitted to the hospital less frequently than people in other Western countries. We are less satisfied with our health care than our counterparts in other countries. American life expectancy is lower than the Western average. Childhood-immunization rates in the United States are lower than average. Infant-mortality rates are in the nineteenth percentile of industrialized nations. Doctors here perform more high-end medical procedures, such as coronary angioplasties, than in other countries, but most of the wealthier Western countries have more CT scanners than the United States does, and Switzerland, Japan, Austria, and Finland all have more MRI machines per capita. Nor is our system more efficient. The United States spends more than a thousand dollars per capita per year—or close to four hundred billion dollars—on health-care-related paperwork and administration, whereas Canada, for example, spends only about three hundred dollars per capita. And, of course, every other country in the industrialized world insures all its citizens; despite those extra hundreds of billions of dollars we spend each year, we leave forty-five million people without any insurance. A country that displays an almost ruthless commitment to efficiency and performance in every aspect of its economy—a country that switched to Japanese cars the moment they were more reliable, and to Chinese T-shirts the moment they were five cents cheaper—has loyally stuck with a health-care system that leaves its citizenry pulling out their teeth with pliers.
America’s health-care mess is, in part, simply an accident of history. The fact that there have been six attempts at universal health coverage in the last century suggests that there has long been support for the idea. But politics has always got in the way. In both Europe and the United States, for example, the push for health insurance was led, in large part, by organized labor. But in Europe the unions worked through the political system, fighting for coverage for all citizens. From the start, health insurance in Europe was public and universal, and that created powerful political support for any attempt to expand benefits. In the United States, by contrast, the unions worked through the collective-bargaining system and, as a result, could win health benefits only for their own members. Health insurance here has always been private and selective, and every attempt to expand benefits has resulted in a paralyzing political battle over who would be added to insurance rolls and who ought to pay for those additions.

What’s really important in this article is that Gladwell also shows the problems with the Republican solutions such as Health Savings Accounts. Republicans argue that putting consumers more in control of spending will be more efficient. As I’ve discussed previously, the actual result is that people tend to avoid paying for preventative care and treatment of chronic medical problems, which turns out to be more expensive in the long run.

For that matter, when you have to pay for your own health care, does your consumption really become more efficient? In the late nineteen-seventies, the rand Corporation did an extensive study on the question, randomly assigning families to health plans with co-payment levels at zero per cent, twenty-five per cent, fifty per cent, or ninety-five per cent, up to six thousand dollars. As you might expect, the more that people were asked to chip in for their health care the less care they used. The problem was that they cut back equally on both frivolous care and useful care. Poor people in the high-deductible group with hypertension, for instance, didn’t do nearly as good a job of controlling their blood pressure as those in other groups, resulting in a ten-per-cent increase in the likelihood of death. As a recent Commonwealth Fund study concluded, cost sharing is “a blunt instrument.” Of course it is: how should the average consumer be expected to know beforehand what care is frivolous and what care is useful? I just went to the dermatologist to get moles checked for skin cancer. If I had had to pay a hundred per cent, or even fifty per cent, of the cost of the visit, I might not have gone. Would that have been a wise decision? I have no idea. But if one of those moles really is cancerous, that simple, inexpensive visit could save the health-care system tens of thousands of dollars (not to mention saving me a great deal of heartbreak). The focus on moral hazard suggests that the changes we make in our behavior when we have insurance are nearly always wasteful. Yet, when it comes to health care, many of the things we do only because we have insurance—like getting our moles checked, or getting our teeth cleaned regularly, or getting a mammogram or engaging in other routine preventive care—are anything but wasteful and inefficient. In fact, they are behaviors that could end up saving the health-care system a good deal of money.

Gladwell concludes by showing the differences in how liberals and conservatives view health care coverage:

The issue about what to do with the health-care system is sometimes presented as a technical argument about the merits of one kind of coverage over another or as an ideological argument about socialized versus private medicine. It is, instead, about a few very simple questions. Do you think that this kind of redistribution of risk is a good idea? Do you think that people whose genes predispose them to depression or cancer, or whose poverty complicates asthma or diabetes, or who get hit by a drunk driver, or who have to keep their mouths closed because their teeth are rotting ought to bear a greater share of the costs of their health care than those of us who are lucky enough to escape such misfortunes? In the rest of the industrialized world, it is assumed that the more equally and widely the burdens of illness are shared, the better off the population as a whole is likely to be. The reason the United States has forty-five million people without coverage is that its health-care policy is in the hands of people who disagree, and who regard health insurance not as the solution but as the problem.

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  1. 1
    Keith says:

    You write, “Unfortunately many patients (and some doctors) don’t take problems such as diabetes and hypertension seriously since they have no symptoms in the early years and feel fine. Even when people have health care coverage, it is difficult to get many diabetics and others with chronic diseases to receive adequate care.”
    How will any health system fix this? Even if the health system is completely socialized and ‘free’ it doesn’t mean they will get a check-up. You even say as much in your post. Aren’t you really just setting up a bogus strawman and then knocking it down?

  2. 2
    Ron Chusid says:

    Not at all.If you check thru the actual research linked, rather than rely on right wing straw men of socialized medicine (which is not being advocated) it is clear that different systems promote different levels of preventative care and follow up of chronic diseases.

    Inadequate coverage for preventative care is one problem in the current system, with many insurance plans providing insufficient coverage. Many plans are recognizing this and altering their coverage. Health savings accounts would worsen this problem significantly. Any solutions must be looked at in terms of whether they improve or worsen the situation.

    Besides improving coverage for preventative care and routine office calls which still remain inadequate in many plans, having coverage be portable would also reduce the problem. Some plans are covering preventative care more due to the long term pay offs. Other companies do not see this as worthwhile due to the high liklihood that those covered may be in different plans ten years down the road, before they would see the cost savings.

    Case management also makes a difference, but will not be present under HSA’s.

  3. 3
    peter says:

    here’s a good liberal argument on fixing health care, and why HSAs are not the answer:

    and a little something from the right to ingnite some fiery debate:

  4. 4
    R. Carrillo says:

    In the past 30 years, the costs of healthcare have soared in the United States. Due to rapidly escalating healthcare costs, Americans in ever increasing numbers have begun to search for alternatives that could reduce their personal out-of-pocket medical expenses. In the last few years, hundreds of thousands of Americans have chosen to become Medical Tourists.

    Cost of medical and surgical procedures in Mexico is very low compared to what is paid in the United States. In most cases, the savings from their medical treatment can give people extra money for vacation. Indeed, a patient and his/her family can take a luxury vacation in a Mexican resort and pay for the trip with the savings they receive on getting their procedures in Mexico. Medical Tourism in the city of Guadalajara can certainly be a win-win proposition. While taking care of health needs at big discounts, shopping sprees, sight-seeing, cultural pursuits, and trips to nearby beaches and spas can all be arranged around a medical appointment schedule.

    For more information contact

  5. 5
    steve dunkley says:

    This my opinion as an eu citizen under so called socialised medicine(a term never used over here) health savings accounts and other consumer driven health care solutions are just a crude attempt to shore up a fail ing employer sponsored health care systfem. companies unable or unwilling to afford the risiing costs of traditional health insurance are now replacing them with high deductable plans that provide little or no coverage for the consumer. insurance companies these rip off products to avert the inevitable melt down. this will result in more uninsured and underinsured americans. The government will be forced to expand present medicare and medicade programmes to save not only the medical system but the american economy as a whole. so much for the delusion of consumer driven health care.

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