HSA Health-Insurance Plans After Four Years: What Have We Learned?
Publication Date: February 2009
Author(s): Benjamin Zycher
Keywords: high-deductible health insurance plans; HSA-Qualified Health Insurance; Health Savings Accounts
Coverage: United States
Health coverage obtained through employers enjoys a substantial tax advantage, significantly distorting the economics of both health insurance and health care. Specifically, the premiums paid by employers and employees for employment-based coverage are excluded from taxable income, but deductibles and co-payments are not. Due to this tax subsidy, the premiums in question are typically high, and the annual deductibles are consequently low, encouraging policyholders to be not as careful as they might be when deciding whether to seek medical care, and when they decide which health-care goods and services to seek.
One response to this problem was Congress's enactment of the Medicare Reform Act of 2003. A section of this law created a new class of health coverage that could be obtained either at one's place of work or in the non-group market. Those plans meeting certain federal requirements could be coupled with Health Savings Accounts, into which covered individuals and their employers would be permitted to direct pre-tax dollars, where they could accumulate tax-free. They could then be withdrawn, also without incurring any tax liability, to meet their associated policies, deductibles and out-of-pocket co-payments. HSA-qualified plans have higher deductibles and, in many cases, higher out-of-pocket spending limits as well as lower premiums than traditional policies. In most other respects, the two kinds of plans are similar.
The central objectives of this new type of health coverage/savings account, from the standpoint of after-tax cost to the consumer, were to level the playing field between employer-provided health coverage and coverage purchased outside of employment, to increase the control that policyholders/patients had over their health-care expenditures, and to offer stronger incentives to economize on the consumption of health care services while preserving protection from large or catastrophic medical expenditures. If large numbers of Americans chose to enroll in HSA-qualified plans, the combination of lower premiums and lower consumption would have a good chance of restraining the growth of aggregate health costs.
We now have four years of experience with HSA-qualified health coverage. This paper examines the available data so as to identify what is already known and what additional analysis needs to be undertaken. For example, the behavior of large groups of policyholders should be analyzed to determine whether high-deductible insurance in fact strengthens discipline in the consumption of health-care services. In addition, more analysis is needed of the impact on health if high-deductible coverage should succeed in reducing health-care consumption.
This paper also inquires into the prospects for meaningful growth in the spread of HSA-qualified plans by comparing the rate at which individuals obtained coverage in its first four years, as well as the rate at which it gained share in the private insurance market, with the rate at which assets in analogous tax-advantaged savings vehicles - Individual Retirement accounts (IRAs) and 401(k) defined-contribution pension plans - accumulated. Finally this paper discusses how existing plans might be improved and made more appealing.