June 30, 2005

Health Savings Accounts (HSAs) are having an enormously beneficial effect on the design of health insurance in this country. Instead of an employer or insurer paying medical bills, more than one million people are managing some of their own health care dollars. Instead of relying solely on third-party insurance, people can now partly self-insure through these accounts. Yet despite their many advantages, HSAs can be made even better, says John C. Goodman, president of the National Center for Policy Analysis.

Patients can exercise discretion for many of their health care needs, and it is appropriate for them to do so. Unfortunately, the HSA law treats many cases the same: It requires a high, across-the-board deductible and requires the patient to bear the costs of purchases below the deductible amount.

  • A better approach would allow insurers to design their plans so that different deductibles (and copayments) apply to different medical services.
  • Where patient discretion is possible and appropriate, the deductible should be high, but where patient discretion is more difficult, and in any event inappropriate, the deductible should be low or nonexistent.

Furthermore, decisions the market should make have been made by the tax-writing committees of the U.S. Congress instead. What is the appropriate deductible for which service? How much should be deposited in the HSAs of different employees? How can we use these accounts to meet the needs of the chronically ill? In finding answers, markets are smarter than any one of us because they benefit from the best thinking of everyone, says Goodman.

Ideal reform in this country would allow unlimited contributions to HSAs and permit such accounts to wrap around third-party insurance -- paying for any expense the insurance plan does not pay. Barring that, we should at least allow flexible deductibles and risk-rated deposits to HSAs, says Goodman.

Source: John C. Goodman, "Making HSAs Better," Brief Analysis No. 518, National Center for Policy Analysis, June 30, 2005.

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