NCPA - National Center for Policy Analysis

ObamaCare Is the Problem, Health Savings Accounts Are the Solution

July 10, 2013

Health policy economists are puzzled by a persistent slowdown in the growth of health care spending that seems to have started in mid-2005 and accelerated since then. At first, economists thought that the recession was causing the slowdown in spending. But new research indicates a sharply reduced role for the recession in slowing the rise in health spending, and a greater role for market choice, competition and incentives, says Peter Ferrara, a senior fellow with the National Center for Policy Analysis.

  • Traditional health insurance involves a low deductible, leaving the insured to pay only the first few hundred dollars of expenses each year, with the rest of the bills covered by the insurance.
  • That structure creates the "third party payment" problem.
  • With the insurance company paying virtually all the bills, neither the patient nor the doctor have any incentive to control costs.

Congress enacted Health Savings Accounts (HSAs) into law in December 2003.

  • HSAs are designed to greatly reduce the cost of health insurance by offering coverage with a high deductible, in the range of $2,000 to $6,000 a year or more.
  • The savings achieved from the lower premium expense then funds the HSA, which pays for health care costs below the deductible. The patient keeps any leftover HSA funds for future health care expenses, or to spend on anything in retirement.
  • This process creates full market incentives to control costs, because the patient is effectively using his or her own money to pay for them.

The premium savings from a higher deductible is generally enough to finance a substantial deposit to an HSA. Annual cost increases for HSA/high-deductible plans have run more than 50 percent less than conventional health care coverage, sometimes with zero premium increases.  As a result of these costs savings:

  • The number of HSA accounts rose 22 percent in 2012 alone, to more than 8 million.
  • Total HSA account assets zoomed 27 percent to $15.5 billion.
  • By 2015, HSA balances are expected to increase to almost $27 billion.

ObamaCare is a growing problem, and HSAs are a reasonable solution. The Family and Retirement Health Investment Act of 2013 would improve Health Savings Accounts (HSAs) by expanding eligibility and improving flexibility.

The bill would:

  • Remove contribution barriers for Medicare enrollees, veterans, military families and Native Americans.
  • Remove regulations blocking HSA spending on health insurance and long-term care insurance, over-the-counter medicine without a prescription, and primary care service fees.
  • Protect HSAs from bankruptcy like other retirement accounts.
  • Reauthorize states to provide HSA-like health opportunity accounts to Medicaid recipients.
  • Repeal limits on annual deductibles for employer-sponsored small group plans.

Universal health care for all can be achieved by empowering patients through free market reforms, such as HSAs with savings of $2 trillion or more for taxpayers.

Source: Peter Ferrara, "ObamaCare Is the Problem, Health Savings Accounts Are the Solution," National Center for Policy Analysis, July 2013.


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