NCPA - National Center for Policy Analysis


November 29, 2004

Health Savings Accounts (HSAs) are a major leap forward in American health care because they lower costs and give patients control over their health care decisions, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

Today, third-parties -- employers, insurance companies, government -- pay 85 percent of all health care costs, resulting in inefficient use of resources, high costs and rationing of services. Since consumers only pay 15 percent of medical costs directly, they have an incentive to overconsume.

HSAs, however, create personal accounts for consumers, empowering them to make their own health care decisions, spend wisely and earn interest on unused funds. This is how they work:

  • HSAs allow individuals and employers to make deposits each year equal to their health insurance deductible of at least $1,000 for an individual or $2,000 for a family.
  • When individuals seek medical treatment, they will spend first from their HSA; if they exhaust their funds before reaching the deductible, they will then pay out of pocket; once consumers reach their deductible, insurance pays all remaining costs.
  • Account balances can earn interest or be invested in stocks or mutual funds, where they will grow tax free; HSA balances remain unchanged if an individual switches jobs, becomes unemployed or retires.

South Africa has implemented a type of HSA and has seen discretionary spending (primarily outpatient spending) fall by 47 percent. Also, individuals using the accounts have been much more likely to purchase a generic equivalents rather than a name-brand drugs, says Herrick.

Source: Devon Herrick, "Health Savings Accounts: Defining the Future of Health Care for Texans," Texas Public Policy Foundation, November 22, 2004.

For text


Browse more articles on Health Issues