After nearly 20 years since their launch in the Medicare
Modernization Act (MMA) of 2003, are health savings accounts (HSAs) working as
intended? A new study in the June issue of Health Affairs insists that HSAs
have failed to meet their promise to increase cost consciousness by health care
consumers and thereby improve the efficiency of health care services.

“Health Savings Accounts No Longer Promote Consumer Cost-Consciousness” starts with the wrong premises and questions in misunderstanding the political history behind HSAs. It then neglects consideration of better answers to some valid concerns about how HSAs operate currently.

Admittedly, there are certain schools of thought in health
policy that never met a cost-sharing provision that they could like. Their bias
is toward exaggerating the amount of cost sharing remaining in our health care
system. The authors of the new study appear similarly prone to losing
perspective regarding the magnitude and prevalence of increased cost sharing in
non-HSA-qualified private plans over the last decade. Their selective outrage
over the regressivity of tax benefits through HSAs also seems unlikely to
extend to the rest of the tax code’s regressive tax breaks from progressive
marginal rates (e.g., for employer-sponsored health insurance, private pension
contributions, mortgage interest, or revived treatment of state and local
taxes).

Some more accurate historical context, while some of you were sleeping, might help to ground this discussion. First, in almost every year since national health spending data have been systematically compiled (1960), the share of out-of-pocket spending (OOPS) for health services relative to total national health expenditures (NHE) has declined. In the last pre-pandemic year of 2019, the OOPS share of NHE was 10.7 percent. In the sui generis year of 2020, it actually dropped to a record low of 9.4 percent (compounded by sizable spikes in other forms of third-party health care expenditures through government programs.) Projections for 2021 suggest a very slight increase in OOPS to 9.46 percent, but the career actuarial staff at the Centers for Medicare and Medicaid Services in late March projected that the OOPS share of NHE will resume its steady decline shortly and drop to 9 percent by 2030. I provided a deeper analysis of the factors behind this persistent trend in a March 2021 AEI study (see Figure 1 and Table 1).

Second, the strongest advocates of expanded HSAs abandoned claims
of stronger incentives for reduced health care spending as a primary goal of
HSAs long ago. The legislative deal to insert HSA provisions relatively late in
that process was propelled by efforts to attract just enough Republican House
members to support the MMA Medicare drug package. Since then, the primary focus
of HSA backers has been to expand the size of permissible annual contributions
to them, free the accounts from more restrictive minimum cost-sharing
requirements, and build a larger constituency of HSA enrollees. In recent years,
expanded use of the accounts is seen far more as a lever to free individuals
from other forms of insurance coverage controlled by employer sponsors and
private insurer coverage decisions. Just how large and receptive the audience
is for these potentially disruptive political appeals remains far less clear.

Are HSAs working? It depends on how you frame their job
description. Can one fault most HSA advocates for failing to achieve greater
cost consciousness when that’s not really what they want? Just greater access
to taxpayer-subsidized health care spending with fewer restrictions would seem
to suit them just fine. Indeed, some HSA policy advocacy even would mandate that
employers provide workers with much greater direct choice and control over how
“their” health benefits dollars at work are spent.

In the expedient and polarized world of most current health
policy and politics, almost any argument will do once it’s aimed in the desired
direction. The words of H.L. Mencken resonate: “Every difficult problem has a
solution that is obvious, simple . . . and wrong.”

But for those who might wish to return HSA vehicles back to their
initial goals of cost consciousness, individual responsibility, and wiser
health care consumption decisions, a different mix of policy reforms could be
considered:

• Substituting more granular, value-based cost sharing incentives
• Making theoretical information about the cost and quality of health care services far more accessible and actionable
• Setting overall per-individual caps on tax-advantaged health care benefits, regardless of their particular form, or even broader caps on all federal tax advantages, to promote better tradeoffs
• Indexing HSA cost sharing floors and ceilings based on annual rates of health care spending, rather than inflation
• Converting regressive deductions against progressive tax rates into fixed percentage tax credits
• Just lowering tax rates proportionately across the board in return for fewer and lower targeted tax breaks

Any near-term clamor for more cost consciousness and economizing
in health care spending options (the hypothetical economic market model) still
appears outgunned by more energetic efforts to redirect marginal dollars to
suit the particular preferences of whomever imagines they can gain slight advantages
(the all-too-real political model). Sweet dreams.              

The post Health Savings Accounts and Health Care Costs: While You Were Sleeping, Part II appeared first on American Enterprise Institute – AEI.