President Bush Proposes Health Savings Accounts
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RAY SUAREZ: Once again, the president is out in public selling an initiative in the weeks after the State of the Union address. Last year, it was Social Security reform. This year it’s health savings accounts. Today President Bush’s theme was cutting the cost of health care coverage. One proposal: Expand the use of health savings accounts. Today at a forum at the Department of Health and Human Services, the president explained how the accounts, called HSAs, would benefit businesses and employees alike.
PRESIDENT GEORGE W. BUSH: The key thing in a health savings account is you actually put a patient in charge of his or her decisions, which we think is a vital aspect of making sure the health care system is not only modern but a health care system in which costs are not running out of control. When you go buy a car, you know, you’re able to shop and compare. And yet in health care that’s just not happening in America today.
RAY SUAREZ: Using a health savings account, money can be set aside tax-free for medical bills. But each account must be combined with a separate catastrophic health insurance policy with a high deductible. Medical expenses must hit $1,050 for an individual and $2,100 for a family before coverage kicks in. Unused funds can be rolled over to the next year’s account.
President Bush’s plan offers tax incentives to businesses and individuals and subsidies to lure more people to use the health savings accounts. So far, three million people have signed up for HSAs, according to the president, but some health analysts say the number is significantly lower.
At his visit yesterday to Wendy’s International’s Ohio headquarters, the president said 9,000 of the chain’s 40,000 employees have signed up for the accounts since company began offering them last year.
PRESIDENT GEORGE W. BUSH: At the end of the first year with HSAs, more than 90 percent of Wendy’s employees had positive balances in their savings accounts.
Medical claims through this company have decreased by 17 percent since they’ve implemented HSAs. It’s an interesting statistic, I think. After more than five years of health care costs growing at double-digit rates, Wendy’s overall health care costs rose only by 1 percent last year. HSAs have had a positive effect. It’s had a positive effect on the individual employee; it’s had a positive effect on the income statement of the company. They work.
RAY SUAREZ: The White House has estimated the HSA plan will cost the federal government about $59 billion over five years.
RAY SUAREZ: Two views now on the president’s proposal. Daniel Kessler is a professor at Stanford University Business School and senior fellow at the Hoover Institution. And Karen Davis is the president of the Commonwealth Fund, a private foundation that researches health policy.
Well, Professor Kessler, you heard the president make claims on behalf of health savings accounts. Will they be good medicine for what he says currently ails the health system?
DANIEL KESSLER: They will. HSAs are a good tool to help people get better value for their health care dollar. Before HSAs, if you bought your health care through your employer-provided insurance, you effectively got to deduct that from your taxes, but if you bought your health care on your own or with out-of-pocket money, you didn’t get to deduct it. What that did was create a powerful incentive that pulled people into low deductible, low co-payment health care plans, and in turn created a health care system that was unconscious about the cost of care.
What health savings accounts do is level the tax playing field between insured and out-of-pocket expenses and get rid of the tax bias against high deductible catastrophic economical health insurance; in doing that, they help give everybody in the health system, doctors and patients alike, an incentive to care more about the cost of their decisions.
RAY SUAREZ: Karen Davis, will health savings accounts do what Professor Kessler claims they will?
KAREN DAVIS: No, I think they’re the wrong prescription. The patient is not at fault for high health care costs, and the solution isn’t making the patient pay more of their own bills out of pocket.
The president’s talked about giving patients more control over the decisions and compared it to buying a car or buying tile but it’s really not like that. The highest health care costs come when people have heart attacks or strokes or cancer. There’s very little discretion or very little opportunity to shop and compare. And there’s almost no information.
So in fact, what the president’s plan would do is tell people they have to pay the first $1,000 if they’re an individual, at least $2,000 if they’re family out-of-pocket. They have to put their own money into a health savings account to pay those expenses. So it’s really just increasing the cost that people pay and shifting costs from employers to workers.
RAY SUAREZ: But the design, the rationale that’s put out there is that if consumers have to pay that $1,000 for an individual, that $2,100 for a family, they will be more careful about what these costs that are otherwise shifted in conventional insurance plans, be more conscious about what those costs are and thus shop them down.
KAREN DAVIS: Well, that’s not for where the cost problem is. 10 percent of the sickest people account for 70 percent of the outlay. It’s the big ticket items that are really the source of high health care costs. And why does that happen? It happens because we’ve got a fragmented health care system, and we have all the wrong financial incentives for our doctors and our hospitals.
The more tests the doctor orders, the more procedures a doctor does, the more the doctor gets paid. In fact, we even pay for medical errors. So if you do it wrong the first time, you get paid again. 20 percent of Americans report that they have to have tests repeated because they can’t be found when they show up at the doctor’s office.
So we have got a lot of waste; we’ve got a lot of inefficiency in the health care system, but it comes because of the way we design the delivery of care. It comes because the way we pay and reward our hospitals and physicians. It’s not because the individual patient isn’t a cost conscious shopper.
RAY SUAREZ: Well Professor, you heard Karen Davis say that most of the costs come from the most serious maladies and that the information isn’t there to shop for things. Will people really be pricing heart surgery?
DANIEL KESSLER: I’d like to disagree with Ms. Davis on two fronts. The first front is that health savings accounts are not a means to shift costs to workers. When you get a health savings account with a high deductible health plan, it’s true that you have more out-of-pocket expenses. But then your health insurance premiums go down correspondingly. Where would that money go? Well, that’s just going to be rolled back into worker’s wages; just like workers now are bearing the burden of higher health cost, so they’ll get the benefit of lower costs through health savings accounts.
The second point on which I’d like to disagree is that higher deductible health plans won’t affect health spending because it’s only a handful of people who account for most of the costs. The evidence we have on that just points the other way. The Rand Health Insurance Experiment, which is a big social experiment run about 20 years ago showed that when you gave people higher deductible health insurance plans, they had lower health spending overall and essentially the same outcomes, and further follow-up research using observational data shows essentially the same thing. So I just don’t understand where that point’s coming from really.
RAY SUAREZ: Well, what would you suggest is going to happen if these plans are adopted in a large scale way; what kind of effects as opposed to the ones that Professor Kessler posits do you see coming?
KAREN DAVIS: Well, we supported a survey last fall about people who had these high deductible plans with health savings accounts and they do report that they go without needed care, they don’t fill a prescription where they really should be taking their prescription to control a chronic condition.
So I’m afraid this is an example of really discouraging the kind of early preventive and primary care that really does benefit patients and could lead to higher costs later on if we don’t catch those conditions early.
Dr. Kessler mentioned the Rand study. I happened to oversee the Rand study when I worked for President Jimmy Carter and what that study showed is first of all it was a very different proposal from President Bush. It capped the amount people had to pay at only 5 percent of income so it made sure it wasn’t too high. 5 percent, 10 percent of income; and furthermore, it excluded those with very serious health problem, the disabled, and even with that group, it did find that if you were low income or chronically ill, you were likely to have health problems. Your hypertension wasn’t as well controlled and you were at greater risk of dying. So we know from that study and many studies that making people pay means they’ll cut down on essential care, not just frivolous care.
RAY SUAREZ: Professor Kessler, we talked a lot about costs so far but would health savings accounts make health insurance more available? The president visited Wendy’s yesterday. They have a lot of low-income workers in the fast food industry. Would those people be more likely to get employee-assisted plans, and would they be able to buy insurance?
DANIEL KESSLER: Absolutely they would. One of the benefits of having more economical insurance is that more small businesses are going to offer policies to workers and more workers are going to take it up. There’s now currently, lots of people are offered insurance through their employer but just don’t take it up because it’s just too expensive.
When you have health savings accounts coupled with high deductible catastrophic insurance, you’re going to make it easier for people like that to buy insurance and easier for small businesses to provide it. This is the best way I think to start to chip away at the un-insurance problem. That coupled with the president’s plan to help subsidize the chronically ill and allow employers to contribute greater amounts to HSAs for chronically ill people I think addresses the concerns that Ms. Davis is pointing out.
RAY SUAREZ: Will this help with access to health care?
KAREN DAVIS: I really think this will have a negligible effect on the uninsured. We have about 46 million people who are uninsured in this country up from 40 million in the year 2000. But 95 percent of those have incomes below the low tax brackets, below a 15 or 10 percent tax bracket, and so these tax breaks aren’t going to make much difference.
And people can’t afford the premium. They can’t afford the deductibles — who are currently uninsured. Who it does favor are those in the top tax brackets. For example, somebody at higher income has a child that needs braces, the orthodontist charges $2,000. They get 35 percent off of that cost in tax savings back from the federal government. If you’re in the 10 percent tax bracket and your child needs braces, you’d only get $200 off of that.
RAY SUAREZ: But apart from the tax -
DANIEL KESSLER: Could I disagree with Ms. Davis on that point?
RAY SUAREZ: Extremely quickly please.
DANIEL KESSLER: I mean, the survey that she talked about, the Commonwealth Fund Employee Benefits Research Institute Survey, showed that the income distribution of people choosing HSAs was roughly the same as the income distribution of people with conventional insurance. And furthermore, analysis that we did showed that the act of making all health care tax deductible was actually a progressive tax policy.
Now it’s true that higher income people have higher tax brackets but because low income people spend such a greater share of their income on health care, on out-of-pocket health care, the act of making that tax deductible actually reduces their tax burden relative to higher income people.
RAY SUAREZ: And quick response from Karen Davis?
KAREN DAVIS: Well the president didn’t embrace Dr. Kessler’s ideas so in fact the uninsured who have no insurance get no break from this savings. You have to buy a specific kind of health insurance policy to qualify so it doesn’t help the insured low income who are paying for their health care out of pocket.
RAY SUAREZ: Karen Davis, Daniel Kessler, thank you both.
DANIEL KESSLER: Thank you.