Turning Patients into Consumers:
The Trickle-Up Economics of HSAs
Last year 46 million Americans were uninsured and health care costs continued their inexorable upward climb. These two problems, rising costs and increasing numbers of uninsured people, have bedeviled every president since Nixon, each of whom has sought solutions by regulating health care providers and insurance companies. In his State of the Union address, President Bush signaled his desire to shift direction and instead concentrate on regulating the behavior of patients.
The presumption underlying the president’s plan is that the way we pay for health care encourages wasteful spending and provides no incentives for patients to be cost conscious. As a spokesman for the president explained: “Most people feel that their health care is free…They never ask about the price.” The Bush plan would make patients better shoppers by encouraging health savings accounts (HSAs). Under current law an individual or family who purchases a catastrophic health insurance policy with a high deductible can set aside tax free the amount of the deductible in an HSA. When they “consume” medical care not covered by their insurance plan, they can use funds in the HSA to pay their bills. Presumably, people using their own money will search for the best buy in terms of price and quality. As President Bush explains, HSAs will “put the patient in charge of his or her decisions… When you buy a car, you’re able to shop and compare. That’s just not happening with health care.”
In theory, the president’s plan would reduce costs by a kind of trickle-up economics. If patients become more cost-conscious when they shop for health care services, eventually insurers will reduce premiums. The flaw in this logic is that the bulk of health care expenditures go to pay the large expenses of truly ill people, not antibiotics and cough syrup. Seventy percent of all health care dollars are spent on the ten percent of the sickest people. Further, patients don’t shop for health care in the same way they shop for an automobile, a television set or a good cup of coffee. Physicians, not patients, make most medical decisions – what tests to order, when a patient should be admitted to a hospital, what drugs to prescribe and whether surgery should be performed – and patients trust their doctors to make the best decisions for them. A woman who is diagnosed with breast cancer is unlikely to shop around for the cheapest surgeon. The fact that there is an expert intermediary between the product (health care services) and the consumer (the patient) makes it difficult to apply the logic of the market.
The president’s plan ignores entirely the other problem facing consumers in the individual insurance market – the risk of being denied coverage because of poor health. Although insurance companies would have the option of offering health insurance plans that are not “risk-rated” under the Bush plan, what incentive would they have to insure people who might drain their coffers? That’s the group they most want to avoid.
Sadly, the elusive goal of universal coverage has disappeared from the national political agenda. But while beltway insiders may see HSAs as the Holy Grail, ordinary people want more. Last month Maryland passed legislation requiring companies with more than 10,000 employees (read Walmart) to spend at least 8 percent of payroll on employee benefits or pay the same amount into the state Medicaid program. Citizen groups in Florida are trying to do the same. In Connecticut, Ohio and Maine, health care activists have been working for state-wide single payer programs.
HSA advocates who want to shift the entire health care system to a free market approach had better be prepared for a consumer backlash. After all, consumers of medical care aren’t only patients, they are also voters who come November will be shopping for elected officials who truly represent their interests.
Jill Quadagno is the author of One Nation, Uninsured: Why the U.S. Has No National Health Insurance and the Mildred and Claude Pepper Eminent Scholar in Social Gerontology and Professor of Sociology at Florida State University. She has served as Senior Policy Advisor on the President’s Bipartisan Commission on Entitlement and Tax Reform.