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The Trickle-Up Economics of HSAs

Turning Patients into Consumers:
The Trickle-Up Economics of HSAs

by Jill Quadagno

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.

One Nation, Uninsured: Why the U.S. Has No National Health InsuranceJill 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.

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13 Responses to “Turning Patients into Consumers:
The Trickle-Up Economics of HSAs”
  1. Trickle-up Health Care

    This is one of the only times I have ever been inspired to trackback a trackback, but Jill Quadagno has written an excellent post on Oxford University Press’ blog about the vector of health care costs in America. Everyone who…

  2. [Oxford University Press Blog] Turning Patients into Consumers: The New Trickle-Up Health Care Economics

    Jill Quadagno:

    The presumption underlying the president’s plan is that the way we pay for health…

  3. Re: “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.”

    I am not sure that is completely accurate. A better understanding of consumer-driven healthcare cost-containment would include the price-lowering effect competitive forces will have on suppliers of healthcare once such forces are induced by widespread HSA adoption.

    Trapier K. Michael
    http://www.Marketplace.MD
    http://www.blog.marketplace.md

  4. InsureBlog says:

    Nattering Naysayers

    Rarely (if ever), do these folks point to great success stories of nationalized (or socialized, or, well, you pick the adjective) medicine.

  5. News Roundup for 2/23

    Orcinus discusses that the skinhead movement is on the rise again, but don’t fret. Following Bush’s lead, it is compassionate racism, a kinder, gentler movement.

    Juan Cole explains why the latest developements in Iraq are VERY bad new

  6. A couple years ago, one Sunday morning i got up real early, in pain. I thought it was a stomach ache, and treated it that way for a few hours. Then i drove myself to the hospital and checked into emergency. After stabilizing me, and running some tests it turned out that my gall bladder was non functional, and I was scheduled for surgery. They took it out, and it turned out to be infected – gangrenous. It all turned out fine, since i’m still alive. I don’t even miss it.

    A month or so later I got a bill for $0.00. This was a good thing, since that is also the most I could afford at the time, for various reasons.

    I like this health insurance. It was very clear that i went to the hospital, and had expensive tests and surgery for cause. In the mean time, my premiums are constant and predictable.

    If they also required that i get some periodic checkup, and paid for that, then i’d get a periodic checkup. I hate them, because the doctor says “You are in good health”, and it is something that i already knew. So if doctors need baseline data, then i should be required to provide it, and it should be included in the plan. That is, I shouldn’t be penalized even $10 to do it.

    And that’s my view of what a national health plan should provide. Not all HMOs behave this way. As a consultant, having worked for twenty employers and therefore having had that many health plans, I can attest to the idea that most of them aren’t any good.

    And that’s criminal.

  7. Carolyn Smith says:

    I agree totally with the skeptical attitude of Jill re: HSA’s. The answer to health care costs is a national insurance program, based on a Canadian or VA type and not tying health insurance to employment as it is done now.

    I think our healthcare system is a glaring example of how Adam Smith’s Invisible Hand does not always apply. Capitalism does not always work and when it does, i.e., competition stimulates productivity, then the consumer is screwed because of the increased costs. Do MD’s advertise? Not usually. No radiology or lab service publicly advertises their prices for services, noting that they are cheapest. There is no discount for volume for a chemo patient getting CBC’s, and they have many. The consumer is uniquely vulnerable to the person they seek care from. A classic example is the case of the individual who is uninsured and thus has to pay the outrageous fees that the company has “on the books”- not the fees negotiated to the big companies. There should be SET fees, for all. It should be illegal for quid pro quo’s.

    HSA’s sound good on paper, but what about the diabetic, who does not see an MD ($$$), get an oral antibiotic, then ends up with sepsis in an ICU? How does that save money for anyone?

  8. Thomas says:

    [...] 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.

  9. Raul says:

    Thomas you are right,I agree wish you!

  10. Insurance Companies

    Includes a consumer information links, online message board, live chat, The Lattanze @ Package Sol

  11. bitki derman says:

    Oxford University Press’ blog about the vector of health care costs in America

  12. bitki derman says:

    Find items by seeing who likes what and what they like.

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