July 25, 2009 10:01PM

The Attempted Murder of HSAs

There may be nothing that more scares advocates of government-controlled health care than giving patients control over their medical treatment.  Thus, it should come as no surprise that the current versions of health care "reform" would kill off Health Savings Accounts (HSAs).

Explains John Fund in the Wall Street Journal:

Eight million Americans, according to the Treasury Department, are covered by plans with low-cost premiums and high deductibles that are designed for large, unexpected medical costs. Money is also set aside in a savings account to cover the deductibles, and whatever isn’t spent in one year can build up tax-free. Nearly a third of new HSA users, according to Treasury figures, previously had no insurance or bought coverage on their own.

These policies will be severely limited. The Senate plan says a policy deemed “acceptable” must have insurance (rather than the individual) pay out at least 76% of the benefits. The House plan is pegged at 70%. That’s not the way these plans are set up to work. Roy Ramthun, who implemented the HSA regulations at the Treasury Department in 2003, says the regulations are crippling. “Companies tell me they could be forced to take products off the market,” he said in an interview.

This level of micro-management is a good argument in principle against the sort of "reform" currently being promoted on Capitol Hill.  But the proposed rules likely were drafted in order to eliminate HSAs as an option.  Explains Ryan Ellis of American Shareholders:

If an insurance plan must pay for 70 or 76 percent of all health care costs, it would be next to impossible for it to qualify as a high-deductible health plan.  No HDHP, no HSA contribution.

The only hope a plan would have would be to do the following:

  • Have a deductible no higher than the HDHP minimum ($1150 single, $2300 family in 2009)
  • The out of pocket limit would have to be an identical amount
  • The plan would have to cover all allowable preventive care on a first-dollar basis (annual physical, prenatal and well-child, immunizations, smoking cessation, weight loss programs, and early screening services)

Any HDHP which is this generous would have very little premium savings relative to a tradtional health insurance plan.  If the typical HDHP today shaves about 33 percent off your premium, a plan like this might only shave off about 10 percent.  There would be very little incentive to get an HSA-qualified insurance plan.

HSAs are an imperfect vehicle, an attempt to deal with the perverse incentives created by Washington's favorable tax treatment of employer-provided health care.  But the limitations inherent to HSAs should impel us to expand, not eliminate vehicles to enhance consumer choice.  The more we find out about health care "reform," the more obvious it is that patients would be the biggest losers.