Lifetime HSAs: The ‘Antisocial’ Health Reform that’s Good for You!

DocsMeanIn an ideal world, people would save for retirement, have an emergency fund and save for future health care needs. A mandatory payroll tax dedicated to your health care would be the ideal way to fund your future medical needs. Singapore has such a system, called MediSave accounts. Liberals consider personal accounts to be antisocial, since money in one account cannot be diverted to someone else’s medical needs. However, a dose of antisocial selfishness would benefit our health care system.

Proponents of single-payer socialized medicine often talk about how a 10 percent payroll tax (on top of other taxes) could fund Medicaid for All.  Although most experts do not consider 10 percent of payroll sufficient to finance socialized medicine, when individuals are saving while young allowing funds to accumulate for their own use, 10 percent sounds about right.

Under an individualized lifecycle theory of saving for future health care needs, most young peoples’ premium dollars would accrue in their HSAs. Only a small portion of their premiums would go for catastrophic insurance. Over time HSA balances would grow and the ratio of HSA deposits to insurance premiums would decline as one’s health risk increases with age. Most people are healthy when young, spending little year after year. The distribution of medical spending by age doesn’t register huge jumps until most people enter their 50s. For instance, health care spending per capita on the elderly is about five times that of children.

In health care there is what’s known as the 80/20 rule. That is: about 20 percent of patients incur about 80 percent health care expenses in a given year. The remaining 80 percent of patients consume only about 20 percent of health care dollars. Thus, the 80 percent of patients (whose medical bills are low) should pay for routine medical care with health savings accounts (HSA). The remaining 20 percent — those who represent the highest medical claims — would be the only ones whose medical care relied on insurance.

Health insurance makes it easier to finance costly medical interventions — including those of little value. Having a reliable funding source also stimulates the development of medical technology. As technology increased, so did the cost of care. As care increased so did premiums. The average employer-sponsored health plan now costs $6,435 per individual and $18,142 for a family plan. Cost-sharing has also increased over the past few years as a means to slow the growth in premiums. From 2006 until 2015, average deductibles for employee coverage increased from $303 to $1,088. Ten years ago, only about 4% of those with employer coverage had high-deductible health plans; that figure is nearing one-third today (29%). About half of all workers now face deductibles of $1,000 or more. Deductibles of $3,000, $4,000, $5,000 or higher are not uncommon in the individual market. What this means is that Americans are increasingly forced to enroll in costly health plans, that reimburse none of their medical bills.

The redistributive nature of modern-day health insurance is designed to maximize cross-subsidies from young to old; rich to poor; and healthy to sick. It has been illegal for decades to vary employee contributions based on health status in group coverage. In 2010 the Affordable Care Act (ACA) also banned underwriting—basing premiums on individual health status—in the individual market and discriminating against enrollees with pre-existing conditions. The ACA also did away with annual and lifetime limits on benefits. As a result, all health plans became an all-you-can-eat buffet.

Currently society relies on redistribution of most of your premiums to care for people whose health is more precarious than yours. Care for the sickest 1 percent consumes nearly one-quarter of health care resources. The sickest 5 percent of patients who consume half of all health care dollars, while care for the sickest 10 percent consumes two-thirds of medical expenditures. Could some of that be redirected to prevention? Probably!

What if you were in control of your Medical IRA (i.e. Lifetime HSA) and you were only required to pay your actuarial risk on a multi-year individual medical health plan? What if instead of cross-subsidizing others who are older and sicker than you, you instead only cross-subsidize yourself when you are older.  In this regard you would set aside funds while young you could draw on when older and sicker and needing the cross-subsidy from your (formerly) younger self. You would probably work closer with doctor and insurer to decide on your treatments — since you may have a lifetime limit on benefits. Would you take an $89,000 drug that barely outperforms another old drug costing $50? Probably not. Suffice it to say our health care system would be in a lot better shape if individuals took more control and were rewarded for their efforts.

Comments (15)

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  1. Barry Carol says:

    Singapore is a small country with a very different culture. For one thing, they, like the Japanese, are more accepting of authority than we are. Do you really think the U.S. population and culture would accept a benevolent dictator like Lee Kwan Yew? I don’t.

    As for mandatory savings accounts, low wage workers would never accumulate anywhere near as much money as middle income and high income workers and they would be less able to afford the deductible that comes with a catastrophic insurance plan. Also, what happens to those who get sick early in their adult years or are involved in a catastrophic accident? How are children covered and who pays for their insurance? Maybe the feds should insure all the kids like Germany does. Who decides how the savings accounts are invested and what happens if the market crashes like in 2008 cutting account balances in half or worse?

    The only way I could see a scheme like mandatory savings working would be if it starts with young people just entering the workforce and gives older workers the option but not the obligation to choose it over what they have now. Should they be able to change their mind and go back to the prior system if they’re not happy with the new arrangement? I would say no.

    • Devon Herrick says:

      Barry I agree it would have to start with young people. The same is true of retirement accounts. In 2008 the market fell but has recovered nicely. Young people who are forced to save 10% would have a HSA to use towards their deductibles. The poor could receive a subsidy.

      It’s not perfect, but Singapore spends maybe half what we do and is known for high quality health care. One thing is for sure: we know the present system is not working and cannot work much longer. We also know Americans will not tolerate the rationing of a true single-payer and that only leaves Medicare for All (soon turning into Medicaid for All.)
      As an economist I think our health care system would also benefit from hard choices. Increasing cost subsidies is like pouring gasoline on a fire to smoother it.

      • Barry Carol says:

        Devon — Japan spends half of what we do or less on healthcare also and they have one price schedule for the entire country. People live a long time there though I don’t know if that’s because of their healthcare system, in spite of it or independent of it. Patients are willing to wait several hours in the waiting rooms of the most popular doctors for their 3-5 minute visit. I don’t think that would work here either.

    • Well put. Because health policy is politicized, it is important to understand the effect of the country. One reason why I try to focus my international comparisons on Canada, Australia, and Germany is they are federal countries whose constitutions are, to some degree, modeled on the U.S. design.

    • Allan says:

      “The only way I could see a scheme like mandatory savings working would be if it starts with young people just entering the workforce”

      Any long term program we develop needs to start with young people. You supported the ACA and its artificially higher premium rates for the young (differing from your present views). It is this type of inconsistancy that voids many of your points that I otherwise would find quite valuable.

      • Ron Greiner says:

        Allan, Lee enrolled Medicare’s 1st tax-free MSA. Today, 65-years-old is young in a 21st Century lifespan. People who start saving tax-free at 65-years-old would have a mountain-of-money in 30 years. Then if they die in their sleep that is cheap and the entire tax-free balance goes to the surviving wife who lives for another 20 years. These tax-free balances can grow very large with the proper investment.

        • Allan says:

          I know all about tax free MSA’s and helped place an advertisement in the Washington Times to push Congress to continue them.

          I wouldn’t oversell the value of an HSA though I believe it was one of the best programs developed in recent years.

          Are you still working? Where?

  2. Ron Greiner says:

    Devon, good post. Because I enrolled America’s 1st tax-free HSA in October 1996 when they were called tax-free MSAs let me help you out. IRAs and 401Ks are old taxed accounts. HSAs enjoy tax-free deposits, growth AND withdrawals – AMEN! Total tax FREEDOM. Everybody knows the best tax cut is NO TAXES, with a mutual fund option.

    Here is the truth. Smart HSA clients don’t take the money that is growing tax-free out of their HSA when they have $100 dental expense. Who in their right mind would spend the money that is growing tax free? They pay the expense with a normal VISA and not their tax-free HSA VISA because they have the FREEDOM to let their tax-free money grow, keep the receipt, which is called a qualified medical expense, and take the money out at any time in the future AFTER it has grown tax-free. I told you I had a client call me not long ago and he had $120,000 HSA balance and $40,000 in Qualified Medical Expenses.

    I’m sorry Devon but you are such a bad HSA salesperson you would drive 5 hours to enroll a lawyer then get a no sale. In the real world I didn’t have that luxury.

    Imagine how bad I felt in 2004 Devon when you wrote Golden Rule enrolled America’s 1st tax-free MSA. I called you immediately and you have never corrected that lie. If you read your story you talk about Golden Rule employees having an MSA before the law was passed. Excuse me but that is not a tax-free HSA but instead an ordinary taxed savings account. How could you possibly think that is the 1st tax-free MSA? I’m sure you remember talking to me because I asked you who you had your health insurance with and you told me Blue Cross was the NCPA’s employer-based health insurance company. Then I said, “Devon, you are not that smart because if you get too sick to work you will lose your health insurance, correct?” Remember our 1st conversation Devon?

    Golden Rule took forever to get their MSA product to the street, December 1996. I know because I was waiting for them so that Tom Kanoyer, the head guy of 18,000 7-Eleven owners, could compare us against at least one other company. I got the sale there too.

    • Ron Greiner says:

      Devon, let me tell you about my meeting on the 34th floor of the 7-Eleven Tower in Dallas in 1996. Tom Kanoyer was the head guy over the 18,000 7-Eleven owners from coast to coast. I was showing him the state laws in the different states and picked Michigan as the example. I showed Tom that the MI law required the employee to pay 100% of the premium for low-cost personable, portable and permanent Individual Medical (IM) health insurance. I showed Tom the cost of a 30-year-old male in Detroit was $34 a month for the insurance. Tom was so smart he said, “Wait a second, are you saying that if the employee pays $34 a month the 7-Eleven owner can deposit $50 in his MSA at the bank? I said, “Exactly.” Tom said, “WOW, if the employee doesn’t take that deal we should fire him because we would have an IQ problem!”

      BUT – Tom pretended he knew something and said, “We are going to wait until there is another competitor with a product so we can due our due diligence.” I am a salesperson and I knew that was just a common stall. Tom loved the tax-free MSA.

      Golden Rule was slow to get their product out that is why I know Devon they were not the 1st to market the MSA like you wrote.

      So, next I went to Paris for a meeting and was staying at the Le Grand Hotel, where Biden spent $500,000 in one night, across from the Paris Opera and the 1st night we were told that the 1st tax-free MSAs were going through underwriting and we will know who enrolled the 1st one during that trip.

      • Ron Greiner says:

        Devon, so the next night was the “Formal Dinner” in the Old Paris Opera across the street. We have rented out the whole place. I’m taking a bath at the La Grand Hotel and my wife comes into the bathroom and says she smells smoke. So I get out and the room is filling up with smoke and she calls the front desk and tells them about the problem and they say they can’t understand her so she screams into the phone, “FIRE – FIRE – FIRE!” So they call the Fire Department and these Firemen are in our room trying to get my wife to leave as she is putting on her make up for the Formal Dinner at the Old Paris Opera across the street and she is not done yet and she wasn’t leaving until she was. I have pictures of Parisian Fire Fighters silhouetted on our balcony at the La Grand Hotel with the Old Paris Opera in the back ground.

        My wife finally got done getting ready and we went across the street to the Old Paris Opera and watched some Brits flown in to do “Phantom of the Opera”. These Brits were so happy because they don’t do operas anymore at the Old Paris Opera. After the opera we have the Formal Dinner and they treated us like royalty. Then they gave the award for the 1st MSA back in the states and they called out my name.

        I had 3 out of the first 5 tax-free MSAs in the United States. Number 2 was some guy from Oregon.

        So Devon you can imagine how I felt when you wrote the history of MSAs and said Golden Rule was the 1st to market. I knew you were some uninformed kid and that is why I immediately called you but you refused to correct your disinformation and still have not after all of these years.

  3. Lee Benham says:

    If Obamacare has taught us anything it has taught us that
    1.Insurance companies are not in the habit of loosing money.
    2.PHD’s don’t have the slightest idea of why people purchase health insurance.
    I sold the very first Medicare MSA in December of 2006. The company was unicare and the premium for the insured was $0 . Unicare deposited $1,250 into the insureds MSA on the first of every year and the insured has a $2500 deductible then 100% coverage. Sadly that plan only lasted 1 year. This one program could save Medicare as we know it if insurance companies would promote it and insureds were educated.
    The program helped slow the utilization. When the clients got the MSA funds they considered it their money. The clients did not want to go to the doctor unless they had to because they did not want to spend their MSA money. People like having funds grow tax free. When I explained to the client that they could leave their money in the MSA and just save the receipt and then withdrawal the funds at any time. The client fell in love with the MSA.

    • Ron Greiner says:

      Good job Lee. You are correct that the PHDs don’t have a clue about all of the different laws in the states. There is not one Republican politician that does either and not one can explain Republican health care reform. There is not one talking head on conservative talk radio that can carry on a conversation about Republican Reform including Rush Limbaugh or Hannity. Of course there isn’t one newspaper reporter in all of FAKE NEWS In America that can write a real story. America is in a sad state of affairs.

      My 1st tax-free MSA in Medicare was enrolled shortly after yours. I had a small business in Detroit as clients that owned a piano shop and I had all of the employees on HSAs and the mother was aging into Medicare. These folks had some bucks because one piano could cost $40,000 and they had about 30 of them in their show room. I never met the father before because he was older than his wife and on Medicare with no supplement so he would owe 20% of his cancer if he got sick. So I put him on the tax-free MSA plan that cost him nothing and now he had 100% coverage like your client plus the Federal government made his MSA deposit at the bank that he could use for medical, vision or dental expenses or let grow for future medical expenses. If I didn’t say, “This is similar to an IQ Test, don’t you agree?” — I should have.

  4. Bill Huber says:

    When I was young having health insurance and enough savings to pay for routine medical costs was a no brainer. Even as recently as 2008 my health insurance was affordable and I had a large enough emergency fund to cover the $3,000 deductible. Since then my health insurance premium has risen to the point where it is no longer affordable. In this brave new world of healthcare, I had to make a choice between a $10,000 savings account for medical costs or continue to pay for health insurance that continued to get more and more unaffordable. At some point, you have to make the decision. For a couple who had not filed an insurance claim since the 1990’s, the savings account was far more important to our financial peace of mind. For healthy people who live on a budget, a program like Medisave, expanded HSA’s, or just a plain old emergency fund is a good first step at improving your peace of mind. Maybe it will be the consumer who finally convinces health care providers to do a better job of controlling costs.

  5. Ron Greiner says:

    Just how out of touch with reality are medical providers? This just out. Reaction surveyed more than 1,600 acute care and ambulatory providers nationwide. The providers are part of Reaction’s network of more than 500,000 providers and were accessed through its web-based research solution.

    12 percent believe health savings accounts (tax-free HSA) will be part of the replacement law.

    You can’t make this stuff up.

  6. Ron Greiner says:

    I am getting ready to go to another Obamacare town hall with 95% Democrats hounding my Republican Congressman Gus. This just in:

    Bilirakis: “We will protect people with pre-existing conditions”
    Feb 17, 2017 Press Release

    Washington, D.C. – U.S. Representative Gus Bilirakis (FL-12), a member of the House Energy and Commerce Subcommittee on Health, announced he has co-sponsored legislation to ensure people with pre-existing conditions have access to the health care of their choosing. Within the plan to repeal and replace the Affordable Care Act, The Pre-Existing Conditions Protection Act prohibits insurers from denying access, limiting coverage, or raising premiums because someone is sick.

    “I heard a clear message from my constituents at recent town halls: people with pre-existing conditions need the peace of mind of knowing that they can get–and keep–health care,” said Bilirakis. “At events in Palm Harbor and New Port Richey, I listened to folks share personal stories about themselves and loved ones who were denied access to coverage because of a chronic illness. I made a promise to gather input from the people of Florida’s 12th District about the future of our nation’s health care, and I am keeping that promise with this legislation. We will protect those with pre-existing conditions and put in place a health care system that works for everybody.”

    Here is the bill that won’t pass, thank goodness. What a goofball!