The Universal Health Savings Account
Suppose you could make only one improvement in our health care system. What would it be? For me, the most valuable improvement we could make would be to create a universal health savings account (HSA).
Every individual (and his employer) would be able to deposit up to $200 in an HSA every month. This account would wrap around any third-party insurance, serving as a source of funds for whatever the insurer did not pay for. But there would be no requirement of third-party insurance. Employers would be encouraged to automatically enroll their employees in health savings (say $50 or $100 a month from the employee, matched by the employer) and, if a choice has to be made, these HSAs should be seen as preferable to third-party health insurance.
Not long ago, 60 Minutes highlighted a program that parachutes doctors into an area and provides free primary care. When the group set up shop over several days in Knoxville, Tennessee, people lined up early (some traveling 200 miles) to get mammograms, treatment for toothaches and other primary care. Sadly, the demand exceeded the capacity and many had to be turned away.
No one should ever fail to see a doctor because he lacks $100 to pay the fee. Ditto for other primary care. A RAND study found that after people enter the health care system, they tend to get the same care regardless of whether they have health insurance and regardless of the type of insurance they have.
But they first have to enter. No one should ever fail to enter the system because of a lack of money.
See today's Dallas Business Journal [here] for a closer look at the need for and benefits of Universal Health Savings Accounts. (gated access)
The challenge is do consumers understand when to spend their HSA dollars wisely and when they can safely avoid care? A GAO study found that people using HSAs the most were those with high income who are using HSAs to fund retirement as well as accountants and doctors. The former know the tax advantages and the latter know when and how to spend their dollars carefully when it comes to medical costs.
That’s why I wrote the book Stay Healthy, Live Longer, Spend Wisely – Making Intelligent Choices in America’s Healthcare System. Written in an easy to understand format, it helps people be educated healthcare consumers so they know how to navigate the healthcare system like an insider. Save money. Stay healthy. Read free book excerpts at http://www.davisliumd.com.
Davis Liu, M.D.
Author of Stay Healthy, Live Longer, Spend Wisely – Making Intelligent Choices in America’s Healthcare System.
http://www.davisliumd.com.
If the Universal Health Savings Account can be paired with a copay PPO plan with a low (relatively speaking) deductible, where is the incentive to change behavior? Isn’t that at least one piece of the pie, encouraging individuals to think twice before using unnecessary care?
Kaye Pyle
Group Benefits Consultant
Reply to Kay Pyle:
People would be free to combine the account with any plan they like. The key is: A completely flexible account frees insurers to produce products they cannot produce today. They could create different deductibles for different services — encouraging patients to exercise discretion where discretion is possible and desirable and discouraging discretion where discretion is not possible or not desirable.
They could impose positive copayments for some services and negative copayments (where the patient gets paid to do something) for others.
Bottom line: this proposal gets Congress out of the business of designing health insurance and leaves product design and prices to the marketplace.
Would this deposit be tax-deductible? If so, it’s great for me, less so for a cab driver.
My preference is for the Roth approach — use after tax dollars. Great for you (what are you driving these days? an Aston Martin?) and the cab driver.
With current gas prices, bicycle.
No requirement for insurance, you say?
Who then pays when you go to the hospital, like I did 3 years ago? My hospital bill was $75000 and my doctors charged another $10,000. An HSA won’t pay for this. The rest of us with insurance will pay.
P.S. Tell me where I’m wrong.
This is a completely different issue. I believe we should encourage catastrophic insurance, especially for people who can afford it.
Under McCain’s health proposal, for example, there is an implicit pay-or-play option: If people are willfully uninsured, they will pay $5,000 in taxes because of that fact. But they could instead apply that $5,000 to a catastrophic, private health plan.
This sounds a lot like my approach which, of course I favor. http://www.plan.bipartisanhealthplan.com. I have the government deposit money in the individual's HSA from birth to age 21; and mandate a modest amount be deposited from wages. Employers could deposit money in the employee's HSA as well has his/her dependent's HSA. I want the HSA tax favoritism to be phased out. Those in the plan would be motivated to be frugal in order to save the HSA for their old age, and, as they approach death, to pass what is left on to their estate … aka relatives. Folks would not be required to purchase catastrophic insurance, but most people would since it will be very inexpensive when they are young. If it is a lifetime policy then the premiums will also be affordable when they are older. Premiums cannot be increased due to health experience, but can be decreased. Premiums can be increased or decreased depending on lifestyle. etc.
Also, there would be a inflation-adjusted limit ~100-200K on the HSA so that it does not become a financial instrument.
The lifetime catastrophic policy could include any set of procedures, the mix of which could change with the advance of technology, but the lifetime maximum would have to be proportional to the value of the cumulative inflation-adjusted premiums.
We’re at the health crossroads–continue the same, go to single-payer, or return decisions to the consumer with HSAs. Yogi said when you come to a fork in the road, take it!
I have a book coming out called TWO DAYS which advocates the third option. Our only hope.
So long as we’re unburdening the account, we might as well take off the contribution and distribution restrictions. After all, we’re not writing law here.
Any American (yourself, your spouse, your employer, your golfing buddy, etc.) can contribute an unlimited amount of money into your universal HSA. The money gets Roth treatment if used for health care, and is taxed (plus 10% penalty) if it’s not. At Medicare eligibility, the penalty goes away for non-medical distributions.
Qualified distributions should include insurance premiums, long-term care insurance, and other things currently disallowed under the IRC (like cosmetic surgery). Universal HSA dollars could be used to purchase an integrated Medicare Advantage plan, MSA or not. Inheritability would be under current HSA rules.
Legacy HSA dollars wouldn’t be affected, since they get Roth treatment on the back end, anyway.
Based on our 10 year experience providing universal coverage to our approx 30 employees and their families, WITHOUT premium cost to the employee, my improvement would be to create an “experience modifier”( ala workers comp “insurance”) for small groups ( less than 50 here in Texas), to reward those that implement cost saving programs like the ones the NCPA advocates, and those that we practice here at FabEnCo. We would then see REAL competition for those groups, bringing costs WAY down…. similar to the savings we have experienced.
David LaCook, CEO FabEnCo, Inc.
“The Safety Gate Company” Winner 2006 US
Chamber of Commerce Small Business Blue Ribbon Award
John,
I wish you the best, this will take us a long way. If I could make one improvement I would eliminate all tax deals. Alas we must first have Armageddon to get rid of our Soviet Taxation System. Today’s brand of Central Planner sits on Ways and Means and puffs up certain in his omniscient claim to create better incentives for a just or efficient America.
-Steve
John, you are a sad case. May I suggst you review TV program. People do NOT recieve same treatment regardless of type of insurance or without insurance. Think about pre-approved test for lung-prostrate, brain cancer. without authorization, they recieve NO testing or care…
Keep it real
Easy solution to cost from a guy on the front lines…KISS principle applies:
eg: Age determined prices
0-20 $750/year 21-34 $1200/year 35-59 $1,500/year >60 $1,800/yearCigarettes cost ~$4-5/pack ($1,800/year), health costs…?
BTW, I started a new consulting firm, One To One Doctor Consulting…www.121drconsulting.com
After comparing other models as President of SIMPD and doing this for so long, I realized I can transition Docs in 1 day to my model. Then, they don’t make all the silly mistakes I did for the first three years.
I am currently taking an Advanced Health Policy Class, and I am having a difficult time convincing my liberal class that this is a happy medium that absolutely combines universal health and free market system. I strongly believe that market forces trumps all other delivery method, and instead of putting a kibosh on it, America should utilize the long history of capitalism that made the country a leading nation.
I grew up in Singapore, and they have the perfect combination of mandatory HSA coupled with low-premium, high-deductible insurance plan. They are the medical hub in southeast Asia, offering cutting edge high quality healthcare based on the free market. Their medical tourism is growing exponentially, and they have one of the lowest healthcare dollars per capita in the world. Moreover, their initial motive was not even to control spending, but to boost their citizens’ independence from the government. I have been doing comparative research on the country and it is absolutely enlightening. What a great success!!
Mr. Goodman, I read the paper that you published in 1995, and I would very much like to get your opinion on current HSA laws, and how we can advocate and convince others that this is the solution.
Looking forward to hear from you.
I’ve always believed we need to pool our family’s own medical costs over our working lives. A Universal Health Account would provide this opportunity. What happens now is people join arbitrary risk pools where the young are expected to subsidize those near retirement. Giving people an incentive to maintain their health (or pay more of their costs when they don’t) might create better incentives.
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