The Case for Health Savings Accounts

At Forbes, Dean Zarras makes a strong case for moving away from comprehensive health insurance and toward health savings accounts:

Only Health Savings Accounts distinguish the "care" from the "insurance". They are different issues, and they require different solutions.

To demonstrate the difference, say you currently have a traditional "family plan" through your employer that costs the employer $12,000 a year. Your employer is very generous, and pays for all of it. You see whatever doctors you want, and make "co-payments" of $25 per doctor visit. Beyond that, it's basically all you can eat — the buffet line starts to your left.

With a Health Savings Account, your employer still spends $12,000 a year (in actuality, probably less).   But they take $5,000 of the $12,000 and put it into an account with your name on it. The money is now legally yours.  It's a form of compensation.  With the remaining $7,000, they buy a "High Deductible Health Plan", whose deductible just happens to be $5,000. The HDHP covers you in full for any unlikely tragedy that should it occur, would be financially devastating.

When you go for your physical, since it's a non-risk, near-certain probability event, you pay for the physical with a plastic card linked to your HSA. Here's the kicker:  since that $5,000 is your money, whatever balance you have at the end of the year is yours to keep. Note that this is distinctly different from "Flexible Spending Accounts" that many people have, which have a "use it or lose it" aspect to them (thus making them the local eyeglass store's best friend in December).

Next year, your employer deposits another $5,000 into the account and the process repeats. Over time, the balance in the HSA account can grow, and it's yours to keep if you change employers.  

In broad terms, Zarras is talking about moving toward consumer-driven health plans which couple HSAs with high-deductible health insurance. Experts are still studying the effects of those plans, but the evidence we have strongly suggests that they provide what traditional health insurance does not: lower overall cost, increased use of preventive care, and equal health outcomes. As I've noted before, a metastudy of high-quality research into consumer-drive plans conducted by the American Academy of Actuaries indicates that such plans result in big cost savings the first year after switching to a CDHP, and (though the evidence is less conclusive) smaller savings in years after that. That's a real achievement. The vast majority of the time you hear talk about "reducing health costs," what you're really hearing about are proposals designed to reduce the projected growth in health spending. Consumer-driven plans seem to result in real savings—and without sacrificing quality of care.