We all like no-cost or next-to-no-cost health benefits. Those who work for employers that provide health coverage want it to stay that way, and those who don't want to find employers that do. But doesn't it seem odd that most people are not involved in deciding what they'll spend on their own health care?
Employers don't shop for our groceries or clothing. They don't provide auto or life insurance as a tax-free benefit. Why health insurance? And might the fact that individuals are removed from the true costs of their own decisions account for some of today's rising health-care costs?
After all, when something is seemingly free, we're more likely to use it and less likely to worry about its cost. The fact the boss picks up the health-care tab may mean less take-home pay, but you have to see something to miss it. Only employers worry about rising health costs because only employers are on the hook for them.
It wasn't always so.
In fact, employer-based health care only dates to World War II. Facing wartime wage and price controls, employers were searching for ways to keep good workers. Their answer was to offer them health insurance as a tax-free fringe. Before this, only a fraction of the working population carried health insurance. They paid cash for medical care.
Six decades later, employers are buckling under health-insurance costs that rose 7 percent last year and tripled over the past two decades. They're trimming coverage (increasing co-pays and deductibles) when they're not ending it altogether. They're also moving toward health savings accounts -- tripling participation in HSAs to 3 million last year
Health savings plans include two components. One is a low-premium, high-deductible health insurance policy that protects against catastrophic medical care. Premiums for an individual average $112 a month -- far below the cost for employer-sponsored plans. They're lower because of the high deductibles -- at least $1,050 annual deductibles for individuals or $2,100 for families.
The other component is a tax-free pool of cash for routine health-care costs. Individuals and/or employers can contribute up to $2,600 for individuals and $5,150 for families. Withdrawals can go for out-of-pocket health-care expenses, including deductibles and co-pays. Unused funds can be rolled over from one year to the next. In the process, patients become price-conscious consumers.
For employers, HSAs tied to low-premium, high-deductible insurance can help them move to defined-contribution rather than defined-benefit health-care plans, thus controlling costs. Their workers can choose from plans that meet their needs. For the uninsured, the low-premium policies tied to HSAs makes them easier to afford.
But there's still a problem. Workers whose employers don't offer insurance and the unemployed now must buy coverage with after-tax dollars. That means they'll pay up to 50 percent more for the same policy.
President Bush wants to level the playing field in several ways. He proposes to allow individuals who buy high-deductible insurance tied to HSAs to deduct premium costs from their income and payroll taxes. In addition, contributions to HSAs would be exempt from payroll taxes. To help low-income workers, Bush calls for a refundable tax credit for purchasers of HSA-compatible health plans. Beyond all this, he proposes changes that would allow all participants to take these plans with them when they move from job to job and state to state.
"It's good as far as it goes. Bush is getting the incentives right. But it doesn't go far enough," says the Heritage Foundation's Robert Moffit. He'd prefer Bush's tax changes were not targeted to HSAs but were neutral with respect to the type of health-care coverage individuals choose to buy in the marketplace -- health maintenance organizations, preferred provider groups or standard fee-for-service plans.
No, health savings plans aren't the be-all and end-all of health-care reform. They aren't even the be-all and end-all of Bush's recent health-care proposals. But his tax-advantaged HSAs do offer an achievable health-care reform that has the capacity to expand coverage to the uninsured and cut systemwide costs by getting individuals -- cost-conscious consumers -- back into the health-care game.
