When it comes to healthcare reform, health savings accounts (HSAs) are not a silver bullet. But they certainly help where politicians hinder. The trouble is most people don’t yet know what they are. When they learn, we may see an HSA tsunami.
Okay, wait. Please don’t confuse HSAs with those use-it-or-lose-it flexible spending accounts (FSAs) that have you shopping at Walgreens in December. HSAs are simple: They’re tax-protected saving accounts for healthcare. In the same way you contribute $X per month to a 401K, you contribute each month to your HSA. So, when you go to the doctor or pharmacist for out-of-pocket healthcare expenses, you pay from this account.
Record scratch. Out of pocket? Yes, I know. We’re not used to paying for healthcare directly. We’re used to paying small co-pays and getting basically whatever we want. Why buy bulk Prilosec-OTC at WalMart when we can get prescription Nexium for $20? Why price-shop for doctors when they all just charge $15 – the rest gets charged to the HMO? But if you want to know why insurance is getting so expensive, overconsumption is a big reason. All the costs you don’t pay at the doctor or pharmacy counter don’t disappear into the void, they affect premiums (which go up). Simply put: you’re paying more because others visit the doctor for a cold.
Consider car insurance: if you could ding Geico for oil changes and tune-ups, do you think your premium will be as cheap? HSAs, coupled with high-deductible plans (HDHPs) or “catastrophic” insurance is actually more like real insurance, instead of prepaid healthcare.
Or think about joining a party at a restaurant where everyone decides to divide the cost evenly. Do you order the chicken or the filet mignon? You’d be foolish not to order the filet, and yet since everyone else reasons similarly, the tab is much higher than it would have been if everyone had paid solo. It’s the same with insurance. Who cares what a prescription actually costs if you’re only paying $20 every time? But when everyone thinks this way, our premiums go up and everyone has incentives to over-consume.
HSAs are great for helping us stop and think, because then, it’s our money. (With an HMO, when’s the last time you asked a doctor what his rates are?)
HSAs are also great because, when we’re healthy, instead of giving all of our healthcare dollars to the insurance company, we get to set aside money each month. This helps not only pay those out-of-pocket expenses, but cover any deductibles if we’re hurt, or build a healthcare nest egg for healthcare costs we’ll incur as seniors. Again, an HSA is like a 401K.
Lot’s of people are already using HSAs, so on the care-provider side, things will only get better. Because more people are becoming cost-conscious when it comes to healthcare, doctors and hospitals are going to have to become more competitive with both price and quality. The ones that aren’t willing to reach out to these healthcare shoppers are going to lose business. Period. Overall, the price of healthcare will go down. As more companies are seeing red ink from expensive HMOs and PPOs, they’re going to start adopting more HSAs for employees.
According to the Heartland Institute’s Dr. Sanjit Bagchi, “by the end of  20 percent of U.S. companies will be offering or planning to offer high-deductible health plans with HSAs, and almost 50 percent of the companies nationwide are considering offering them at a future date.” Forward-looking companies like Whole Foods already do. In other words, employers put money into employee accounts instead of sending it all to the HMO.
Of course, a lot of people may be scared off by the idea of a $1,500, even a $3,500, deductible. But most people, after only a year with an HSA, are itching to raise their deductible. That’s because as the deductible goes up, the premium goes down. They’ve built up enough in the account to cover it — with some left over. And if you leave your job, the HSA is portable.
So will this be the year of the HSA tsunami? With the costs of traditional insurance premiums going up, and catastrophic plans-plus-HSAs going down, it looks that way. As companies get in on the action, we may start to see tectonic shifts in the healthcare sector as providers scramble to accommodate this new consumer-driven wave. Adopting HSAs is just one way we can control costs and put patients back in control. But it’s not going to be enough. Government is going to have to allow individuals to pool risk, expand choice of insurance providers beyond state lines, and offer tax credits to the poor. Until the politicians get it together, it’s time for the private sector to do what it can. HSAs are a great start.