The myth of Health Savings Accounts — Laughing all the way to the bank?

“A different kind of health insurance that puts consumers in control” is the claim. We’re told that health savings accounts offer the best way to lower healthcare spending because we can shop around and the money in our HSA is our’s to spend however we feel best. Said to be the responsible alternative to mandatory insurance or universal healthcare, HSAs purportedly take health decisions away from insurance companies — (plagued by problems with conflicts of interests and health discrimination)— and give them back to us.

What we’re hearing are carefully crafted marketing messages.

Behind the scenes, insurance companies are vigorously promoting HSAs, just as they are mandatory insurance coverage or universal healthcare, because they know what the public doesn’t. They’ve got their bases covered...

The reality of HSAs is that they’ll make more money for insurers while giving consumers the illusion of free market choice. Calling them “consumer-driven” doesn’t make it so. And as uncomfortable as it is to consider, the health discrimination seen in today’s insurance plans — penalizing through higher premiums those with health indices or health problems that are mostly genetically determined — could be government-sanctioned on an even larger national scale.

Before being taking sides in the debate, it can be helpful to remember that there’s just as much misinformation and spin in the massaging for HSAs as there are in the alternative solutions being proposed to reform our healthcare system, such as mandatory insurance coverage or single-payer plans and universal healthcare. Sorting through the marketing means looking at minute details. Since HSAs haven't yet been examined, it’s only fair to take a look at them, too.

The insurance industry and government policy leaders held a summit last fall, called the National Consumer-Driven Healthcare Summit, to craft their massaging in order to “drown out detractors” who are noting that HSAs primarily benefit those who are young, healthy, male and wealthy. Core to their focus, it was determined, must be to promote consumerism. “The shift is going ...to a focus on consumerism, and it’s an important one,” stressed Beth Bierbower, a vice president at Humana.

For instance, HSA proponents often cite a Blue Cross Blue Shield insurance survey claiming that HSAs don’t disproportionately attract younger, healthier people. But what is rarely revealed to the public is that this was a survey of those with and without HSA just within the individual insurance market. As the Center on Budget and Policy Priorities pointed out in a February 16, 2006 white paper, those able to get individual coverage tend to be healthier and younger than those on employer-based plans; a fact that’s been confirmed in recent Government Accountability Office (GAO) reports.

John Stossel at ABC is the Michael Moore of HSAs and has worked hard to promote the free market, consumer choice angle. Last week, he took viewers to Whole Foods Market to example HSA success, portraying enrollees happy with their savings and their ability “to spend the money the way they want to spend it.” No one noticed that Whole Foods employees are primarily young, able-bodied healthy people.

Rather than go through a detailed critical review of the facts, pros and cons, behind HSAs — something which others have done in extensive detail — I want to note two of the biggest fallacies rarely discussed in mainstream media and reveal why insurers are so intent to sell us on HSAs.

The free market, limited government fallacy

It’s ironic that the biggest proponents of HSAs are free market, limited government groups. If the concern was really limited governmental interference into our lives and a free market system, then why is there a need for the government to decide how people can save and use their own money at all? A free market would simply let people spend their money as they chose without federal mandates.

Instead, HSAs add to a large governmental bureaucracy and create a more complicated tax structure, while actually not removing the insurance companies and government from managing how we can spend our money, how much we can save, where we can invest it, and manage our own medical care. Here’s why.

In order to have a federally-approved HSA, you must also have a “high deductible health plan” (HDHP) through a health insurance company. When you put your money into your HSA, it is tax deferred and the amounts you spend are tax-free. But... the money can only be spent on certain approved medical expenses as allowed under the health plan. Not only where your money is invested, but the amounts you can set aside for medical expenses and the deductibles are also determined by the government. According to UnitedHealth Group’s HSA:

If you use your HSA funds for anything other than a qualified health care expense as defined in IRS Publication 502, the amount withdrawn is subject to both income tax and a 10 percent penalty, unless you are over age 65. If you are 65 or older, the amount you withdraw for non-medical purposes is treated as retirement income, and is subject to normal income tax, but not subject to the 10 percent penalty.

The list of fully covered expenses doesn’t include many of the expenses in managing chronic illnesses, Dr. Bill Wright, associate medical director for Kaiser Permanente told the Rocky Mountain News on June 17, 2006. Colorado is the number one market for United Healthcare’s HSA plans, it reported, because it’s a state with a lot of healthy upscale and young people.

What money that enrollees don’t spend on approved medical expenses each year is able to stay in their accounts and grow tax-free interest. Clearly, those with health problems and higher medical expenses won’t enjoy any tax savings benefits. HSA proponents claim that this is a good thing because it encourages healthy behaviors and gives people incentives to do the ‘right’ things to stay healthy. But as we know, such insurance incentives are discriminatory, as most diseases and accidents aren’t in our control, and penalize those with certain genetics, physical attributes or are aging.

HSAs are the only savings accounts that feature both tax-deductible contributions and tax-free withdrawals. They offer unprecedented tax-sheltering opportunities for those making enough money to be able to set aside thousands of dollars at the beginning of each year. Those in high deductible plans are already more likely to be single males, younger and healthier on average, and to earn more than people enrolled in other plans, according to a January 2006 study by the Government Accountability Office. It found 43% of those in HDHPs earned at least $75,000, nearly twice as much as other government employees.

As the Center on Budget and Policy Priorities reported:

There can be no question that the tax benefits of HSAs are tilted toward high-income households and would be tilted still more strongly under the Administration’s HSA proposals. High-income households benefit much more from HSA tax deductions than lower-income households because they are in higher tax brackets. Also, high-income households can afford to contribute much larger amounts to HSAs than people of more limited means. Moreover, for affluent [healthier] individuals who do not expect to incur significant health-care costs, HSAs provide unprecedented tax-sheltering opportunities: they are the only savings accounts that feature both tax-deductible deposits and tax-free withdrawals.

They found that HSAs simply encourage healthier and wealthier people to switch from their current coverage to these plans in order to take advantage of the tax shelters. New proposals to substantially increase allowable HSA contributions, they reported, will “exacerbate this disparity and enable affluent households to use HSAs as highly lucrative tax shelters, in which they could amass hundreds of thousands of dollars tax free.”

These concerns have been proving the reality and the professed success of HSAs appears overstated. The Wall Street Journal reported in June, 2006 that the numbers of people choosing HSAs through their employers was growing only slightly. And the San Francisco Business Times reported that only about a quarter of people who enroll in high-deductible plan ever fund their HSA and that many are signing up with these plans because they need the lower premiums but don’t have the money to open an HSA. Only the wealthiest can afford to take advantage of their tax shelter benefits.

The savings account fallacy

The insurance industry has lobbied hard for HSAs. Blue Cross Blue Shield, for example, is the nation’s largest health insurance provider for federal employees and retirees, covering about 60% of people in the Federal Employees Health Benefits Program. Its lobbying efforts were successful and the 2007 federal budget allowed them to add a high deductible plan with HSA for their federal plans.

Three things about HSAs are worth considering, but are never mentioned:

· Where is all of this HSA money going and who is going to manage all of it?

· How many consumers know that HSAs have been set up to only be available through government-approved companies and that the government has allowed them to charge monthly maintenance fees?

· And... how many people know that the major health insurance companies have gone into banking?

Blue Cross and Blue Shield has launched Blue Healthcare Bank to administer its plans, for example, and anticipates deposits of $500 million within the next three years. It followed in the footsteps of UnitedHealth Group, Inc., which launched its own financial institution called Exante Bank and already holds more than $300 million in HSA deposits. So, insurance companies will not only hold our money, but control access to it and how it’s spent.

Diamond Cluster International financial services optimistically predicted that HSAs will hold more than $75 billion in assets by 2010 and are expected to generate over $450 million every year just in set-up and management fees. As the Atlantic Information Services, Inc., HSA Directory and Resource Guide reported, the top ten HSAs had deposits, as of January of 2006, of $496.17 million. In just 18 months, those deposits had grown by more than a billion dollars to $1.518 billion.

Free market advocates soundly argue against governmental insurance mandates and for limited governmental rule... except when it comes to HSAs and profits?

© 2007 Sandy Szwarc