Niki Kelly has a good article in the Fort Wayne Journal Gazette that I probably would’ve just added to my “News of Interest” widget on the sidebar, but Google Reader has switched to a “Google+” model and that feature is broken for the time being.
It discusses state employee health plans. Apparently the traditional plan has become cost prohibitive enough that most state employees have gone into a high deductible, Health Savings Account plan. I would suspect the ones who have remained on the traditional plan are those with known health issues in the family who know that paying for their known issues would be more expensive than paying the higher premiums. I would further suspect that this is creating a vicious cycle in the traditional plan where, with primarily high cost individuals in the plan, the premiums go up, forcing more less expensive policy holders out of the plan, leading to a more expensive average plan participat, leading to higher premiums, forcing more people out; etc.
I don’t know where the balance is. It seems fine to make people rethink when to go to the emergency room versus urgent care versus regular doctor’s hours and fine to have people consider using generics versus higher cost prescriptions. But, the HSA/high premium model goes much further; causing people to have to, essentially, gamble on their health in ways they can’t afford if they lose.
And, incidentally, these gambles probably increase overall health costs and public spending if we aren’t willing to let people who lose these gambles simply die without spending public money on them. If the public is the health care financer of last resort, paying only when the individual is wiped out and only for acute, crisis care; the public is going to pay a lot of money and the individual is going to have a miserable quality of life.
“…solitary, poor, nasty, brutish, and short.”
I don’t think HSAs are gambles at all. $5k a year isn’t going to make or break most government employees.
The thing that breaks you is $100k+ of unexpected medical bills. In that regard, HSAs are usually better because they pay 100% of expenses after the deductible rather than 20%.
Our house has to deal with chronic health issues, and while we tried an HSA before, PPOs make more sense at present. However, if they rise too much, we’ll go back to an HSA & not be pissed. Yes, our house will pay more than others for medical, and I’m OK with that. Other families have to pay more than ours for tutoring children with learning disabilities. Some have to pay a ton for rebuilding after the flood that hit Columbus in 2008 & drowned many homes that were not in a normal flood plain & didn’t have flood insurance.
We all have our own special needs that cause us to have to prioritize our expenses. I don’t think we need to be concerned with helping one type of those.
One HUGE downside to HSA’s is that they are not considered “creditable coverage” for transitioning into Medicare, at least for Part D and some of the supplemental coverages. Someone transitioning into retirement would pay a much higher premium for Medicare Parts that you have to pay extra for if they don’t have “creditable coverage” going in — they would have to pay a monthly percentage penalty for life that would also rise when the premiums rise, plus perhaps have to undergo underwriting that could exclude them from some coverages altogether. Employers are supposed to inform employees of this annually and when insurance options change so they know if their insurance is or is not “creditable” but I hear that some, especially smaller ones, don’t remember to fulfill this requirement. Now, if you are 64 or 65 you might have researched this and know it, but if you are younger and choose an HSA because it sounds better, you would likely not know to do this research and leave yourself subject to permanently escalating premium penalties when your income is fixed and limited. Not a good deal at all.
We’ve got a $7k deductible with a policy that carries a $6k premium. Where we’d run into problems is if someone got chronically ill such that we burned through the $7k per year — probably couldn’t assume that the $6k would hold steady if someone got sick. That’s $13k per year on health care. Median household income is something like $50k per year, I think.
We’re above the median, but I think we have fairly bare bones policy. (My philosophy about insurance is that it’s there to manage risk; it’s not a subscription service.) I don’t know that there are a lot of realistic options out there for median income households.
The total out of pocket exposure for me on a HDHP is less than the total out of pocket exposure on a PPO.
It requires the employee to properly manage their finances and care, but now that I have it it is major savings for me and since a HSA can be rolled over indefinitely and used for post-retirement healt costs it is also a nice vehicle for me to save for retirement.
I’m unfamiliar with this “creditable coverage” issue, Mary. Any idea what it means to a guy like me (small business owner – private insurance is the only real possibility)? I don’t know that we could even afford a low deductible plan in any event, so knowing might not make a practical difference, but now you have me wondering how going with a high deductible plan + HSA might come back to bite me in the future.
I looked in to that at one time doug and I think if you pair a HDHP and HSA with a drug plan it takes care of it.
However, I am of the opinion that long term, the powers that be will push everyone to HDHP with HSA style plans and the point will be moot.
My issue won’t apply to many, but here’s my problem with them: I am gay but fortunate that my hubby has a great employer who also covers me. We have to stick with a normal health insurance plan because even though I can be insured under my hubby I couldn’t use his HSA dollars because the IRS doesn’t count us as married. It’s tremendously tricky but like I said, it doesn’t really apply to many people. Fortunately, his employer is one that still provides excellent insurance, our premiums (for both of us combined) are about $3,000 per year for a traditional insurance plan with zero deductible and 100% coverage after co-pays. This insurance is one of the main reasons he is still at this job, it’s a real incentive.
Doug, I’m not an expert at all, researched it for my own use, but I’ll look at it to see what info I have and get back. I seem to remember that if your employer gives options you could switch back, assuming they can and do give the options and still do at the critical age, and you know, they only give you one chance per year to make a change. If all employees opted for the HSA, an employer would probably drop the PPO and then one would be out of luck. The penalties are stiff — 1% of premium for each month without creditable coverage — on whatever the premium is and grows to be. So, no c. c. for 2 years before retirement would equal a 24% penalty per month.
Not sure about individuals, will see what I find.
Jackson,
You are fortunate indeed. Employers cry about no loyalty anymore. Don’t you think a plan like this would give employees the incentive to go above and beyond? It should be looked on as an investment in your people. But, no, the bottom line is, for most, a number, not a quality.
There is absolutely no evidence that forgoing “preventative care” (say, not getting a yearly physical) has any negative health benefits.
In fact, the only double blind study done on the issue was the famous “Rand Study”, finding that preventative care does not lower costs or make you healthier.
High deductible health insurance is real insurance. Insurance should pay for things that are an actual threat to your finances. Most health insurance is just a tax dodge.
Following up on what Paddy said, I wish they had HSAs when I was starting my career. I’d have a huge nest egg by now (well, huge-er).
Not that I’ve done badly with HMOs, but HSAs are even better because of the savings vehicle.
Buzz (and maybe others) –
It’s “preventive” care, not “preventative.” Just a small difference, but I’m a stickler, since I was an English major and a writer. That said, I am not familiar with the study you cited, so can’t affirm or refute your claim. I don’t think the same can be said of dental care, though. In dental health, prevention is everything, or so it seems to me.
Sorry, I can’t spell. It is an awful affliction that has passed on to the next generation.
Thank goodness for Google spell check, or I’d be even worse than I already am.
I suppose that I agree about dental care prevention, but on the other hand, most dental work is cheap enough that you should be able to pay for it out of pocket.
There is evidence that, when people pay more out of pocket (for dentists, ophthalmologists, and plastic surgeons), health care inflation is not as virulent.
That said, I am not familiar with the study you cited, so can’t affirm or refute your claim.
Google “Rand Study” and start reading. I linked to wikipedia in the previous comment, but google has even more information on the study, including the study itself.
“High deductible health insurance is real insurance. Insurance should pay for things that are an actual threat to your finances. Most health insurance is just a tax dodge.”
Buzz, HSAs are an investment vehicle, not like regular insurance. You called yours a nest egg, although not as huge as you would like. That seems to me to be why they are not considered “creditable coverage”. What’s the tax situation for HSAs? Do they help avoid taxes in someway? I believe they do, as they are before-tax deductions. Clarify if you feel otherwise.
Mary, what I am getting at is that comprehensive health insurance paid for by employers is paid for with pre-tax dollars. You have every incentive to have that insurance pay for everything, whether you can afford to pay for it out of pocket or not, because it is untaxed money.
There are a couple of “tax loopholes” that “cost” the treasury billions of dollars and that I consider middle/ upper class welfare. The deductability of employer provided health insurance is one of the biggest.
I get your picture, but it doesn’t change anything for me. HSAs are savings/investment vehicles (they earn interest, can go up and down in value), you said it, you have got a “nest egg” that’s huge, but having HSAs earlier would have made it “huge-er”. This is fine by some, including you, just don’t say it’s fine for everyone. Your picture all about you is quite clear.
This is fine by some, including you, just don’t say it’s fine for everyone. Your picture all about you is quite clear.
But that’s not the point. The point is that comprehensive health insurance distorts markets because it takes the consumer out of the equation. Perhaps that is trivial when it comes to open heart surgery, but it is critical for most day to day health care decisions, most of which just about everyone not on Medicare can afford to pay out of pocket for, or save up for in a HSA.
If I were to have a “huge-er” nest egg because of an HSA, it would be sitting there in case I got sick. Perhaps if it got large enough, and if I get to retirement, perhaps the rules would allow the money to be used in retirement. That would be my dream system.
The deductibility of health insurance and HSA’s are grounded in good policy, but the policy just doesn’t go far enough.
The tax code is intended on providing for “vertical equity” and horizontal equity.” In short, these principles provide that people with different consumption amounts should be taxed differently (higher consumption = higher taxes). While health costs can be abused, the general idea is that these costs are not regular “consumption”. Therefore, the person that has a $60,000 gross income, but has $20,000 of expenses really has the same buying power as a person with $40,000 of gross income. Hence, the health deduction is fair.
To me, the problem isn’t that employer insurance plans are deductible, the problem is that this good idea doesn’t also apply to non-employer health insurance.
Also, the idea of maxing out a HSA and using it as an investment vehicle should/is probably only done as a last resort by the rare few that max out their 401k, max out their Roth (if applicable), and are just looking for additional tax shelters. Those people are pretty rare, and for the ones that exist, the maximum HSA contributions per year are low enough that it may not be worth all of that extra effort.
Paul it isn’t using an HSA as an investment vehicle of choice compared to the other vehicles you mentioned. It is making a choice to benefit from the investment vehicle properties of one health insurance choice versus another.
My family has decided that having health insurance is a good thing. I can either spend about $7,000 out of my pocket to get purchase a PPO style plan or I can spend about $1700 per year on a HDHP and deposit $4400 of my money in to a HSA along with a $1600 deposit from my employer.
In one case the $7000 is gone. I have spent that and no longer have access to it. In the second case only $1700 is gone and I have access to another $6000 if I need it. If I didn’t have an HSA I am not investing anything in any type of savings account or investment vehicle because I don’t have access to that money.
This isn’t a last resort decision it is a decision made possible because I have access to a HDHP and HSA.
Paddy: I understand what you are talking about, which is the use of a HSA and saving the premium difference from a PPO. I fully agree with your analysis, and do the same thing myself.
That part of my comment was a response to Mary’s comment, which I interepreted to reference the fact that HSA’s can buy/sell stock, bonds, etc. Looking back at my comment, I neglected to add that HSA’s are a great deal for those that are young, but it is true they may not be a good deal for older (and unhealthier) Americans. Still, the policy appears sound, you will generally save money with HSA’s when young and have good health, and you can then use those savings when old and have (typically) worse health. Sort of a built-in goodwill concept. I wish we thought of it 20 years ago.
While health costs can be abused, the general idea is that these costs are not regular “consumption”.
This is where you and I part ways (I agree with your comments otherwise).
Health care is no different than any other consumption. In fact, look at that Rand study again. The MAJORITY of health care spending provides no discernible benefit. In fact, much of it can be counterproductive.
As health care becomes a larger and larger part of the economy, more pressure is put on taxable sectors. That’s not fair, if nothing else. You want to know why manufacturing is being outsourced, well, it’s taxed and health care is not, that’s one big reason.
Finally, we need to think about peoples’ incentives. You should always tax things that people can’t live without, or are less likely to change their behavior in response to a tax. Health care is EXACTLY what should be taxed, because people are not going to try and live without it (unlike, say, luxury cars and boats, which we tried to tax back in the ’90s with disastrous results).
I hear you Buzz. Still, there are just too many situations where medical treatment is needed, and from a fairness standpoint (which to me, should be the #1 goal of tax theory) it seems unreasonable to tax A, who makes $50,000 despite a debilitating health condition that takes $5,000 a year to treat (idk, let’s say juv. onset diabetes) more than the person making $45,000 that won the genetic lottery and is in perfect health. With everything else staying constant, B has the slightly better life than A (more free time, less pain, etc.), and has more consumption.
Paul C.,
You are right. A few years ago, I went to the pharmacy with someone near to me and saw that the Rx costs, which that person cannot live without, would come to $5,000 A MONTH without insurance. This is a young, highly educated and gainfully employed person doing a valuable and productive job and making, at that time, $60,000 (has worked hard, advanced and makes more today). HSAs would never work in this case, you’d never get there. They may be for some, but they are not for all. The problem I see with them is they cherry-pick and drain or have the potential to drain, the pool of insureds, leaving behind the ones that have higher costs for serious illness. This starts premiums to go up as well, and they already have more co-pays and uncovered costs. But, some people do demonstrate the attitude, why should I care, and of course, they don’t.
But, some people do demonstrate the attitude, why should I care, and of course, they don’t.
Well, this would be a very teachable moment for a libertarian. Why do you get to decide for everyone? Instead of each person deciding for themselves whether they want to “donate” to the cause of your friend on that expensive medication?
You call it selfishness. A libertarian would deflect that and point out just how totalitarian you’re being.
I don’t get your first paragraph, but never mind explaining.
Your second, I do. I’m not calling it selfishness. We are all selfish from time to time. It’s lack of compassion. People should beg for help and pit themselves against others who also need help? I’m always incredulous when people suggest that the “churches” or neighbors or whomever will step right in and fill in the gap if only government or government regulations would be out of it. They know that would only happen for a very few.
“$5k a year isn’t going to make or break most government employees.” Really? What kind of salaries do you think “most government employees” make, Jason?
I made my comment assuming they were around $30k per year. Health care should be as much as a priority personally as food is. You can live off of $25k per year.
@Jason: How do you know what people can live off of? There are just way too many variables to make a blanket statement like, “You can live off of $25k per year.” Add in that 30k is more like 23k per year once taxes are taken out. Subtract the $5,000.00 for health care costs and we’re talking a net pay of something like $18,000.00 per year.
Ok, so if neither of us know what they can live off of, what is the point of this discussion? If they take the job, then they either can afford to live off of what the job pays or they’re making a stupid decision.
Do you suggest we pay them all $100k a year so they can have a great quality of life with cars, house, and 5 kids? How do you determine a price to pay for work outside a free market? I don’t know if they’re a single parent with 5 kids, and you don’t know if they’re married to a spouse making $150k a year with no kids.
This is why I think health care needs to quit being a employer-purchased thing. If we want to keep the tax break in there, allow the employer to give a stipend that can only be paid to health care on the employee’s behalf, but let them choose where. It makes for easier comparisons of jobs, and allows employees to understand what they’re paying for health care & what they’re being paid for their work.
With that system in place, I can say “Ok, company A wants to pay me $40,000, and they’ll pay $5,000 towards my health insurance. Company B will pay me $35,000, but they’ll pay $15,000 towards my health insurance.”
How can you not compare compensation packages now? Every time I look at jobs I always want to know about the compensation package details like retirement, health insurance and leave.
If you aren’t getting that info now, that is a “you” problem.
So, Jimmy, when your HR department switches plans (as they have done at every company I have worked for), what do you do then if you don’t like their decision? Leave the company, stay with insurance that might not cover the doctors you want, or give up the discounted insurance & buy your own?
Employer-based insurance is another way healthcare avoids the free market.
I don’t disagree with the uncoupling of health insurance from employment, but the question you have posed is different from scenario than you laid out in you original post.
I woul be more worried that my companies management is composed of dolts who can’t properly manage their health benefit if you are subject to such dramatic changes in one year.
I am sorry I can’t anticipate they wild argument changes that you will employ here….
Jimmy, I’ve been told more than once while interviewing that they can’t provide all of the health care info into after an offer has been made. You may have the freedom to shop around for other places to work if you get that response, but not everyone can.