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Health Savings Accounts

By November 20, 2018Commentary

Health Savings Accounts are a method to allow consumers to have funds to pay for health care directly.  They can fix a fundamentally broken part of the market for medical services caused by the presence of third-party payers.  They should sensitize consumers to the fact that they are spending their money and should get value for it.  With the rise in high deductible plans and other forms of greater cost-sharing, these accounts also are a way for employers and consumers to provide protection against routine and unexpected medical spending.  These accounts have a tax-advantaged status.  A study from the Employee Benefits Research Institute examines the state of health savings accounts.   (EBRI Study)   EBRI has a database covering 5.9 million accounts.  These accounts alone had $13.4 billion in them, so health savings accounts have become an obvious target for money managers.   The average contribution to an HSA, from companies and individuals, rose from $2348 in 2011 to $2843 in 2017.  This average is less than half the maximum that could be contributed.  66% of account holders took money out of their account in 2017, with an average distribution of $1725, with the remainder of the average contribution being rolled over.  Only 5% of people had the money in the accounted invested; all the rest leave it in cash, suggesting that they are using the accounts solely to pay for current health care costs.  One encouraging sign is that account balances tend to increase with time, providing more of a cushion.  Accounts opened in 2007 had an average balance of $8384, and those in 2017 have a $1093 year-end average balance.  These longer-lived accounts are slightly more likely to have an investment other than just sitting in cash.  And those people who have had an account longer tend to contribute more; those who opened an HSA in 2007 contributed an average $3201, but for those who started in 2017, the average was only $1240.  Longer-aged account holders also tended to take larger distributions, possibly implying that the accounts were covering more of their health expenses.

Personally, if we could manage the transition, I think health savings accounts are a far better approach to meeting health system issues that is some massive plan like Medicare for All.  If every person had an account with $2000 a year contributed from birth, and invested conservatively, over that person’s lifetime they could cover most of their health expenses and would be much more accountable consumers.  For truly large, catastrophic health needs, a government backstop could be in place that pays an episode payment that providers bid for.  Worth exploring.

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