New York Times
February 4, 2006
The health care proposals put forth by President Bush in his State of the Union address this week will not make much of a dent in the two main problems plaguing the nation's health care system — the escalating costs and the growing legions of the uninsured. His proposals simply show where he and many conservatives want health care financing to go — toward a system where consumers will be expected to pay more of their care themselves, in the hope that they will therefore use medical services sparingly and shop for them more wisely.
Proponents believe this approach will wring unneeded expenditures out of the system, by lessening the likelihood that people will seek medical help for every minor ailment or by pushing people to visit a doctor's office rather than an expensive emergency room. But many low- and moderate-income people will most likely pass up care that they need until they become desperately sick and then encounter much higher costs down the line.
The president's key proposal calls for expanding the use of tax-free health savings accounts, where consumers who take out a high-deductible insurance policy can invest money in a tax-free savings account for routine medical expenses. The high-deductible policy would cost less than traditional comprehensive coverage, thus making insurance more affordable. Money spent from the savings accounts would escape taxation, thus providing a tax subsidy for all medical purchases.
Mr. Bush wants to make the accounts more attractive by increasing the amount that can be deposited in them and tweaking the tax advantages. The tax-free accounts have the virtue of making it possible for some low-income people and the companies that employ them to afford at least bare-bones insurance. Some coverage is clearly better than no coverage. But the accounts seem unlikely to attract more than a small portion of the 46 million people who lack health insurance.
Unsurprisingly, the accounts favor the healthy and wealthy at the expense of the poor and chronically sick. Those who are relatively well off get a bigger tax break and have more discretionary income to invest in an account and less need to withdraw money from the account, especially if they are healthy. Indeed, some informed estimates suggest that a substantial chunk of investors would never use the money for medical purposes but would instead treat the accounts as another tax-privileged retirement fund, like 401(k)'s.
Many people with low or moderate incomes, by contrast, would find it hard to deposit money in the accounts or allow any deposits to accumulate over the years. So far, the accounts seem to have attracted more interest from banks, which are salivating over the prospect of collecting management fees, and from health plans than they have from consumers, who have been slow to sign up for the accounts or to put money into them.
Health savings accounts are not apt to trim the nation's health expenditures by much because they do not attack the root causes of high medical costs, and they will have no effect on the relatively small percentage of high-cost patients who account for most of the nation's medical spending.
The great danger is that health savings accounts could accelerate the erosion of traditional employer-provided insurance, as companies try to reduce their health expenditures by shifting more of the costs onto workers. If the healthiest employees jump to tax-free accounts in large numbers, they will leave traditional health plans saddled with sicker and older employees, whose needs will force a rise in premiums, making comprehensive coverage even harder to sustain. These new accounts will need to be studied closely to make sure they do not cause more harm than good.