Throwing Employees to the Wolves
Republicans in the legislature are gearing up for an attempt at overriding some recent vetoes by Governor Doyle.
Among the bills is one to make Health Savings Accounts (HSAs) deductible from state income tax (AB 4). Senator Alberta Darling (R-River Hills) has put out a press release urging an override of this bill, which she cosponsored. And the special interest behemoth Wisconsin Manufacturers and Commerce has also joined the push to override the veto and make HSAs tax-exempt in the state.
I've written before why HSAs alone are a bad idea. There are two main issues with health care: 1) cost and 2) the uninsured. HSAs concentrate on cost, but they're not about reducing cost -- they're intended to shift costs.
By making HSAs tax-exempt it allows employers to push them onto employees by claiming they're a tax-free way to save for health care. This is a problem for a couple reasons.
One, it increases the use of high-deductible, low-premium health plans because employers can argue that the HSA is intended to help the employee pay for the higher deductible. Since employers typically pay for the majority of the premium while employees pay for the deductible, HSAs serve employers well. But the actual cost of the care is not being reduced; rather, it's just being shifted to the deductible and, hence, the employee.
Two, HSAs encourage people to "shop around" for their care. The Bush administration and other Republicans tout this as a benefit because people will be able to seek out the best deal for their HSA buck. However, when you're in need of health care is not the best time to be a consumer. If consumers choose not to buy an iPod because they don't want to shell out the money, for instance, all they're out is a portable music player. People who are sick, on the other hand, don't have the option not to receive good health care, unless they want their sickness to not get any better or potentially lead to something worse. In a time when the US is already far behind on instituting proactive health care measures, adding second-guessing to the system in terms of whether to get medical aide is not desirable.
Admittedly, health care costs are becoming a significant burden for employers and if nothing is done they will simply stop providing it for employees. Yet, employees aren't in any better position to handle the rising costs of health care -- in fact, they're position is arguably much worse.
And the alternative to HSAs does not need to be nothing.
Comprehensive health care reform is the only way to effectively deal with the issue of cost. I've written before on that topic numerous times (here, here, here, here, and here), so I won't go into it much in this post. Suffice to say, the only way to effectively reduce costs is to reduce the number of payers in the system.
And once overall costs are reduced, HSAs could actually be a useful tool. Under the comprehensive health care proposal made by Sen. Russ Decker (D-Schofield) and Rep. Terry Musser (R-Black River Falls) last month, for example, recipients would be responsible for an annual deductible of $600 for families or $300 for individuals. An HSA could be set-up to allow recipients to bank money the previous year to pay for their health care deductible the subsequent year.
As long as costs are controlled and, subsequently, recipients stand a chance at being able to afford directly paying for all necessary care, HSAs can be useful tools.
Without reducing costs first, however, instituting the widespread use of HSAs amounts to nothing more than throwing employees to the wolves.
UPDATE: The override vote for AB 4 failed in the Assembly today. The vote was 61-36.
Among the bills is one to make Health Savings Accounts (HSAs) deductible from state income tax (AB 4). Senator Alberta Darling (R-River Hills) has put out a press release urging an override of this bill, which she cosponsored. And the special interest behemoth Wisconsin Manufacturers and Commerce has also joined the push to override the veto and make HSAs tax-exempt in the state.
I've written before why HSAs alone are a bad idea. There are two main issues with health care: 1) cost and 2) the uninsured. HSAs concentrate on cost, but they're not about reducing cost -- they're intended to shift costs.
By making HSAs tax-exempt it allows employers to push them onto employees by claiming they're a tax-free way to save for health care. This is a problem for a couple reasons.
One, it increases the use of high-deductible, low-premium health plans because employers can argue that the HSA is intended to help the employee pay for the higher deductible. Since employers typically pay for the majority of the premium while employees pay for the deductible, HSAs serve employers well. But the actual cost of the care is not being reduced; rather, it's just being shifted to the deductible and, hence, the employee.
Two, HSAs encourage people to "shop around" for their care. The Bush administration and other Republicans tout this as a benefit because people will be able to seek out the best deal for their HSA buck. However, when you're in need of health care is not the best time to be a consumer. If consumers choose not to buy an iPod because they don't want to shell out the money, for instance, all they're out is a portable music player. People who are sick, on the other hand, don't have the option not to receive good health care, unless they want their sickness to not get any better or potentially lead to something worse. In a time when the US is already far behind on instituting proactive health care measures, adding second-guessing to the system in terms of whether to get medical aide is not desirable.
Admittedly, health care costs are becoming a significant burden for employers and if nothing is done they will simply stop providing it for employees. Yet, employees aren't in any better position to handle the rising costs of health care -- in fact, they're position is arguably much worse.
And the alternative to HSAs does not need to be nothing.
Comprehensive health care reform is the only way to effectively deal with the issue of cost. I've written before on that topic numerous times (here, here, here, here, and here), so I won't go into it much in this post. Suffice to say, the only way to effectively reduce costs is to reduce the number of payers in the system.
And once overall costs are reduced, HSAs could actually be a useful tool. Under the comprehensive health care proposal made by Sen. Russ Decker (D-Schofield) and Rep. Terry Musser (R-Black River Falls) last month, for example, recipients would be responsible for an annual deductible of $600 for families or $300 for individuals. An HSA could be set-up to allow recipients to bank money the previous year to pay for their health care deductible the subsequent year.
As long as costs are controlled and, subsequently, recipients stand a chance at being able to afford directly paying for all necessary care, HSAs can be useful tools.
Without reducing costs first, however, instituting the widespread use of HSAs amounts to nothing more than throwing employees to the wolves.
UPDATE: The override vote for AB 4 failed in the Assembly today. The vote was 61-36.
posted by Seth Zlotocha at Wednesday, May 31, 2006
5 Comments:
The only way to reduce healthcare costs is to remove the profits while educating the consumer and holding them accountable. A single payer system will assist in the process, but unless combined with reduced profits and education, all we will have is a second generation medicare system.
Thanks for your comment.
A single-payer would effectively reduce costs in two ways: 1) administratively, as there would be less paperwork with only one payer, and 2) increase the bargaining power of the recipients by putting them under one negotiating umbrella.
A Medicare-for-all system would be cheaper, mostly because administrative costs under Medicare are less (3%) than administrative costs in our current multiple payer system (30%).
However, I'm not sure how practical a Medicare-for-all program is in terms of gaining enough political support for passage. In the end, I think a public-private hybrid system like France is the best way to go.
Is this Seth, as in Adam's brother?
- Tracy (from Texas...)
Tracy,
Yes, this is Adam's brother. Good to hear from you again. I hope all is going well.
Sherman,
If single-payer isn't less expensive, then how do you explain that a countries that employ the system have costs per capita that are half of what the US spends, while providing universal coverage to citizens?
By simply cutting administrative costs alone -- which account for close to 1/3 of our health care expenditures, according to a study in the New England Journal of Medicine -- the cost of our health care system would decrease significantly.
I've written before about a column in the Wall Street Journal by a doctor who runs a private practice in Illinois. Right now he employs 4 administrative employees just to keep up with claims from the over 300 health plans his practice handles. He feels he could get down to one administrative employee under single-payer, not to mention the savings from not needing to purchase and maintain a complex database system to track the various payers. That administrative cost savings is very real and significant under single-payer.
Plus, under the health care plan proposed by Russ Decker and Terry Musser (which is single-payer), public officials and private employers alike have noted the savings they would reap. According to Fond du Lac County Executive Allen Buechel, the county would save $3.5 million in health care expenditures under the plan.
And, in terms of the private sector, the HR manager for Graphic Packaging International Inc. estimates the company would save nearly $3 million per year in health care costs under the Decker/Musser plan -- and that's just at the company's Wausau plant (it also has a facility in Menasha).
Conservatives frequently push the false notion that single-payer would reduce the quality of care, which is simply not true -- or, at least, it doesn't need to be. Long wait times for non-emergency care in places like Canada and the UK happen because of attempts at rock-bottom costs, but we don't need to do it that way in the US.
As of 2004, the US spent $5,267 per capita on health care, while Canada, France, and the UK spent on average $2,609. If we could just split the difference with those countries, putting us around $4000 per capita (which could be done by cutting administrative costs alone), while providing universal coverage to citizens it would help immensely. And by keeping our costs still slightly higher, we could avert troubles such as long wait times and also ensure that enough money stays in the system to stay on the cutting edge of technological developments.
Single payer systems typically achieve lower per capita expenditures by reducing access to some medical services.
This would be a far more believable line if access to medical services wasn't already withheld at a higher rate in the US (mostly by insurance companies refusing to pay for it, people being underinsured, and others being uninsured) than countries with universal care. If costs are kept down by refusing services, our system should be the cheapest in the world.
I agree the problem is complex -- I certainly didn't set out in this post or others to draw out a comprehensive and detailed plan (that's what the experts are for, and many have certainly taken the step to actually outline a specific plan -- the Decker/Musser plan is just one of them, and it took years to develop). Nevertheless, the basic idea for health care reform I'm laying out holds -- if administrative costs are reduced and the negotiating power of recipients is increased, overall cost is reduced.
A rep for Aurora health care -- the biggest provider in Wisconsin -- had a key quote. When speaking to a rep at the insurance company WPS, the Aurora rep said: "You need us more than we need you." In our current system with hundreds of payers and only a handful of providers, that's completely true. There's currently very little bargaining power for recipients -- providers have all the leverage.
There's a reason Medicare recipients get a discount of over 60% on health care costs while private insurance companies only get around 23% -- the more people you have in your plan, the more bargaining power you have for those people. (For discount figures, see here, page 8.)
Of course, the goal should not be to suck providers dry -- after all, as you point out, there's a need for health care to be lucrative if we want to keep it technologically and medically viable. But what we can strive for is evening out the cost of care across the board so that employers aren't getting left behind with private insurance companies that can only get them a 23% discount while the government (through Medicare and Medicaid) rakes it discounts of over 60%. There's a happy medium for everyone in there somewhere, and in the process we can simplify the system to reduce the administrative overhead.
The problem is complex, which is why we need to think big about our solutions. Tinkering around the edges with gimmicks like HSAs and reducing medical malpractice awards will get us nowhere at best and lead us down a detrimental road of delusion at worst.
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