The Bride of HSAs

As part of his new health care proposal, Congressman Mark Green is pushing Health Opportunity Accounts (HOAs) for Medicaid recipients in Wisconsin.

HOAs are a relatively new addition to the so-called "consumer driven" approach to health care reform, which has been trumpeted by the GOP and the insurance industry alike in recent years.

HOAs operate very much like stand-alone Health Savings Accounts (HSAs), except they are specifically designed for Medicaid recipients.

The way it works is that Medicaid recipients are given a deductible to pay for services before their Medicaid coverage kicks in. In order to cover the cost of this deductible, the Medicaid recipients have a HOA that holds funds tax-free, just like the HSA does for a traditional high deductible plan.

A pilot program for HOAs was approved by the GOP-controlled Congress in December 2005 (not a single Dem in the House or the Senate voted for it) and is set to go into effect on January 1, 2007. Ten states will be allowed to participate in the pilot program. It seems Green wants Wisconsin to be one of those ten states.

This isn't good news for many of the nearly 650,000 Wisconsinites who rely on Medicaid or Wisconsin taxpayers.

There are two big kickers with the HOA plan, both stemming from the fact that, like stand-alone HSAs, HOAs are better for healthier and wealthier people and worse for sicker and poorer people.

First, as it's currently written in the law, there's no requirement that states fund the HOA enough to cover the entire cost of the prescribed deductible. In fact, states are expressly required by the law to set the deductible amount somewhere between 100 percent and 110 percent of the amount that the HOA is funded.

In other words, if the HOA is funded at $5,000 per year, the annual deductible could be set at anywhere between that amount and $5,500. This means the recipient could need to pay up to $500 in out-of-pocket costs each year, also described as a "doughnut hole," before traditional Medicaid benefits would kick in.

For poor families, which is the predominant population group served by Medicaid, a large body of research -- most famously a RAND study published by Harvard's Joseph Newhouse -- demonstrates that out-of-pocket costs are the difference between getting health care and going without it.

GOP proponents argue that HOAs are voluntary; therefore, the poorest people on Medicaid don't need to choose to use them.

But it's this point that leads to the second big kicker, which is that HOAs would actually make Medicaid more expensive. Once recipients become ineligible for Medicaid, rather than forfeit the entire amount left in their HSA, federal law allows them to keep 75 percent of it for a variety of purposes specified by the state.

As the Center on Budget and Policy Priorities notes, "These costs will mount if the healthiest Medicaid beneficiaries elect to participate in the demonstration project while sicker beneficiaries decline to participate because of the large deductible and the 'doughnut hole.' Because the healthiest individuals may need little health care, they often would have large balances remaining in their accounts when they left the program."

So not only do HOAs provide incentive for healthier and wealthier people to enroll, that incentive leads to higher costs for the program as a whole.

What's more, administrative costs for managing the HOA for recipients, eligible and ineligible, are paid by the public.

According to the nonpartisan Congressional Budget Office, the HOA pilot project will add $261 million over the next decade to the total federal Medicaid bill (see here, page 36), and costs will continue to increase if more states decide to provide HOAs after the pilot period.

Additionally, since Medicaid works on a matching system, this means it's likely the Medicaid costs incurred by the State of Wisconsin would increase under the HOA plan, as well.

In fact, according to the Journal Sentinel today, the WI Department of Health and Family Services considered HOAs when it devised the BadgerCare Plus expansion proposed by Governor Doyle, but it dropped the idea after deciding it would likely cost more to administer HOAs than simply consolidating the three state health care programs, which is at the heart of the Doyle plan.

In the end, it's clear HOAs are just another half-baked GOP scheme -- alongside stand-alone HSAs and privatizing Social Security -- to shift public money into private accounts to give the impression that it's making the system more efficient, when in fact it's doing the opposite.

But, then again, actually addressing the growing health care crisis in Wisconsin wasn't really a goal of Green's health care proposal, anyway. The goal was simply to get some talking points out on paper to use to muddy the waters at the gubernatorial debate in two weeks, part of which will focus on health care reform.

All Green needs to do now is throw out the traditional GOP talking points on health care -- including stand-alone HSAs, medical malpractice caps (which already exist in Wisconsin, but Green wants to make them stricter despite a state Supreme Court decision that deemed such caps unconstitutional), and now HOAs -- to make it seem like he's focused on the problem.

Most voters won't look into what the proposals actually mean for Wisconsin, they'll just be satisfied that both candidates have considered the issue and have a plan to address it. Any difference is just a difference of opinion, not necessarily right or wrong.

It's really no wonder scandals, even fictional ones, get so much play during election season. In addition to their sensationalism, they're about the only thing in election politics that doesn't make easy fodder for relativism.