Love Bush's Medicare? Wait for HSAs!

[jpn of Seattle]

A PRE-STATE OF THE UNION PRIMER. Another day, another detailed preview of George W. Bush's State of the Union health care proposals. This morning's iteration comes from the LA Times’ Peter Gosselin, one of the best social policy reporters in the country. But even the best reporters are hamstrung and hogtied by demands for objectivity and spacial constraints, so though Gosselin's tour through the proposals is sure-footed and clearly-written, it doesn't offer much in the way of context or analysis. So we'll do that here.
Setting aside the miscellanea of medical malpractice and various portability tweaks, Bush's major proposals encourage the spread of Health Savings Accounts and render most out-of-pocket spending tax deductible (attentive news junkies will note the dissonance with the November recommendations of Bush's tax commission, which sought to limit health care deductions). This is a rethink of the entire health care system: no more risk pooling; instead, you sock away cash in tax-advantaged accounts, spending it only when you get sick. So no (or very low) premiums. But when you fall ill, there'll be no insurance company defraying the costs, not until you've spent $10,000 or so.

The idea here is simple. Conservatives believe Americans have too much health insurance, that they spend heedlessly and wastefully on care, procedures, and medications they would simply forego if insurance plans didn't pick up the tab. Ergo, HSA's, which end risk pooling, forcing care to come directly from pockets. Newly responsible for their medical bills, consumers will be spurred by the Magic of the Market to make smarter decisions, show more prudence, lead healthier lifestyles, smile more often, and smell springtime fresh. It's gonna be awesome.

At least if you're healthy. Because what HSA's really do is separate the young from the old, the well from the sick. Currently, insurance operates off of the concept of risk pooling. Since health costs tend to be unpredictable and illness isn't thought a moral failing, we all pay a bit more than we expect to use in order to subsidize those who end up needing much more than they ever thought possible. The well subsidize the sick, the young subsidize the old, and we all accept the arrangement because one day we will be old, and one day we will be sick, and no one wants to shoulder that alone.

But HSA's slice right through this intergenerational, redistributionist arrangement: they're a great deal for young, healthy folks because they don't force subsidization. Just don't get sick. And if you're already sick, don't think you can hide by remaining in traditional insurance plans: when the healthy rush towards HSA's, older plans will hold only the ill, and insurance companies will send premiums skyrocketing to recoup the difference.

Thankfully, when you're old, sick, poor, and bitter, schadenfreude will keep you warm. Eventually all those young bucks who left you for their HSA's will get sick, and when they do, it's all coming out of their pocket. And if, like most Americans, they're not terribly good savers and their HSA only has a couple thousand (or hundred) in it, it's all coming out of their bank accounts. Currently, more than half of all bankruptcies are due to medical costs. Post-HSA's, expect that number to rocket upwards. Lucky thing, then, that the financial industry, along with a compliant Congress, just made it harder and costlier to declare bankruptcy.

HSA's, also, will not solve, halt, or slow medical spending in this country. Health costs follows the 80/20 rule: 80 percent of the money goes towards 20 percent of the people. A healthy person spends virtually nothing in a year, but a cancer patient or car crash victim will lay down hundreds of thousands of dollars. And since each HSA is coupled with a high-deductible insurance policy, none of that care will be skipped; the patients will just be bankrupted en route to the limit.

Nor will HSA's cut down on unnecessary care. A famous RAND study looked into usage of these plans and found that patients did indeed use a bit less care, but they had no way to separate necessary care from unnecessary care. So instead of foregoing useless procedures, they simply neglected their hypertension (for example). Long-term, that means more strokes and heart attacks, which in turn cost the system orders of magnitude more than blood pressure medications and regular check-ups. Save a penny today, pay a pound tomorrow.

But that's not to say HSA's are useless. They're not. What they achieve is massive, large-scale cost-shifting, generally from employer to employee. Where businesses used to pay for insurance (and thus for treatment), now they'll simply help employees found HSA's and let them pay their own health costs. And that's really what this push is about. Businesses don't like paying for health care. The Bush administration, as always, heard and heeded the corporate complaints, and is set to propose a policy agenda that'll help employers wiggle out of insurance costs. But someone, always, is left holding the bag, and if businesses let go of it, their employees will have to pick up the slack. For the lucky, healthy ones, the changeover won't affect them much; it may even leave them better off, at least for awhile. But for the old or the ill (all of us, eventually), costs will skyrocket.

Bush wants to bring about the end of risk pooling, the end of health security. The question voters will have to ask is if they think their lives, and bank accounts, need a massive infusion of instability.

--Ezra Klein

What's the slogan? "Bush Health Savings Accounts! Because the Bush Medicare Drug Bill is Working Out So Well!"

[Laughing Gas]

Worst. President. Ever.