Health savings accounts not likely cost cures

Little incentive to cut expenses for those who spend least, most: study

By Kristen Gerencher, MarketWatch, July 17, 2006

SAN FRANCISCO (MarketWatch) -- Health savings accounts and the high-deductible health plans with which they're paired can reduce cost-sharing for enrollees who spend the most and least on health care, but increase it for those who fall in the middle, according to a study.

HSAs also aren't likely to hold down spending as hoped, according to a study published in the July 11 issue of Health Affairs.

Health savings accounts were introduced in 2004 by the same law that created the Medicare prescription drug benefit. They're comprised of a high-deductible health plan with a savings account attached, which consumers can fund with pretax dollars and use to pay for their out-of-pocket health expenses.

A small number of very sick people spend the most on health care, said the study's co-author Dahlia Remler, an associate professor at Baruch College's School of Public Affairs at the City University of New York.

HSAs cut such people's financial exposure by imposing what are in many cases lower out-of-pocket maximums than those found in traditional comprehensive plans, Remler said. That enhances HSAs' insurance value and may reduce the amount of spending subject to cost-sharing.

But such a benefit comes with a tradeoff, she said, in that HSAs won't have enough "bite" to hold down medical costs.

"They're not living up to their reputation of really putting more skin in the game, of having people spend more of their own money," Remler said.

The study found the 7% of people who are responsible for half of all medical spending would see no change or a lower level of cost-sharing with an HSA and high-deductible plan. But cost-sharing would rise for those whose out-of-pocket health spending is between $700 and $6,100.

"The idea was that these cost-conscious consumers would exert market discipline," Remler said. "Our main point is that as things are envisioned now, not that large a share of the expenditure will be subject to those forces."

"Both for people at the lowest and highest levels of spending, they will actually have fewer financial incentives ... not to get care or to look for cheaper care."

Minimum deductibles for HSA-eligible plans this year are $1,050 for individuals and $2,100 for families, according to the IRS. Out-of-pocket spending can't exceed $5,250 for a self-only HSA, and the maximum for families is $10,500.

About 3 million Americans were enrolled in HSA-eligible plans as of January, according to America's Health Insurance Plans (AHIP,) a trade group of health insurers in Washington.

Calibrating risk

Increased tax subsidies for HSAs further reduce cost-sharing for the lowest spenders, Remler said. Many people already have cost-sharing with traditional, comprehensive plans anyway, she said. About 30% of people in the analysis saw both their marginal and average cost-sharing go up.

"The point in terms of spending is not so much the number of people but the number of dollars," she said. "The dollars are with the people who are much more seriously ill. A substantial number of people will see their cost-sharing go up, but those people don't represent a substantial amount of money."

One way to reduce spending would be to add more "bite" to HSAs, either by increasing cost-sharing or by adding more coinsurance. But that would put consumers at more financial risk, which can only go so far, she said.

"The more you move away from insurance funding and towards out-of-pocket funding whether in an HSA or not, the more you undermine the value of the insurance, the less you're protecting the people who get unlucky and have kidney failure or cancer or whatever."

As a result, expectations of cost savings from HSAs may be overblown, Remler said.

"You shouldn't really be selling this as something that's likely to be transformative in terms of total medical expenditures," she said. "You can expect modest effects at most."