The HSA Model For Health Care Reform

The HSA Model For Health Care Reform

I've previously given arguments why the private insurance industry is not worth preserving and how nationalized health care would boost the economy. But even if legislation passes, there's a justifiable fear that health care reform will fail -- by making too many compromises, or by escalating costs even further.

There's a lot we can do to control the costs, and it doesn't take a congressional commission. The blueprint already exists, many employers have tried it, and it works. It's the Health Savings Account, a medical savings account linked to a high-deductible medical policy. John Mackey, CEO of Whole Foods, cited them in a Wall Street Journal op-ed among private enterprise alternatives to "ObamaCare".

Mackey was pilloried by the left, including some angry customers, but he had a point. Premiums for policies linked to HSA's cost businesses a lot less. They also reward consumers for assuming more of their initial costs, while providing a backstop against catastrophic medical expenses.

My main disagreement with Mackey is that he sees HSA's and government health care as opposing choices. That's a false distinction. Part of the HSA's advantage is that your medical savings account is tax-deductible. Unlike an IRA, though, you don't pay taxes on it later. An HSA is inherently a government-funded program, whether or not Mackey admits it.

Tax deductions for private savings accounts are a kind of soft paternalism. Instead of mandating which insurance policy to buy, government is encouraging a particular choice by subsidizing you when you choose that option. It's not government control, but government is definitely influencing demand and decisions in the market.

Now, if government is offering tax deductions to incentivize HSA's, why shouldn't it take further steps to spur their adoption? The obvious problem to address is the portability of the medical insurance linked to an HSA account. People would be more likely to choose an HSA if they knew that they could maintain eligibility for their current insurance, through any changes in employment. Without this guarantee, HSA's are at best a small hedge against future medical costs. If you lose your insurance, a single hospital stay could wipe out your HSA account. Why save if even diligent saving won't do you much good?

A good national health care plan would couple incentives for HSA's with high-deductible medical insurance that is guaranteed renewable. The latter will never happen if insurance industry lobbyists have their way. And that's why government has to step in and set the terms, including the so-called "public option".

HSA's and high-deductible accounts on a massive scale would be sustainable, unlike Medicare. Your policy wouldn't pay for everything. But it would be there to limit your risk and keep you -- and your country -- from going broke.

This post was originally published on my other blog,