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Study: HSAs Can Help the Uninsured

The first academic research on Health Savings Accounts (HSAs) has just been published in the November/December issue of Health Affairs, a publication respected by many within the health policy establishment who often have been naysayers regarding the potential of consumer-directed health care and HSAs.

Until recently, much of the data available on HSAs have come from individual carriers, conservative think tanks, and trade associations. HSA skeptics have doubted their figures--that between 33 percent and 40 percent of those purchasing HSAs were previously uninsured.

Widespread Acceptance

The Health Affairs report, "Health Savings Accounts: Early Estimates of National Take-Up," by Roger Feldman, Stephen T. Parente, Jean Abraham, Jon B. Christianson, and Ruth Taylor, reviews the relative merits and potential of various proposals to expand HSA affordability for the uninsured.

Even the most basic statements made by these University of Minnesota researchers are likely to make waves in certain circles.

For example, the authors find "widespread national adoption of individual HSA plans is possible" and "early indications are that they [HSAs] are a viable alternative to existing plans [traditional PPO and other lower deductible plans]."

The Minnesota team performed sophisticated forecasting simulations of the extent to which several different policy proposals--including President George W. Bush's health care tax credit for HSAs--would:

  • reduce the number of uninsured;
  • reach the low-income uninsured; and
  • cause people receiving employer-subsidized group coverage to drop it and move to the individual market (presumably for a better deal).

'Doughnut Hole' Looms

The study found a health care tax credit would lower the number of uninsured by 10 percent. Coauthor Feldman's baseline for the number of uninsured excluded those who had access to some form of coverage, including full-time college students, people enrolled in public health programs, and those who had the option to be covered though a spouse's policy. That brought the baseline number of uninsured to 27 million people. Under the president's health care tax credit, Feldman says in the report, 2.9 million people would gain coverage.

According to the study, even more people would be likely to obtain HSA coverage with a health care tax credit if the authors had assumed lower deductibles. For their simulations, they assumed a plan requiring a $3,500 deductible for a single person and a $7,000 deductible for a family. Those deductible amounts are far higher than what is required by current HSA law, which is $1,000 for a single and $2,500 for a family.

The president's health care tax credit does help people meet their deductible by making a contribution to their HSA account (as well as helping with their monthly premium costs). But that assistance is nowhere near enough to cover these assumed deductibles. That means there is a "doughnut hole"--a gap in coverage that must be met by the individual or family.

Under Feldman's assumptions, a single person would have $1,000 in his or her HSA account. But with a $3,500 deductible, he or she ends up with a $2,500 "doughnut hole." For families, the exposure is even greater, with $2,000 in an HSA account but a $7,000 deductible, producing a $5,000 hole to be filled with family resources.

Cost-Effectiveness of Tax Credit

Clearly, those numbers would give pause to many people, particularly when Americans are so used to modest deductibles and first-dollar coverage. For uninsured folks who have modest resources, those numbers are downright scary.

For an HSA health care tax credit to make a greater dent in the uninsured population, less out-of-pocket exposure would be needed. The authors affirm that in their article, even while noting the cost to taxpayers then increases as well.

At a cost to the government of $2,761 per year per person covered, the health care tax credit is one of the more cost-effective proposals Feldman and his coauthors studied. The study also found the health care tax credit proposal is the least disruptive to the group market, keeping Uncle Sam from subsidizing people who already have private coverage.

A health care tax credit would gain its take-up from those who most need it, the study found, with at least 40 percent of the newly covered coming from the bottom 25 percent of income brackets and a full 75 percent from the bottom half.

Government Role Increasing

Currently, Congress finds itself in tight budget constraints, but doing nothing won't save federal dollars, because taxpayers will end up footing the bill for the uninsured through federal programs that pay for uncompensated care at hospitals, as well as through higher Medicaid and SCHIP costs.

In just one year, from 2004 to 2005, the percentage of people covered by government health insurance programs rose from 26.6 percent to 27.2 percent. According to a November study by The Heritage Foundation, over the next five years the cost of Medicaid is projected to increase by 41 percent.

Hence it would be wise to divert some of that enormous build-up toward plans with greater effectiveness and lower cost, such as health care tax credits. According to Feldman's study, Congress could create a viable five-year health care tax credit demonstration program helping three million people per year that would cost $8 million a year, or $40 million for the five-year program.

"The academic community finally is coming around to see that HSAs, in conjunction with refundable tax credits, could dramatically reduce the number of uninsured," said Grace-Marie Turner, president of the Galen Institute. "It will be very hard for opponents of HSAs to ignore this study in the top health policy journal. This is an important breakthrough."

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