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To: traviskicks

Conservatives have the right solution in HSAs but for the wrong reasons. The contemporaneous benefits that these accounts afford will be significant but they are exxagerated. Half of the US population consumes only 3% of all health care resources and 10% consumes something like half. The former would be more careful with their money once they have HSAs, but the impact will be negligible for the simple reason that they don't spend much to begin with. The latter will hit their catastrophic thresholds and the HSAs would have little or no impact.

HSAs are of contemporaneous value only in instances where individuals think that they will have little likelihood of hitting the insurance threshold but still spend enough that there are significant savings to be realized. These folks just aren't numerous enough to come anywere close to solving the health care crisis.

As Gary Becker points out on his blog, savings and insurance aren't the same thing: “People are interested in insuring against bad health because of uncertainty about the incidence of various diseases. Borrowing also offers insurance by redistributing spending over time, but borrowing is in most cases, and certainly in the health case, a very imperfect substitute for explicit insurance.”

The problem with Becker's thinking (and I point this out realizing that Becker is the best economist of the past few generations) is that the reasoning goes both ways, and the other way is more compelling:

1. Insurance is a horrible substitute for savings.
2. Both the level and the variation in health care spending are mostly life cycle related; and nearly all non-catastrophic care is life cycle related.

I wish I could make an accurate estimate, but I can make a guess that 80%+ of all non-catastrophic health care resources are spent on birth or advancing age. Thus, for example, three in ten hospital admissions in the US are for pregancy, childbirth, and newborns. These admissions are almost always ignored in studies/reports of health care, in no small part because they would swamp all other "diseases." If you think childbirth is inexpensive, note that about a quarter of deliveries are by C-section, which involves major surgery; and that as a nation we are making astonishing strides in neonatal intensive care -- at an astonishing cost. Newborns' costs are now as expensive on average as their mothers'. We tend not to realize this because a very small fraction of NICU patients run up very, very, very high bills while the vast majority of newborns are discharged with a bill < $1500.

One huge problem with health care financing in the US is that we use insurance in lieu of savings. Young people pay far more than is actuarily justified for their health insurance and in doing so "save;" and as they get older they pay far less and thereby "dis-save." But of course, because this arrangement isn't really savings at all, many young people opt out -- ending up with neither insurance nor savings.

The point of having health SAVINGS accounts is to disentangle insurance from savings. The catastrophic component is a hedge against adverse health outcomes; the HSA is a vehicle for smoothing life cycle variations in spending. This is EXACTLY the right way to go. There isn't space to elaborate here, but once we have HSAs all sorts of other financial benefits will be ensue over time.

Now that I've fixed health care financing, would anyone be interested in knowing that health care is a fixed cost business? Managed care has failed because it works exclusively on variable costs, when in fact the expenses are astonishingly fixed and sunk.

20 posted on 04/14/2006 11:57:21 AM PDT by drellberg
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To: drellberg

hmm.... well I can agree with the jist of what your saying. Perhaps what is needed is a combination of HSAs and insurance. Meaning that people can, if they so choose, purchase catastrophic insurance that will cover expenses greater than 100K. Then, for the little stuff, the vast majority of expenses that they go through in life, they will have their HSA.

This will help bring down costs and market competition for at least a portion of the health care system.

Also, as they age, their HSA nest egg will build so they may choose to raise the limit on the type of catastrophic health insurance they want - to a 500K limit or something.

Of course, I do not suggest that government attempt to construct such a system - merely that it get out of the way and let people fashion it themselves as they so choose.

21 posted on 04/14/2006 12:20:05 PM PDT by traviskicks (
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