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Health Savings Accounts and High-Deductible Health Plans: Why They Won't Cure What Ails U.S. Health Care

Executive Summary

Thank you, Mr. Chairman, for this invitation to testify on health savings accounts (HSAs). The Committee is to be commended for focusing attention on the manifold problems confronting the U.S. health care system: steady growth in the number of uninsured Americans, rising health care costs and insurance premiums, wide variation in the quality and cost of care, and inefficiencies in care delivery and administration.

Some maintain that HSAs, coupled with high-deductible health plans (HDHPs), are an important part of the solution to our health system's cost, quality, and insurance problems. Asking families to pay more out-of-pocket, the reasoning goes, will create more prudent consumers of health care, driving down cost growth and improving the quality of care as providers compete for patients. And the tax incentives associated with HSAs will lure previously uninsured people into the individual market, reducing the numbers of families without health insurance.

But while it is comforting to believe that such a simple idea could help solve our health care problems, nearly all evidence gathered to date about HSAs and HDHPs points to the contrary. Indeed, there is evidence that encouraging people to join such health plans will exacerbate some of the very maladies that undermine our health care system's ability to perform at its highest level.

Many Americans Are Already Burdened by High Health Care Costs

  • Americans already pay far more out-of-pocket for their health care than residents of other industrialized countries, and real per capita out-of-pocket spending has been steadily rising since the late 1990s.
  • The Commonwealth Fund Biennial Health Insurance Survey found that in 2005, 60 percent of working-age adults with private insurance with annual household incomes of under $40,000 spent 5 percent or more of their income on out-of-pocket expenses and premiums, and 40 percent spent 10 percent or more.
  • There is considerable evidence that high out-of-pocket costs lead patients to decide against getting the health care they need. The Commonwealth Fund Biennial Survey found that 44 percent of privately insured adults with deductibles of $1,000 or more avoided getting necessary health care or prescriptions because of the cost, compared with 25 percent of adults with deductibles under $500.
  • There is also evidence that rising cost exposure leads people to accumulate medical debt, take on credit card debt, and reduce their savings. The Commonwealth Fund survey found that 40 percent of privately insured adults with deductibles of $1,000 or more had problems paying medical bills or had accumulated medical debt, compared with 23 percent of adults with deductibles under $500.

Early Experience with HSA-Eligible HDHPs Reveals Low Satisfaction, High Out-of-Pocket Costs, and Cost-Related Access Problems

  • The EBRI/Commonwealth Fund Consumerism in Health Care Survey found in 2005 that people enrolled in HSA-eligible HDHPs were much less satisfied with many aspects of their health care than adults in more comprehensive plans.
  • People in these plans allocate substantial amounts of income to their health care, especially those who have poorer health or lower incomes.
  • Adults in HDHPs are far more likely to delay or avoid getting needed care, or to skip medications, because of the cost. Problems are particularly pronounced among those with poorer health or lower incomes.
  • Few Americans in any health plan have the information they need to make decisions. Just 12 to 16 percent of insured adults have information from their health plan about the quality or cost of care provided by their doctors and hospitals.

Patients' Use of Information Alone Is Not Likely to Dramatically Reduce Health Care Costs or Improve Quality

  • It is unrealistic to expect that patient financial incentives, even if better information is available, will lead to dramatic improvements in quality and efficiency.
  • Most health care costs are incurred by people who are very ill, often in emergencies. Ten percent of the sickest patients account for about 70 percent of all health care spending.
  • Payers, federal and state governments, accrediting organizations, and professional societies are much better positioned to insist on high quality and efficiency.

HSAs Will Not Solve Our Uninsured Problem

  • Economists Sherry Glied and Dahlia Remler estimate that under current law, fewer than 1 million currently uninsured Americans are expected to gain coverage as a result of HSAs. This is primarily because 71 percent of the uninsured are in a 10-percent-or-lower income tax bracket—and thus would benefit little from the tax savings associated with HSAs.

The Individual Insurance Market Is Not an Efficient or Equitable Solution to the Uninsured Problem

  • The Commonwealth Fund Biennial Health Insurance Survey found that nearly 90 percent of adults who sought coverage in the individual insurance market in the last three years never ended up buying a plan.
  • One-third (34%) of those who sought individual market insurance said they found it very difficult or impossible to find a plan with the coverage they needed.
  • Nearly three of five (58%) adults who sought individual market insurance found it very difficult or impossible to find a plan they could afford. The problem was particularly acute among people with health problems or low incomes.
  • About one-fifth (21%) of adults who had ever sought coverage in the individual market were turned down by an insurance carrier, charged a higher price, or had a specific health problem excluded from their coverage.
  • The individual market is also inefficient: the administrative costs of individual coverage consume an estimated 25 to 40 percent of each premium dollar, compared with 10 percent for group coverage.

What Needs to Be Done
We as a nation should focus on more promising strategies for expanding coverage, improving affordability, and improving quality and efficiency. These strategies include:

  • Expanding group insurance coverage, with costs shared among individuals, employers, and government. This could be done by expanding employer-based coverage, eliminating Medicare's two-year waiting period for coverage of the disabled, letting older adults "buy in" to Medicare, and building on Medicaid and the State Children's Health Insurance Program (SCHIP) to cover greater numbers of low-income families, young adults, and single adults.
  • Ensuring affordable coverage for families by placing limits on family premium and out-of-pocket costs as a percentage of income (e.g., 5% of income for low-income families).
  • Greater transparency with regard to provider quality and the total costs of care.
  • Pay-for-performance incentives to reward health care providers that deliver high quality and high efficiency.
  • Development of "value networks" of high performing providers under Medicare, Medicaid, and private insurance.
  • Better management of high-cost care and chronic health conditions.
  • Improved access to primary care and preventive services.
  • Investment in health information technology to facilitate the transfer of information among patients, providers, and payers.

Publication Details



S. R. Collins, Health Savings Accounts and High-Deductible Health Plans: Why They Won't Cure What Ails U.S. Health Care, Invited Testimony, Committee on Finance, Subcommittee on Health, United States Senate Hearing on "Health Savings Accounts," September 26, 2006