Increasing Healthcare Savings Accounts will not significantly help reduce healthcare prices

Speaker Paul Ryan has mentioned that one of the primary Republican plans to stimulate price competition among providers is for more of the People to establish Healthcare Savings Accounts (HSAs).  Speaker Ryan argues that, in doing so, the People would have “skin-in-the-game” and would be more frugal in seeking lower cost care.

I believe there are two major problems with this idea.

First, if a significant share of the People cannot afford the premiums or the deductibles, how can they afford to contribute to (and let money accumulate in) a Healthcare Savings Account?  The answer is, “They can’t.”  A significant share of the People would, at best, have to substantially reduce (if not eliminate) savings for college educations and/or retirement.  For those with even tighter household budgets, sacrificing necessities would be required to save in HSAs.  Anticipating savings in HSAs to the extent needed to make a meaningful difference in lowering healthcare prices is not realistic.

Second, medical conditions and diseases do not discriminate based on financial means.  They affect the wealthy, the middle class, and the poor alike.  The problem with healthcare costs resides in the fact that so few of the people (5%) account for half (50%) of this nation’s healthcare spending[1], including the most expensive forms of care specifically for catastrophic or chronic conditions or diseases.  Any amount set aside in HSAs would represent a small fraction of the price tag and would have little effect on stimulating price shopping activities for needed expensive services.

As I explained in more detail in my healthcare article, “Concentrate more on cutting the size of the healthcare pie . . .”, this nation’s hospitals, drug companies, and specialists apparently charge twice the amount for their services in the U.S. than anywhere else in the world.  Transparency of simplified and binding prices (by procedure) from all care providers is the only way to reduce the price of the most expensive procedures in the U.S.  Only with full knowledge of per-procedure pricing and with health plan incentives to find lower-cost providers, will consumers price shop for healthcare services.  Pricing transparency, that consumers can understand, will force care providers to compete for patients by keeping prices in line.  This price competition could extend beyond our national borders and stimulate increased “medical tourism” if prices in the U.S. remain out of line with the rest of the civilized world.


[1]      Source: Kaiser Family Foundation 2014 analysis of Medical Expenditure Panel Survey, Agency for Healthcare Research and Quality, U.S. Department of Health and Human Services.


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