Health Savings Accounts Unlikely To Significantly Reduce Health Care Spending
End Notes
[1] The Joint Committee on Taxation estimates the cost of the Administration’s HSA proposals at $108 billion over 10 years. For an analysis of these proposals, see Jason Furman, “Expansion in HSA Tax Breaks Is Larger — and More Problematic — Than Previously Understood,” Center on Budget and Policy Priorities, Revised February 7, 2006 and Jonathan Gruber, “The Cost and Coverage Impact of the President’s Health Insurance Budget Proposals,” Center on Budget and Policy Priorities, February 15, 2006.
[2] Alan C. Monheit, “Persistence in Health Expenditures in the Short Run: Prevalence and Consequences,” Medical Care 41, July 2003 Supplement, cited in Karen Davis, Michelle Doty and Alice Ho, “How High Is Too High? Implications of High-Deductible Health Plans,” The Commonwealth Fund, April 2005.
[3] Linda Blumberg and Leonard Burman, “Most Households’ Medical Expenses Exceed HSA Deductibles,” Tax Notes, August 16, 2004.
[4] Bob Lyke, Chris Peterson and Neela Ranade, “Health Savings Accounts,” Congressional Research Service, Updated March 23, 2005.
[5] Beth Fuchs and Julia James, “Health Savings Accounts: The Fundamentals,” National Health Policy Forum, April 11, 2005.
[6] Blumberg and Burman, op cit.
[7] Davis, Doty and Ho, op cit.
[8] Watson Wyatt, “Financial Incentives Alone Unlikely to Curb Health Care Costs, Watson Wyatt Says,” April 24, 2006.
[9] Christine Borger, Sheila Smith, Christopher Truffer et al., “Health Spending Projections Through 2015: Changes on the Horizon,” Health Affairs, Web Exclusive, February 22, 2006.
[10] For example, a tax deduction is available for out-of-pocket medical costs in excess of 7.5 percent of adjusted gross income (AGI). In addition, if offered by a firm, an employee can contribute pre-tax dollars to a Flexible Spending Account to pay for out-of-pocket medical costs incurred during the year.
[11] For a list of allowable out-of-pocket medical expenses, see Internal Revenue Service, “Publication 502: Medical and Dental Expenses,” 2005.
[12] Blumberg and Burman, op cit.
[13] Kaiser Family Foundation, “Snapshots: Distribution of Out-of-Pocket Spending for Health Care Services,” May 2006, available at www.kff.org/insurance/snapshot/chcm050206oth.cfm
[14] Davis, Doty and Ho, op cit. The Commonwealth Fund analysis also notes that “studies tend to find underutilization of preventive and primary care services, while overutilization tends to occur with “big ticket” items such as surgery, imaging and diagnostic tests, end-of-life care, and specialty consultations,” all services whose costs exceed the minimum HSA deductibles.
[15] IRS guidance indicates that some prescription drugs may meet the preventive care definition such as cholesterol-lowering drugs taken by an individual without heart disease to prevent the future occurrence of heart disease (though it is unclear if any high-deductible health insurance plans do so), but the preventive care exemption does not encompass prescription drugs used to treat an existing illness, injury or condition. See Internal Revenue Service, “Internal Revenue Bulletin: 2004-33,” August 16, 2004.
[16] Gary Claxton, Jon Gabel, Isadora Gil et al., “What High-Deductible Plans Look Like: Findings from a National Survey of Employers, 2005,” Health Affairs, Web Exclusive, September 14, 2005.
[17] At the same time, the high deductibles would most likely be too low to significantly affect health care utilization of such services by higher-income individuals. See, for example, Martin Feldstein and Jonathan Gruber, “A Major Risk Approach to Health Insurance Reform,” Tax Policy and the Economy, James Poterba (ed.), Chicago: University of Chicago Press, 1995.
[18] According to CEA, “There were, however, some health benefits [from reduced cost-sharing and greater health spending] for select subpopulations of low-income and chronically ill individuals, suggesting that care should be taken not to expose lower-income families to excessively high cost-sharing relative to their income.” Council of Economic Advisers, “Economic Report of the President: 2006,” February 13, 2006, p.95.