Health savings accounts essential to build a vibrant healthcare system
© Getty

On Monday, Republicans released their much-anticipated replacement proposal, The American Healthcare Act (AHCA). The alternative to the Affordable Care Act has the potential to actually make healthcare more affordable for Americans. The goal of the legislation is to get to a market that functions efficiently without the need for excessive regulation in both the individual and employer markets. One of the key provisions of the bill is the expansion of health savings accounts (HSA).

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Although HSAs have been around since 2003, and are standard in health insurance discussions, they are underutilized and underappreciated. Expanding and encouraging widespread HSA use has the potential to transform the way care is consumed and health insurance is used.The AHCA doubles HSA account contribution limits, allows catch-up coverage, and expands the definition of qualified medical expenses. This will be the key mechanism for reforming the current system.

 

In broad terms, the only way to get to an efficient market is to decrease regulation and to foster competition.

Health insurance regulations and other third-party payment mechanisms greatly distort the ability of healthcare markets to function like other sectors of the economy. The idea that consumers need to give control of decisions and payment over to health insurance companies to get quality care is simply not true. There are no quick fixes or silver bullets, but congressional action to give consumers more control over their own healthcare dollars is a good place to start.

Health savings accounts do just that; they allow the consumer, not a regulator, to make healthcare choices. When people use their own money they automatically become more price conscious and are willing to shop around for doctors, labs and medications that offer the best product at the lowest cost. These accounts are popular: HSA enrollment increased from 3.2 million in 2006 to 20.2 million in 2016. This should be an area of common ground between politicians on the right and left.

The benefits of HSAs can be applied to the free market more broadly as well, though the often-used analogy of health insurance to car insurance has its faults. Cars are not valued in the same way people are, so car owners don’t respond to the same market pressures. When cars become financially inconvenient they are sold or discarded, but when people become sick, and therefore more expensive, more funds are rightly devoted to their care.

But one way this analogy can be used is to imagine what would happen if car insurance covered oil changes. Consumers would not shop around for the best deal because there would be no incentive for them to do so. Knowing customers lacked motivation to compare mechanics, auto shops would raise prices. To cover those costs, car insurance companies would raise premiums for everyone.

So it is with health insurance — third-party payers and lack of consumer control contribute to the high cost of care. Currently there is wide price variation between what different consumers pay hospitals and physicians, based on their individual insurance contracts.  Increasing and encouraging the use of HSAs will help to insert market pressures into our healthcare sector that will decrease costs and improve care.

One of the last regulations implemented under ObamaCare undermined HSA use, by making it impossible for HSAs to be compatible with some insurance plans sold on the health exchanges. The replacement plan does the opposite. It boosts consumer-driven and negotiated care and lessens the reliance on third-party payment for every health service, by encouraging insurance policies that pair HSAs with high-deductible health plans.

These types of plans protect against the financial burden of catastrophic events while allowing for the use of pre-tax dollars to pay for routine medical expenses. Consumers have insurance for relatively unlikely expensive events and maintain low premiums while using more of their own money to pay for many healthcare services.

Contrary to claims that free market forces can’t be applied to healthcare because life-threatening and emergency situations prevent people from comparing prices, emergency care makes up less than 2 percent of healthcare spending. In making most decisions, consumers can shop around for the best price and maintain a high-deductible plan for unexpected events.

Competition already exists in health sectors that offer elective procedures, and the results are encouraging. Many medical procedures that are not covered by insurance, such as Lasik eye surgery, have significantly decreased in price and increased in quality over time, and more Americans can afford to undergo cosmetic surgery procedures than ever before, despite having to pay out of pocket.

While HSAs help address the demand side of the market, the supply side — providing services to patients — also needs reform. Much work needs to be done to address the complicated regulations and inefficiencies of insurers, hospitals and other care networks, and much attention would need to be given to how people who cannot afford to contribute to an HSA would be covered. HSAs also do not incentivize those with chronic expensive conditions, who will quickly meet their yearly deductible, to be mindful of medical choices and costs.

The AHCA is a step in the right direction, because it brings the consumer back into the equation. Health savings accounts are an essential part of rebuilding our healthcare system into a vibrant, consumer-driven marketplace. Until the extremely inflated costs of healthcare are addressed, no real and meaningful healthcare reform is possible.

Juliana Darrow is a fellow in healthcare reform at the Colorado-based Millennial Policy Center. Her Twitter handle is @julianakdarrow.


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