GAO: Bush's Health Savings Accounts help the rich, screw the sick

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http://www.cbpp.org/9-20-06health.htm

Many health and tax policy analysts have warned in recent years that HSAs are likely to be used extensively as tax shelters by high-income individuals. The Administration and other HSA proponents have rejected such concerns and argued that HSAs are not disproportionately used by high-income households.

Until recently, though, little or no solid data have been available to assess whether HSAs are — or are not — being used disproportionately by affluent individuals. The primary data available have been on enrollment in HSA-eligible high-deductible plans in the small, individual health insurance market, which is skewed toward people at low and moderate income levels who cannot get employer-based coverage. Such data shed little light on HSA use in employer-based insurance, where the vast bulk of Americans obtain their coverage.<1> Moreover, such data do not appropriately distinguish between individuals enrolled in a HSA-eligible plan who are merely qualified to establish a HSA and the more limited number of individuals who have actually opened and are using HSAs.<2>

Now, this has changed. An important GAO study issued earlier this month breaks new ground, by providing data from the Internal Revenue Service on who actually is using HSAs.<3> The IRS data cover all Americans who made HSA contributions in 2004, regardless of whether they had individual or employer-based coverage.<4> The GAO study also contains data, from three large employers who offer both HSA-eligible plans and traditional coverage, on how their employees have sorted themselves between HSA-eligible coverage and traditional insurance.

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In its concluding observations, the GAO warns that “when individuals are given a choice between HSA-eligible and traditional plans — as in the individual market and with employers offering multiple health plans — HSA-eligible plans may attract healthier individuals who use less health care or, as we found, higher-income individuals with the means to pay higher deductibles and the desire to accrue tax-free savings.”

The GAO has thus effectively added its voice to the voices of health policy experts who have warned that HSAs may result in adverse selection, with healthier and less-healthy people separating into different insurance arrangements. If adverse selection becomes widespread, it is likely to pose serious risks to those Americans who are in poorer-than-average health, since the higher health care costs they must incur will no longer be pooled with the lower costs of individuals who are healthy. An increase in the number of Americans with below-average health who are uninsured or underinsured — or who receive adequate health insurance only by failing to meet other basic needs — would not be a desirable outcome for the nation.