By Michelle Andrews
The New York Times
August 14, 2005

Health savings accounts, a sort of I.R.A. for health care, let people set aside money tax-free to pay for medical expenses, both now and later. But the accounts have been controversial since their introduction in January 2004.

Depending on whom you ask, they are either a wonderful tool to help Americans become wiser, more price-conscious health care consumers, or just another way for employers to pass along more health care expenses to their workers. Critics also contend that the accounts are basically a tax-shelter gimmick for people who are healthy and wealthy enough to invest in them but don’t have to rely on them to cover their care costs.

Most businesses have not yet offered the accounts as an option in their insurance plans. But as health costs continue to climb, some businesses and individuals are more curious to try the idea. Since they were established under the 2003 law that set up a prescription drug benefit for Medicare, more than 425,000 accounts have been established, according to a survey of administrators by Inside Consumer-Directed Care, a newsletter based in Washington, and more than 50,000 are being opened each month.

Nearly a year and a half into the experience, however, it is becoming clear that while the accounts may be a reasonable option for some people, there are potential drawbacks.

A health savings account must be paired with a health plan that meets certain criteria, including a deductible of at least $1,000 for individuals and $2,000 for families. Some employers offer them, although individuals can also apply for a qualifying health plan and open one of these accounts on their own.

Individuals can deposit money into their accounts to cover the deductible and other medical expenses, and employers can also deposit money for employees. Generally, the account balance earns interest, though some accounts allow holders to invest the money in mutual funds or other vehicles.

If an employee leaves his job, the money in his health savings account stays with him. And these accounts, unlike flexible spending arrangements, have no “use it or lose it” rule, so the funds roll over from one year to the next. An account holder pays no tax on withdrawn funds as long as they are used to pay for qualified medical expenses. If the money is used for any other expenses, it is subject to income tax and, for those under 65, to a 10 percent penalty.

Some people are discovering downsides to the accounts. Ric Joyner, president of the National Association of Professional Benefits Administrators, says he has received frequent calls from companies and individuals interested in setting up the accounts. But lately, Mr. Joyner, who is also president of eflexgroup.com, a benefits administration company in Madison, Wis., says he has been getting calls from people complaining that their account balances are shrinking even though they have not used the money.

“The money they’re setting aside for health care is being eaten up by fees,” he said.

Typically, the companies that administer the accounts charge a set-up fee of around $20, plus a monthly fee of about $2 or $3. They may also charge an annual fee, as well as a transaction fee every time a customer writes a check or uses the account’s debit card. Some charge a fee to close an account.

American Health Value, an administrator of health savings accounts, charges a one-time, $15 fee to open an account, and $36 annually to administer it. There is also a $2.50 monthly service charge, which is waived if the balance is more than $2,500.

In the early years of an account, when the balance is typically low, fees can take a relatively big bite out of the total. A new customer with American Health Value who deposited $1,000 during the first year, for example, could expect to pay $45 in fees ($15 to set up the account and $30 for 12 months of service charges at $2.50 each). That $45 far exceeds the $7.50 that the customer would have earned in an interest-bearing account, based on the 0.75 percent now being paid on balances of up to $1,000.

“Unless employers are putting a bunch of money in, I really don’t see how these balances are going to get much bigger,” said Gary Claxton, vice president of the Kaiser Family Foundation, a health care research and education company in Menlo Park, Calif. Some companies permit an account holder to invest the balance in stocks or mutual funds, though a certain minimum balance – say, a few thousand dollars – may be required to do so. Such investments, of course, offer a chance for greater returns – but also the risk of losing money.

There are also ceilings, indexed to inflation, on annual contributions: in 2005, it is the lower of the deductible or $2,650 for individuals and $5,250 for families. Account holders who are 55 or over can also make catch-up deposits. In 2005, the ceiling is $600; it rises gradually to $1,000 in 2009.

But even if you deposit the maximum amounts and don’t touch the money to pay for health care before you are 65, you won’t accumulate enough to cover medical expenses in old age, according to an analysis by the Employee Benefit Research Institute, a nonprofit research organization based in Washington. In a model created by the institute, a 55-year-old who set aside the annual maximum – as well as catch-up contributions – starting in 2004 would save $44,000 in 10 years, assuming a 5 percent return. If that person lived to 80 and had retiree health coverage, he would need anywhere from $137,000 to $337,000 to cover premiums and out-of-pocket medical expenses, according to the institute’s analysis.

Investing in a health savings account at an earlier age won’t solve the problem, said Paul Fronstin, the institute’s director of health research and education and a co-author of the report.

“The gap is only going to get larger,” he said, “because of the way that health care costs are increasing compared to how much you can put in.”

THE amount saved is not the only concern. There are other wrinkles that can trip up consumers. For example, health savings accounts cannot be used with many flexible spending arrangements offered by employers.

In addition, some states have laws that conflict with health savings accounts. Those laws may require, for example, that certain types of medical care be covered under plans before the deductible is applied. States have until Jan. 1 to bring their laws into line with the federal law, and many have done so already.

Prescription drug coverage poses a problem for many people who are considering whether to open health savings accounts. Starting in January, many prescription drug expenses in qualified plans will be subject to the deductible. Now, consumers typically pay only a portion of the drug costs from the outset.

Mr. Joyner said the idea of paying more out of pocket for prescription drugs made his employees reject the idea of health savings accounts. “They didn’t like it that there wasn’t going to be a drug card,” he said.

Many major insurers and banks now offer the accounts to individuals and companies. But details like fees and investment options vary widely, as do the basics of the accompanying health plans. “The biggest drawback about H.S.A.’s is that they can be very confusing,” said Martha Priddy Patterson, a director for Deloitte Consulting.

Because these accounts are still relatively new, and changing fast, the best advice may be to read the fine print before opening one.

By Arthur Richter
August 4, 2005

The recent “my view” charging that adopting universal health care will bankrupt America (July 6) cannot go unanswered. Our existing privatized health care delivery system is experiencing continued escalation of premiums and cost shifting by providers and employers. We expend twice as much per capita as other industrialized countries, with poorer health outcomes, such as life expectancies and infant mortality.

Health premiums are escalating at a faster rate than health- care costs, therein benefiting the insurance industry to the extent that it is able through its lobbying and campaign contributions, to expend, at a national and state level, hundreds of millions of dollars in buying or renting some of our legislators. And its largesse is not limited to any one political party. The recently enacted Medicare Modernization Act is a blatant example of the power of the insurance and pharmaceutical lobbies in their effort to privatize our Medicare system.

In the past, Medicare was able to deliver its services with a less than 3 percent overhead, as compared to our “free market” for profit system with its overhead of 15 to 30 percent. In passing the legislation in a most dubious fashion and claiming at the time of passage that it would cost less than $400 billion over 10 years, its now estimated to cost over $800 billion and now with the intention of passing the cost of this “benefit” to the states.

Any federal legislator who voted for this legislation clearly does not deserve reelection. A simple search of the campaign contributions made to these legislators will explain their votes.

Comparing the Canadian system to ours is valid, and that their system has some shortcomings is acknowledged. These shortcomings are addressed in the Romanov report, issued in 2003, with the recommendation to increase its health care expenditures to mitigate the wait times that some of its residents have experienced. However, even with some of their systemic warts, Canadian citizens experience life spans 2½ years longer than U.S. residents and they expend half as much per capita.

Our systemic shortfalls are gigantic and, compared to their “warts,” we may well call our system “cancerous.” We have 45 million uninsured and an equally large number underinsured. We have family and friends who are the users and beneficiaries of the Canadian system, and they are well aware of our system and they turn thumbs down on what we have here.

We would do well to implement a “Medicare for all” system and curb the parasitic insurance and drug industries and their corrupting influence and rid ourselves of those “compliant” legislators. We have the technology and the resources, but our health delivery system is exploited, distorted, unfair and very inefficient. Let’s wise up.

Arthur Richter is co-chairman of Citizens for Universal Healthcare, in Kingston.

By Paul Krugman
July 29, 2005

Americans tend to believe that we do everything better than anyone else. That belief makes it hard for us to learn from others. For example, I’ve found that many people refuse to believe that Europe has anything to teach us about health care policy. After all, they say, how can Europeans be good at health care when their economies are such failures?

Now, there’s no reason a country can’t have both an excellent health care system and a troubled economy (or vice versa). But are European economies really doing that badly?

The answer is no. Americans are doing a lot of strutting these days, but a head-to-head comparison between the economies of the United States and Europe – France, in particular – shows that the big difference is in priorities, not performance. We’re talking about two highly productive societies that have made a different tradeoff between work and family time. And there’s a lot to be said for the French choice.

First things first: given all the bad-mouthing the French receive, you may be surprised that I describe their society as “productive.” Yet according to the Organization for Economic Cooperation and Development, productivity in France – G.D.P. per hour worked – is actually a bit higher than in the United States.

It’s true that France’s G.D.P. per person is well below that of the United States. But that’s because French workers spend more time with their families.

O.K., I’m oversimplifying a bit. There are several reasons why the French put in fewer hours of work per capita than we do. One is that some of the French would like to work, but can’t: France’s unemployment rate, which tends to run about four percentage points higher than the U.S. rate, is a real problem. Another is that many French citizens retire early. But the main story is that full-time French workers work shorter weeks and take more vacations than full-time American workers.

The point is that to the extent that the French have less income than we do, it’s mainly a matter of choice. And to see the consequences of that choice, let’s ask how the situation of a typical middle-class family in France compares with that of its American counterpart.

The French family, without question, has lower disposable income. This translates into lower personal consumption: a smaller car, a smaller house, less eating out.

But there are compensations for this lower level of consumption. Because French schools are good across the country, the French family doesn’t have to worry as much about getting its children into a good school district. Nor does the French family, with guaranteed access to excellent health care, have to worry about losing health insurance or being driven into bankruptcy by medical bills.

Perhaps even more important, however, the members of that French family are compensated for their lower income with much more time together. Fully employed French workers average about seven weeks of paid vacation a year. In America, that figure is less than four.

So which society has made the better choice?

I’ve been looking at a new study of international differences in working hours by Alberto Alesina and Edward Glaeser, at Harvard, and Bruce Sacerdote, at Dartmouth. The study’s main point is that differences in government regulations, rather than culture (or taxes), explain why Europeans work less than Americans.

But the study also suggests that in this case, government regulations actually allow people to make a desirable tradeoff – to modestly lower income in return for more time with friends and family – the kind of deal an individual would find hard to negotiate. The authors write: “It is hard to obtain more vacation for yourself from your employer and even harder, if you do, to coordinate with all your friends to get the same deal and go on vacation together.”

And they even offer some statistical evidence that working fewer hours makes Europeans happier, despite the loss of potential income.

It’s not a definitive result, and as they note, the whole subject is “politically charged.” But let me make an observation: some of that political charge seems to have the wrong sign.

American conservatives despise European welfare states like France. Yet many of them stress the importance of “family values.” And whatever else you may say about French economic policies, they seem extremely supportive of the family as an institution. Senator Rick Santorum, are you reading this?

E-mail: krugman@nytimes.com

Copyright 2005 The New York Times Company

Letters Editor
Calgary Herald

Re: “Opening access to health care choices is a moral duty,” Ralph Klein, Opinion, July 30

Premier Klein states that “all the money in the world” is not going to eliminate waiting lists, unless the source of the funds is private instead of public. What nonsense. An MRI machine or surgical bed is no different whether paid for by private or public dollars.

Excessive queues are eliminated by making minor, selective adjustments in the capacity of the system. Compared to the global costs of establishing and maintaining a health care system, the costs of these adjustments are negligible.

Responsible stewards of any health care system, whether public or private, will make these appropriate adjustments. The difference is that the public system would be adapted to accommodate everyone, whereas private systems accommodate only those with the ability to pay.

By failing to tweak the capacity of the system, Premier Klein has confirmed that he is an irresponsible steward of Alberta’s public system. He should consider resigning so that he could accept a position as a health care executive in the United States. Our grand experiment with his preferred private system has demonstrated that we are capable of spending almost $2 trillion without allowing the 45 million uninsured to have any position in the queue.

All systems ration care. Excessive rationing due to limited capacity is very easily remedied. Rationing by ability to pay, in contrast, results in suffering and death. We know which model of rationing Premier Klein prefers, but which model do Albertans really prefer?

Don R. McCanne, M.D.
Senior Health Policy Fellow
Physicians for a National Health Program