By David Lazarus
San Francisco Chronicle
Wednesday, February 1, 2006
When he leaves office in a couple of years, President Bush will continue to be covered by the Federal Employees Health Benefit plan, for which taxpayers pay up to 75 percent of costs.
He’ll also receive a pension of more than $180,000 a year and will be eligible for treatment at any military hospital.
No one at the White House could tell me precisely what Bush’s out-of-pocket medical obligations will be. But it’s a fairly safe bet that his visits to the doctor won’t put much of a dent in his annual stipend.
That’s worth considering in light of the president’s advocacy of so-called health savings accounts, which he said in Tuesday night’s State of the Union speech should play a greater role in covering the medical costs of ordinary Americans.
“Keeping America competitive requires affordable health care,” Bush declared.
However, is that what health savings accounts will do?
I’ve spoken to a number of experts, and the consensus is that health savings accounts can be a nifty financial tool as long as you’re rich or don’t get sick.
For working-class people who develop serious or chronic health problems, the accounts can be economically devastating — and could perhaps worsen the nation’s already dysfunctional health care system.
And here’s the real kicker: Experts say an ever-increasing number of employers will be shifting workers to health savings accounts in coming years as a way to keep spiraling insurance costs in check.
If this isn’t something you’re dealing with at the moment, just wait. It very likely will be soon.
“Employers are desperate to do something about health care costs, and most will move in this direction,” said Paul Fronstin, a health economist at the nonpartisan Employee Benefit Research Institute.
“But are workers sophisticated enough to deal with their own health care?” he asked. “That’s a real issue.”
Health savings accounts were authorized by the same 2003 law that created the Medicare prescription drug benefit (and look how well that’s turned out).
Funds placed in such accounts are tax deductible and, as long as they’re used for medical expenses, remain tax-free. Balances can be rolled over from one year to the next.
Health savings accounts are intended to be coupled with high-deductible insurance plans. Deductibles must be at least $1,000 for individuals and $2,000 for families.
An account holder is thus responsible for up to the first $2,000 of medical costs in a single year. After that, his or her insurance kicks in.
The idea here is that consumers of health care will make more prudent and responsible decisions because their own money is on the line. This, in turn, will help keep down medical costs.
The reality, experts say, is that health savings accounts benefit the wealthy far more than lower-income people (the higher your tax bracket, after all, the more valuable a tax shelter becomes).
Similarly, the financial benefit of a health savings account lies in making the maximum contribution each year and allowing that money to compound, so that a sizable nest egg takes shape to cover medical expenses.
This is relatively easy for richer Americans, who may be seeking additional savings vehicles after maxing out their annual 401(k) contributions.
For everyone else, it’s a real question whether they’ll have any money left over each year for health savings.
On Monday, the Commerce Department reported that the savings rate fell to minus 0.5 percent last year, meaning that average Americans not only spent all their after-tax cash but also dipped into previous savings or borrowed more money.
This is the first time this has happened on an annual basis since the Great Depression.
“One of the biggest problems with health savings accounts is that people with low or moderate incomes won’t be able to make a lot of contributions,” said Edwin Park, senior health policy analyst at the Center on Budget and Policy Priorities.
“That’s a real concern,” he said. “A lot of people won’t be able to make all their payments before reaching the deductible.”
Another concern is that as more employers push workers into health savings accounts — with or without matching funds — an increasing number of people may be left to their own devices in the largely unregulated individual insurance market.
“If you’re young and healthy, you might be able to get a pretty good policy,” Park observed. “If you’re not young and healthy, you’re going to have some pretty serious problems getting affordable coverage.”
John Holahan, director of health policy research at the nonpartisan Urban Institute, said the challenge in reforming the United States’ health care system is that there’s no one-size-fits-all policy out there.
“Most people don’t spend a lot on health care,” he said. “A minority of people spends an awful lot.”
The catch is that the millions of people comprising that minority will become increasingly more expensive to insure as healthier Americans pursue separate policies, thus spreading an insurer’s risk less broadly among the population.
“Health savings accounts may be good for people with no health problems,” Holahan said. “They’re not much good for society unless we address some of the issues surrounding people with health problems.”
In other words, health savings accounts are a stopgap at best. They may relieve financial pressure on major employers, and they may even teach people to be better health care consumers.
But they’ll do little if anything to improve overall coverage (let alone to insure the 46 million Americans now lacking health insurance).
“This isn’t a silver bullet,” said Fronstin at the Employee Benefit Research Institute. “This will help some people but not all people. It’s not a solution for all our health care problems.”
Bush won’t face these problems when he becomes a full-time ex-president — he’s got a retirement package awaiting him that the rest of us can only dream of.
This makes it easy for Bush to champion the idea of an “ownership society.” He has his.
You’re on your own.
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