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Health savings accounts: just another greedy corporate scam

At a time when the “Occupy Wall Street” protests against corporate greed are proliferating in the United States and around the world, it’s ironic to read the floating of yet another corporate “get-even-more…

Day 15 of OccupyMN protest that has occupied Minneapolis. Meanwhile corporate greed continues unabated. Fibonacci Blue

At a time when the “Occupy Wall Street” protests against corporate greed are proliferating in the United States and around the world, it’s ironic to read the floating of yet another corporate “get-even-more rich” scheme, this time related to Australian health care.

Deloitte Access Economics director Lynne Pezzullo has apparently been busy lobbying senior federal bureaucrats to create employer or self-funded health savings accounts (HSAs) like the present superannuation scheme.

The federal government would make co-contributions to the health accounts of low-income workers and the public hospital system would remain free only for delivery of emergency or essential health services.

Pezzulo claims the rationale for this comes from the fact that health spending has already risen to almost 10% of GDP, and because of the rapid growth of the health-care intensive 65-plus demographic.

Striking while the iron’s hot

Such proposals must be taken seriously in the present volatile political context where vested interests of many shapes and forms are jostling for policy traction, says Pezzulo.

Similarly, the pharmaceutical lobby group Medicines Australia has previously advocated a Medicines Savings Account (MSA) to replace the federal government’s cost-effectiveness and subsidy system under the referendum-supported Pharmaceutical Benefits Scheme (PBS).

Pezzulo’s proposal draws upon examples of HSAs and MSAs in Singapore, South Africa, China and the United States.

These systems forcibly encourage citizens (called “consumers”) to jog, watch their diet, be compliant with medications and trade off disposable income so they can build up cash (that HSA and MSA funds invest in the stockmarket) for that “rainy day” when they are, for example, diagnosed with cancer, ischemic heart disease or hit by a bus.

Translated into “economics speak,” HSAs and MSAs purport to address major inefficiencies of health-care systems dominated by private health insurance.

These systems already abound with moral hazard (lack of incentive for healthy behaviour); escalating costs (premiums increase each year by 2% to 3% above the inflation rate); adverse selection (older people in smaller insurance pools) and; gaps in coverage (the poor and unemployed generally lack private health insurance).

Case study: Singapore

Since 1984, the government of Singapore has implemented an HSA scheme whereby employees and self-employed citizens must contribute 6% to 8% of their monthly salary to a personal Medisave account for costs of hospitalization and medical expenses.

Such contributions are tax-deductible and earn interest. Withdrawals require authorization and cash co-payment, particularly from patients choosing more expensive procedures or private hospitals.

Ostensibly to foster equity, Singaporean Medisave is complemented by the somewhat duplicitously named MediShield, a non-compulsory, catastrophic or prolonged illness insurance scheme, and the Medifund safety net to help the poor pay for hospital medical care.

Medisave allows the Singaporean government to boast its contribution to health-care costs is only 3.3% of GDP.

This makes the situation in Singapore sound like things are under great fiscal control. But that’s only until we start to look at the detail and wider implications of this kind of health-care system.

Increasing inequity

In Singapore, three quarters of health-care costs are paid directly by citizens to private corporations instead of to their government as taxes.

The poor of Singapore are forced into rationed second-tier health care. williamcho

What’s more, the experience with HSAs and MSAs in Singapore, South Africa, the United States and China over the last 20 years is that increasing numbers of people forego necessary and preventive care, often because they lack the experience, information or ability to call upon their HSA or MSA.

Meanwhile, fund managers increase profits by finding reasons to deny access. The insurance risk pool is depleted and those with higher risks are saddled with higher premiums.

Those who are uninsured (through unemployment, disability or poverty) are forced into rationed second-tier health care, eroding foundational social virtues such as justice and equity.

HSAs and MSAs provide personal financial windfalls to the investing fund managers and wealthy citizens who benefit from tax deductions.

They increase likelihood of fraudulent misappropriation, inappropriately high administrative costs and vulnerability to stock market volatility.

Medical bills, for instance, cause over 60% of personal bankruptcies in the United States.

Figures and facts

Nations that experimented with HSAs and MSAs in the heady days of financial deregulation in the 1980s and 1990s, are now realizing that health-care cost reductions are more efficiently organised through direct government intervention (to ration health services or providers) as well as universal coverage taxpayer-funded health-care systems.

World Health Organisation (WHO) and OECD’s 2008 estimates place health-care costs as percentage of GDP at 10% in Canada; 8.4% in the United Kingdom; 11% in France and; 8.9% in Australia.

Compare this to 17% of GDP in the corporatized U.S system.

These figures alone disprove the lobbyists’ frequent contention that the free market operates health-care more efficiently than governments.

As do the number of huge anti-fraud claims that have been recovered against private corporations involved in health care in the United States.

Asking Australians whether our universal coverage healthcare and medicines system is sustainable is like asking whether our police, primary and high school education system and military are sustainable.

That any government could claim a policy triumph by forcing citizens to fund health care individually, to basically tax to a corporate roulette wheel of stockmarket investment ten percent of their disposable income instead of to the political organisation supposed to represent their interests, highlights exactly what the “Occupy Wall Street” protestors are on about.

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8 Comments sorted by

  1. Stephen Prowse

    Research Advisor

    The author presents an argument for not going down the HSA/MSA path which makes sense in view of what has happened in the USA and the undesirable development of two tier health systems. However there is no alternative to our current unsustainable system presented. Our national health care costs are increasing at a faster rate than GDP which is clearly not sustainable. While I do not have the figures, I suspect that military, police and education costs are not increasing at the same rate. Further, it is politically unpalatable to have the discussion about the health care we can afford and people taking responsibility for their own health.

  2. Philip Davies

    Professor of Health Systems and Policy for the School of Population Health at University of Queensland

    Dr Faunce's analysis of HSAs/MSAs contains a number of legitimate criticisms but also fails to draw attention to some of the possible benefits of such schemes - notably their potential to address the risk of moral hazard inherent in conventional insurance. A further benefit that might be claimed for HSAs/MSAs is their ability to overcome the challenges of inter-generational equity posed by our current 'pay-as-you-go' approach to funding health care whereby today's (sizeable) cohort of baby-boomers expect a (much-smaller) group of future taxpayers to fund their health care in old age. One only has to look at the issues confronting many pension schemes to see how that might play out.
    The claim that, under HSAs/MSAs "The insurance risk pool is depleted and those with higher risks are saddled with higher premiums." is simply wrong since such schemes don't have a risk pool or risk-rated premiums!

    1. Thomas Faunce

      ARC Future Fellow at Australian National University

      In reply to Philip Davies

      Philip comments that I fail to draw attention to the benefits of HSA and MSA schemes-in fact I point out how beneficial they are to the fund managers who can earn large salaries administering and investing them as well as the corporate sector as a whole that benefits from such investment. To answer his second point, the chief moral hazard in conventional private health insurance is the fear that those administering it will decide it is more profitable not to pay out than honour premiums. People decide to stay health for variety of educative reasons not related to their holding insurance and it is a lobbying ploy to hold otherwise. Philip, finally, exhibits a misunderstanding of the relationship between HSAs and MSA's and private insurance-the former indeed don't have a risk pool or risk-related premiums, but their existence does deplete those aspects of a private health insurance scheme running conjointly.

  3. Thomas Faunce

    ARC Future Fellow at Australian National University

    Stephen, the problem is that healthcare costs are escalating because teh private sector is systematically undermining the capacity of taxpayers to make them reasonable through methods such as science-based cost-effectiveness analysis and efficiency dividends and protections against monopoly power to dictate price. In a private health insurance-run system costs go up 2-3 % above the inflation and cost-recovery each year with premium increases for no reason other than to increase profits. Drug prices…

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  4. Robin Bell

    Research Academic Public Health, at University of Newcastle

    Any proposal that suggests modelling of a HSA or MSA on the present superannuation model used in Australia is seriously flawed. Changing universal health care to a investment account model only adds to the costs of health care, shifts the burden back to those least able to afford higher costs, and generates another multi-billion dollar market industry where benefits are syphoned off for corporate profit.

  5. Sherry Koch

    logged in via Facebook

    The author implies that the higher costs in the USA are because of the "corporatized" system.

    There is nothing wrong with corporations if they are not in bed with the powerful government.

    That is unfortunately what the system looks like in the USA.

    Truly free markets always lower the prices for equivalent procedures. But there are no truly free markets if they ever existed.

    The costs are high in part because US physicians are allowed to use the highest, most modern, most expensive technologies…

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  6. Nat Reader

    logged in via Facebook

    My employer is pushing us into HSA plans and eliminating our PPO plans. I cannot afford the deductible I need to meet before the insurance company pays a percentage. I no longer have a copay so I pay 80$ for a doctor visit that once cost $20. So when I get sick now I do not go to the doctor, don't get medication and take off more days from work because I am sicker longer. And to top it off the company first sold is as giving us lower deductibles.

    My premiums now go up going up 17% a month each year. Next year I will spend $140 a month for a plan where my insurance company does absolutely nothing until I spend $2000 out of my pocket. I do not have that so now I don't go to the dentist (I have a cavity), I skip the eye doctor (my prescription is worse) and forget any regular doctor appointments. GREAT!