Health Affairs Study Finds the Design of HSA-Qualified Plans Combined with the Tax Subsidy Decreases Cost-Sharing for the Lowest and Biggest Spenders
New York, NY—Health savings accounts (HSAs) coupled with high-deductible health plans sometimes lower consumer cost-sharing compared with many typical health insurance plans, according to a study supported by the Commonwealth Fund in the July/August issue of Health Affairs.
Many of the HSA/high-deductible health plans in the market today actually reduce cost-sharing for people who spend the least and the most on health care, while increasing cost-sharing for those who fall in the midrange, according to the study, "How Much More Cost Sharing Will Health Savings Accounts Bring?" by Dahlia Remler and Sherry Glied. Decreased cost-sharing is due to several factors including tax subsidies for out-of-pocket expenses and the fact that people with high deductible plans can reach the plans' out-of-pocket maximum far more quickly than those in more comprehensive plans, potentially reducing the total amount of medical spending that is subject to cost-sharing.
HSAs—a form of medical savings account that must be accompanied by a high-deductible health plan (at least $1,050 for an individual and $2,100 for a family)—permit people to save money tax-free and use those funds, also tax-free, to pay their out-of-pocket health care expenses. Proponents of HSA/high-deductible health plan arrangements say that increased out-of-pocket costs will encourage consumers to be more cost-conscious, leading to lower costs and greater efficiency in the health care system.
In their analysis of HSAs, authors Remler, a professor at the Baruch College School of Public Affairs, City University of New York, and Glied, chair of the Department of Health Policy and Management at Columbia University, compared HSAs combined with high-deductible plans with traditional health insurance policies. They found that the 7.7 percent of people who are responsible for half of all medical spending would see no change or a decrease in their level of cost-sharing under an HSA/high-deductible plan. In contrast, cost-sharing would increase for people who spend between $700 and $6,100 of their own money on health care. Taking the tax subsidies of HSAs into account, the authors found that for enrollees with a 40 percent marginal tax rate (including exclusion of HSA contributions from both income and payroll taxes), only those with expenses between $700 and $2,500 would see an increase in the marginal and average cost-sharing.
"Health care spending is highly concentrated among a small group of people who have very high medical costs," said Remler. "This study shows that a high-deductible HSA would have no effect on this spending, leaving a negligible impact on health care costs."
Out-of-pocket caps in HSA-eligible high-deductible health plans are a primary reason cost-sharing decreases rather than increases. For example, once a person with a typical high-deductible health plan (no coinsurance, a deductible of $2,500, and an out-of-pocket maximum of $2,500) spends $2,500 there are no additional out-of-pockets costs. However, in a traditional plan with no deductible but a 20 percent coinsurance, a person would have to spend $12,500 before they would reach their maximum out-of-pocket costs.
Cost-Sharing Already Significant
The researchers reviewed a series of recent health insurance surveys and found that today's insurance plans already require a substantial amount of consumer cost-sharing. The average plan had a deductible of $221 and an out-of pocket maximum of $1,864, and 80 percent of plans had coinsurance.
"These plans do not appear to be living up to the rhetoric about their effect on consumer spending," said Glied. "The health care market has been asking consumers to pay a bigger part of their health care costs for years."
To give HSA/high-deductible policies more bite, the authors say that cost-sharing would have to be increased sizably among the people who spend the most on health care. The risk is that substantially increasing cost-sharing would make health care inaccessible for people who need it the most. The authors contend that HSA/high-deductible health plans can only seek to increase cost-sharing so much while still protecting consumers from excessive health care expenditures.
"This analysis points to the importance of considering the tax subsidies provided by HSAs," said Commonwealth Fund President Karen Davis. "Tax subsidies benefit higher-income individuals disproportionately, while failing to achieve the purported advantages of high-deductible plans. Public subsidies should instead be targeted on these least able to afford health insurance or health care."