Thursday, July 05, 2007

Health Saving Accounts -- updated

I updated this in a post on, so I thought I'd copy it so I had a record for future reference (and possible inclusion in Fark and Slashdot threads). Here goes:

It seems like most of the plans proposed by the major candidates for President require mandatory enrollment and government-control. Still, it's not necessary to have a super slush fund set up by the federal government to pay for medical treatment -- it's perfectly possible to have universality with mandated private health savings accounts, which not only remove the stranglehold of insurance companies on the process, but the government temptation to redirect funds (e.g. Social Security).

For example, how about the following:

1. Calculate the amount of money a person is likely to require for healthcare throughout his life, factoring in pre-existing conditions and genetic predispositions. Adjust this amount to reward good healthcare decisions (regular exercise, immunizations, annual checkups) and punish bad ones (overeating, smoking, etc). You might also give a break for those who are regular blood donors, or have signed a consent form for organ donation.

2. Figure out how much money a person can afford to set aside for their health savings account, up to some maximum percentage of income. Require at least that amount to be saved (though of course they could save more if desired), until their account matches the actuarial estimate in #1. In addition, front-load the account so that it is fully-funded before the person retires, barring accident or illness. This would be pre-tax, to provide an incentive to those who are saving the most.

3. Have the government calculate a standard fee for a wide range of medical services, and reimburse health care providers up to a set amount based on the drug, procedure, or treatment. A person could opt for a more expensive option, but they would have to pay the difference out of their own pocket, and if they are able to take advantage of a cheaper option, then less would be taken from their account.

4. If there is any shortfall in the account, the state would cover it, but treat it as a loan with interest. If the person's financial situtation improved, they would start paying off the debt, and then return to funding their account.

5. Once an account is fully funded, the owner of it would no longer be subject to automatic withholdings, unless there is a future shortfall. If there is a surplus in the account, a reasonable rate of interest could be paid, and the owner allowed to spend the excess, or transfer it to another account.

6. Parents would be responsible for all healthcare costs for their children until they reach adulthood.

7. If a person dies with an account shortfall, the money to retire the debt would come out of the estate, if possible. If there is a surplus, it will be treated as an asset, and transferred to one's heirs.

8. Since there will probably still be a shortfall over the entire system (since surpluses are fully transferred, but shortfalls after probate are not), a graduated tax rate could be imposed to make it fully solvent.

This system would be universal, and since the state would have a direct say in the maximum payment per procedure from the HSA, there would be a two-prong approach to limiting costs and minimizing fraud -- patients wouldn't want to spend more from their account than necessary, and the state would set a limit for their reimbursement, kind of like insurance companies do nowadays. By making patients fully aware of the costs for treatment, they can make more informed health decisions, turning the system into a means of exploiting the "wisdom of crowds" rather than the "opinions of bureaucrats."

In addition, this plan would reward people who were frugal, and encourage conserving scarce resources without requiring the state to ration care. On a related note, people in the final stages of their lives who have no hope for recovery would be less likely to choose the most expensive, herculean efforts to prolong their suffering, since the cost would be taken from their estate.
Finally, it would also severely curtail the free-rider problem, since a person demanding expensive, unnecessary care would be paying more for the privilege than a thriftier person.

Most arguements against this kind of system are that it's unfair (what could be fairer than paying as much of your own way as you can?), punishes the sick (but treatment is guaranteed, and repayment only necessary if you can afford it), is mean-spirited (okay, it doesn't give freebies to anyone), or is inefficient (but the government would still controll the maximum payment per service, it would simply have a second pair of eyes -- the patient -- trying to minimize the bill as well). Compare to a system where the government puts the money in a big pool, and ladles out coverage as necessary, this has less potential for fraud and abuse, and is probably more in tune with American desire for individuality than most of the "socialized medicine" alternatives.

/I wonder if anyone will bother reading this far? Oh well, it's fun to craft plans like this and see how people respond.


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