Taking a health idea to task

03/18/2005

Patricia Lopez, Star Tribune
March 18, 2005

Tax-sheltered health savings accounts being promoted by President Bush and Gov. Tim Pawlenty could leave some Minnesotans with poorer health and higher debts, according to a report released Thursday by the Minnesota State Council of the Service Employees International Union.

The SEIU Local 113, which opposes the accounts, said in its report that the chief beneficiary of them could well be the financial services industry, which could reap millions in brokerage fees.

Health savings accounts would allow consumers to combine lower-cost, high-deductible health insurance policies with tax-free contributions to an account that could then be used to pay basic medical expenses. Individuals could contribute up to $2,650 a year, families up to $5,250. Deductibles on the insurance policies would have to be at least $1,000 annually for individual coverage and $2,000 for family coverage.

Maximum yearly out-of-pocket expenses, not including premiums, could range up to $5,100 for individual coverage and $10,200 for family policies.

The plans are particularly attractive for those with minimal health costs, because the accounts would be allowed to roll over from year to year and could be invested. Bush has been a strong proponent of the accounts, saying they would give consumers more control over their health care and, if they remain healthy, a sizable nest egg that could be spent on things other than health care after retirement or left to heirs.

Opponents say the accounts are thinly disguised tax shelters that would do little to broaden the reach of health care coverage and might well drive up overall costs by skimming off healthier consumers, leaving those less healthy with ever-higher group insurance premiums.

Sally Covington, coauthor of the report, said an actuarial firm compared eight hypothetical families with varying medical histories to see how they would fare under the accounts compared with other types of insurance. Only the family with virtually no health care costs did better, she said.

In one scenario, a nursing home administrator making $65,000 whose stay-at-home wife has diabetes would pay $8,100 out of pocket in a single year under a health savings account, compared with $3,100 for HMO coverage.

Supporters contend that traditional insurance policies have sheltered consumers from the true cost of health care and that the accounts ultimately would drive costs down because consumers would shop around and trigger price competition.

But Covington said the market won’t work that way, that consumers lack the information and collective force to change the behavior of health care providers.

Even proponents acknowledge that the accounts are not for everyone. Mike Hickey, state director of the National Federation of Independent Business, said those with high medical expenses might be better off with more traditional coverage. But, he said, small businesses need lower-cost options. The accounts “might not be perfect, but they’re viable,” he said.

Pawlenty has asked the Legislature to offer a state tax break to companies offering the accounts, similar to existing federal tax incentives. A state tax incentive could cost $2 million a year to start, and the amount would escalate, depending on how widespread the policies become, said Sen. Linda Berglin, an opponent of the account idea.