The View From Your Sick Bed

by Patrick Appel

A reader writes:

I do risk management for a number of different industries, and what I do includes selling commercial insurance - including health benefits, and HSAs and HSRs. I have been hearing a lot of talk recently about HSA's being held up as an example of why reform is not needed as a way to control healthcare costs, especially from a local radio guy.  As an insurance professional, I'm here to tell you that believing this underscores a lack of understanding of basic insurance principles.

Its true, of course, that if you are a younger, healthy person that accessing a HRA is a great way to save money.  You are, in essence, betting (literally) that nothing catastrophically bad will to your health in the coming year.  If nothing does, you save a bunch of money.  And even assuming that you will eventually have something bad happen, the money you will save in previous years where you've been just fine still means you're way ahead of the game.  So it really works to drive down costs - for a single person, for a limited amount of time.

But health insurance isn't a fancy bureaucratic way of billing you for your medical procedures; it's a way of spreading risk so that those who have bad losses have those costs subsidized by the vast majority who don't.  If a significant percentage of our country's healthy population all decided to commit to HSAs, one of two things would happen: One is that they could succeed in some way in keeping their costs separate from the unhealthy.  Were that to happen, the costs of providing coverage to those who needed it would rise astronomically; no one who needed costly care would actually be able to afford the premiums needed to cover that care.  The second, more likely possibility, is that the healthy HSA folks would not be able to separate their costs from the rest, and so to compensate the premiums of what is now a low cost HSA system would balloon to compensate.

You may think you can dodge the costs in an insurance system, and you might be able to for a few years.  But unless you drop dead at an early age, eventually you will pay back what you’ve saved, because that’s the way insurance works.

Believing otherwise is akin to believing in the tooth fairy.