How Health Savings Accounts Can Reduce Health Care Costs

In a previous Hub, Health Savings Accounts - A Solution to the Health Care Crisis. I described how Health Savings Accounts work. In the interests of space and desire to focus on how the Health Savings Accounts worked, I choose not to describe how the deductibles, caps and co-pays associated with the high deductible insurance policies that accompany Health Savings Accounts worked.

In a post in the comments section of that hub, Hub Llama provided an excellent description of how these worked. Everything that Hub Llama described in her comment was correct and I agree with it.

However, I disagree with her conclusion that, because there are some health care costs that, due to the various caps and co-pay requirements and the way many deductibles work, that health savings accounts won't work for most people and won't reduce health care costs overall.

While Hub Llama's information is correct it is not an argument against Health Savings Accounts unless one assumes that everyone will be forced to have a Health Savings Account and that greater use of Health Savings Accounts will have no effect on the dynamics of the health care system.

Health Savings Accounts will result in major changes to this system which is why politicians and special interests invest considerable time and resources in limiting their use. But the health care system should be run for the benefit of consumers and not special interests and the politicians that depend upon them for re-election.

Proponents of government managed universal health care and their allies in the mainstream media, have made a big deal of the fact that many people lack health insurance and that some people have been forced into bankruptcy as a result of a major illness or accident.

In the current debate over the President's government run universal health care plan it has been pointed out that many of the uninsured are uninsured by choice and not by circumstance.

Supporters of the President's plan acknowledge this fact as they have included in the various bills being discussed, fines for people who choose not to buy the promised low cost health insurance - failure to pay these fines, like refusal to pay any fines, will result in such people facing arrest by officers fully prepared to legally use deadly force to execute the arrest warrant. If you have to use the force of government to get people to buy a product it is a good indication that the people in question don't want the product.

The second fact to come out of the current debate is that only a small percentage of the population ever get hit with having to pay for extremely high cost treatment for catastrophic illness or injury.

What has happened here is that by constantly repeating stories about the small percentage of people who are devastated financially by an illness or accident that leave them bankrupt, politicians and the media have instilled a fear of medical bills.

Compounding the problem is the fact that most people don't know the true cost of medical care since most not only have no need to use medical services regularly and, when they do, their insurance pays for all or most of it leaving them in the dark as to the real cost of such care.

Unlike the various Obamacare plans currently before Congress and which will end up costing taxpayers millions or even billions in new government spending, Health Savings Accounts will reduce the cost of health care simply by simplifying the payment process.

With Health Savings Accounts routine medical costs are paid at the time of service, either with a check or debit card directly from the Health Savings Account, or by cash, check or credit card if the patient decides to leave the funds in the Health Savings Account for future bills. This reduces the need for the medical facility to employ a highly paid medical coder to prepare the billing for Medicare or the insurance company as well as reducing the need for systems, employees and space needed to maintain records for Medicare and the insurance companies.

An additional benefit would be that the medical facility receives payment immediately rather than waiting, sometimes for months, for a billing to make its way through the complex billing and payment process, thereby reducing the need to borrow operating funds and having to pay the associated interest costs.

While the current complex system is needed in order to reduce fraud on the part of the medical facility and/or the patient as well as tracking and managing costs incurred by the insured, direct payment by the patient eliminates the need for such systems.

Encouraging patients to manage their own routine health care expenses can lead to additional reductions in costs for all in other ways as well.

Since they are spending their own money, patients will be more willing to shop for better deals in health care. Also, if the patient, rather than Medicare or an insurance company is paying, there is no need to limit themselves to doctors approved by the third party payer or a requirement to visit a primary physician first in order to get a referral to a specialist.

These things will make the market more competitive and pressure medical providers to become more efficient in order to lower costs and be able to attract more patients by passing these cost savings on in the form or lower fees.

In addition to shopping for lower prices, there are other ways consumer choice in medical care can help drive health care costs down. People can exercise a certain amount of control over their need or use of medical care. Very few patients visit medical providers with life threatening emergencies. There are also relatively few visits that are non-life threatening but require immediate attention to prevent long term complications.

Instead, most people use the medical system for routine medical conditions that can usually be deferred, postponed indefinitely or skipped entirely without any serious effect on their health. Such visits are want driven rather than need driven and consumers choose whether or not to satisfy individual wants.

For example, a person needs food to live but chooses whether or not to spend money on more expensive gourmet food the eating of which is a want and not a need. Of course, if the government or insurance company will be paying for the food the choice is simple - live on gourmet food.

Routine check-ups can usually be postponed a month or two or more without serious problems, thereby giving the patient time to either shop for a different provider or time to get the money together to pay for the exam.

Many visits are for routine, minor things like updating an immunization, confirming that what ails one is a minor illness and not something more serious, or have a health care professional check an ailment and write a prescription for it, etc.

Services like this, which are what most visits to physicians involve, can be handled by a physician aided by one or more non-physician assistants with minimal equipment and overhead. In states where this type service is allowed we are finding such mini-clinics already beginning to pop up in places like Wal-Mart, Walgreens and other retail outlets.

Having people make their own health care choices and pay themselves will provide an additional incentive to pay more attention to their health and safety. Normal people (which is most people) don't deliberately seek to harm their health or injure themselves.

Most people assume that they will be the one that the disease won't strike (as is the case with some friends who are smokers and express hope that they will be among those who don't get cancer or heart disease from smoking) or that the accident won't happen to them. And the backup plan for this type of thinking is that even if the worst happens care will be available and a cure possible.

With a third party - the government or employer paid insurance - paying the bill for the disease or accident, the only thing people have to worry about is whether they will be among the few unfortunates who are the victims but won't have to worry about having to pay if it happens to them. The possibility of having to pay for all or part of the treatment as well as suffering the disease or accident is one more addition to the caution side of the scale in making such decisions.

Life, of course, is about risk and choices and each of us has a different tolerance for risk so, the effect on decision making of the possibility of having to bear the financial burden for sickness and accidents caused by one's own habits will vary from individual to individual.

However, as I discussed in my Hub Including Health in Retirement Planning, many people are beginning to realize that taking steps now to care for their health can result in a major financial savings in retirement as medical costs are a major difference between being financially comfortable in retirement versus having to struggle financially in retirement.

While not the complete solution to rising medical costs, Health Savings Accounts can be a major step in the solution to the rising insurance costs portion of the problem as well as, as shown above, having some impact on reducing direct health care costs by eliminating much of the government and insurance industry mandated record keeping and reporting requirements.