• Why I’m skeptical that HSAs will work to reduce spending greatly – Part 1

    Austin tipped me off about some slide sets made by the National Institute for Health Care Management. Today, I want to focus on some from “The Concentration of Personal Health Care Spending“. Let’s start with this:

    You’ve seen a slide like this before, I bet. But basically, what it’s showing is that a small number of people account for a ton of personal health care spending. In fact, the bottom 50% of spenders account for only $36 billion in personal health spending. That’s less than 3% of all of it.

    Why is this important? Well, because the entire idea of health savings accounts and increased cost sharing is to encourage people to spend less on personal health spending. The idea is that people who don’t really need the care will choose to spend less. What we often ignore, however, are the high spenders. Those people, on the right side, would blow through their health savings account pretty quickly. At that point, they have no more deductibles and no more co-pays, and there are no more incentives to spend less. So the whole idea won’t work on then. It might, however, work on people who don’t spend as much.

    But as the chart shows, there’s not that much to save there. Look at this one:

    The people in the lowest 50% of spenders spend about $236 per year. Let’s say we can “incentivize” them to spend half that (which, by the way, is WAY more than most think would be saved with increased cost sharing). We’ll save – what – $120 per person, or $18 billion? Chump change.

    What we need to focus on are the people on the right. The top 5% of spenders, who account for about half of all personal health spending, blow through more than $40,600 per person. That’s WAY more than they’d put in a health savings account. There’s no hope of them keeping any money in it. So they won’t care, and they won’t try. The effect some are hoping for won’t be felt in those who need to feel it most.

    So I’m skeptical. But it gets worse. Part 2 later.

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    • It’s an important point and well taken, but couldn’t something be said for transforming health insurance to actual insurance? Meaning that, there would be a safety net for the 1-5% that need extraordinary care, but the rest of health spending would be controlled by the consumer. HSAs could be a useful tool for the 95% to manage their health spending, potentially putting some downward pressure on prices, and insurance would be there for the few folks that need additional coverage beyond their means. That’s how most other forms of insurance work. Instead, with health insurance we’ve created a consumer culture in which price is no object–co-pays are expected to be incredibly low or non-existent. That culture pushes up the cost of insurance plans, making them inaccessible to so many.

      • You beat me to it Sean. The point of this post is very well taken and this conversation seems like the right one to have, but my understanding of HSA’s is that they could be used in coordination with something like Single Payer Catastrophic. Whether you think that’s a good idea or not I’m not sure, but it seems to point to making health insurance actual insurance.

        Without doing much research, I’m not sure what kind of characteristics the big health care spenders in the slides have. I mean, are they wasteful, or in need of fairly serious health maintenance/care? If it’s the latter, we shouldn’t expect their behavior to change no matter what kind of regime we’re under (i.e. the most warranted prediction is that their behavior wouldn’t change, and we shouldn’t try to change their spending habits if their spending is because they have serious ailments/illness).

        If the behavior of the big-spenders can’t change, then that leaves everybody else, who will spend less. So I’m left wondering if $18 billion (i.e. “chump change”) less in health care spending would be sufficient/insufficient to put downward pressure on prices, which in my mind was a large part of the point of HSA’s.

        … I look forward to Part 2.

    • Aaron, you are only looking at a year of data. From year to year people don’t sty in these categories. See my post on this here: http://healthblog.ncpa.org/persistence/

    • While I don’t deny the importance of working with high cost individuals because that’s where the money is at, we also need to recgonize that this analysis isnt longitudinal. For example a person who has a heart attack will likely incur more than $40k for that episode putting them in the top 5% for that year. That individual’s future costs will likely be permanently higher but how much higher depends on any behavior changes. There could be evidence for HSAs contributing that behavior change.

      • Go look at the report before you assume. A lot of people in the high spending groups remain there over time.

        • I am not getting why it matters, that is, who moves in and out of high spend bucket.

          In the context of aggregate spend, if year after year, 25% of health care consumers (rather than “patients”) blow through their cap, what does it matter if they were residing in the “prudent” category (or not) the year prior.


          Because 25% of people will blow through their cap and will have checked their “parsimonious” prudence at the door.


    • Not to be so simplistic but the healthcare spending graph follows Zipf’s law (like everything else in the world). This is a non-starter. Someone will always be exponentially more expensive to care for that the other 99%. As well, if we assume that self-management of costs won’t work, what will?