November 09, 2004

How HSA's Help Save US Health

Tyler Cowen misses the boat on HSA's because he's looking at the effects on the purchasers of healthcare. He finds that:

The plan has some admirable economic elements.  It provides a tax-free vehicle for savings; most economists agree that capital income should not be taxed.  But it is less of a health care plan.  Most of the potential beneficiaries from HSAs already receive excellent levels of care.  In sum, I like the idea of market incentives, but do not believe that HSAs will do much to make us healthier. 

One of the more perverse aspects of third party payment is that to become a provider affiliated with a healthcare company, your doctor contractually gives away his ability to set prices as he likes. Efficient innovation is no longer as richly rewarded while at the same time his customers become less price sensitive. While a few medical professionals maintain boutique practices of entirely cash based patients, this is not practical for the vast bulk of doctors so they must handcuff themselves to the pricing "guidelines" that the health insurers (sort of) provide.

HSA patients vastly increase the pool of price sensitive cash patients so that more doctors can rid themselves of the handcuffs of insurance provider contracts and enter the medical free market. Once free market providers become not just for the rich boutique medicine providers but also for the middle and upper middle class, you end up with a new stratum of providers who have middle class patients but have pricing flexibility. What ends up happening is that once you regain the ability to offer differential pricing, you can give discounts to those with a lower ability to pay and not force them to either accept humiliating charity or do without care.

It is the lack of the ability of providers to give discounts and the twinned problem of shame at "taking handouts" that currently afflicts a significant amount of those who receive less care than they should. This segment will increase their medical care consumption and thus, improve the overall health picture.

Posted by TMLutas at November 9, 2004 07:48 PM