The Problem with HSAs


Although I sympathize with your point of view, I think that your post about HSAs misses the fact that the HSAs we have right now were, basically, set up to fail. The Democrats’ proposal is, in the current context, pretty sensible. In fact, I believe that many people opposed to the idea of HSAs didn’t mind for the version of HSAs we passed in the 2003 Medicare Modernization Act because specifically because it’s so lame and will prove that HSAs “don’t work.” The current version of HSAs, like the HMO, a government-designed type of insurnace coverage that’s very attractive in the abstract and would work well in a free market but is almost sure to fail under government supervision.
Most importantly, the restrictions on the use of HSAs are basicaly backwards from a commonsense perspective. The government places extensive limitations on the way that they can be used to pay for medical care but none on how they can be invested. Most prominently, current policy lets people open HSAs only if they have very unattractive high deductible health insurnace plans (HDHPs) that few people want. On the other hand, no limitations exist on what people can do with the money inside HSAs: once they become eligible for Medicare or if they enroll in Medicaid, individuals can do anything they want with money in HSAs. Even people with HDHPs can invest the money in things–stocks, high yield bonds, mutuals–that are really contrary to the stability that 99 percent of the population wants from health insurance. (I agree that these investments should be allowed, just that if I were a legislator trying to compromise while designing HSAs, I’d much rather give up these options of questionable medical worth than create HSAs that needed to be paired with unattractive HDHPs.) As a result, plenty of already well off people use HSAs as a retirement planning vehicle–my broker sent me literature about how to do so–but they’re so unattractive that rather few people use them if given a choice. I tried one myself as a federal employee and it was unsatisfying in just about every way.
THe HSA, as designed by the government, has failed. We need a much freer version of it.