Individuals and Businesses in Southeast Volusia are starting to use Health Savings Accounts as a cost effective way to cover health care. This growth of HSA's was brought to my attention by Tod Perry an associate at Buddy Davenport’s State Farm Office who said that they had many such plans in place with individuals and businesses around New Smyrna Beach.
He said that the appearance of HAS's was led by individuals who were looking for the best way to take advantage of the new tax regulations that now allow individuals as well as companies to deduct health expenses.
Charles Belote’s office has had a HAS plan in place for a number of years and it has gone over well with the employees. The Utilities commission of New Smyrna Beach has also offered the option of a HSA to its’ employees.
A Health Savings account works in conjunction with a high deductible medical disaster insurance coverage to cover a persons health costs.
The insurance is for catastrophic illnesses. The savings account part of the coverage works as an account from which the anticipated small medical bills can be paid personally by the owner of the account.
The important new feature of the HAS coverage is that any money not paid out for medical expenses stays in the account and grows. It is not forfeited at the end of the year if it is not used. There is no mandate to “use it or lose it.”
This completely alters the behavior of the persons covered. They are now paying with their own money. They are now motivated to shop for lower prices and not seek treatment unless they really need it.
The money left in the account belongs to the individual and can grow. It can be withdrawn and used for non medical purposes if necessary. In the case of withdrawal for non medical expenses it is taxed as ordinary income plus a 10 percent penalty. After age 65, the money can be withdrawn for non medical reasons and taxed as ordinary income without a penalty.
As more people start to use HSA's there will be political pressure to lower the age where the penalty ceases to apply.
Under the previous system the potential patient looked at a health card the same way a teenager might look at a parents visa card. He took the attitude that he was paying with someone else’s money.
The marginal cost of health care to him was very low or maybe even zero. This situation drives demand way up which then drives costs out of sight. In addition efficiency suffers greatly.
You might call an HAS a tool for behavior modification. Using their own money, people will be motivated to be more responsible and rational in shopping for medicine.
The cost pressures on medical care will be reduced by reducing the frivolous use of medical care.
People will see more clearly that they are really making choices as to how to spend their own money. Some people are apparently not aware their medical costs were actually coming out of their compensation.
Without the medical benefits they could be paid more in salary.
Companies will be under less pressure to spend on health care as individuals will be more responsible for their own care and work to keep costs down. Wide spread use of HAS's should also reduce pressure to have government universal health care or socialized medicine.
Socialized medicine has worked very badly wherever it has already been tried and is guaranteed to work badly wherever it is tried in the future.
It invariably leads to people waiting in ever longer and longer lines for less and less care.
Most of the good things we hear about universal health care in Canada or Cuba should be taken with a grain of salt.
I sincerely hope to see HSA's spread like wildfire. They will help everybody in many ways.