I was talking to a physician in my hospital several years ago, and he expressed his frustration that the annual well-child exams for his four kids were expensive. Puzzled, I stated that I found it odd that a doctor’s own health insurance plan had poor coverage for routine care, and he replied that his group jointly decided on a plan with considerable upfront out-of-pocket costs. Why would doctors buy bad health insurance for themselves?
This was before I understood the concept of the health savings account (HSA). An HSA works in the following manner. First, you sign up for a high-deductible health plan (HDHP) which requires a sizable deductible. The deductible is the amount that the consumer pays out-of-pocket before the health insurance kicks in. These plans cost less than traditional comprehensive health insurance.
Why would someone who could afford better coverage opt for a high-deductible plan? This is where the second part comes in, the HSA. An HSA is a fund that those with HDHPs can create to pay for medical expenses. The HSA is intended to be used to pay for basic health needs while the HDHP serves to cover serious illness or injury in the event that it is needed. The central tenet of the HSA is that the consumer will become empowered to make health care decisions more carefully or cautiously. This, of course, assumes that the consumer is adequately informed.
The wealthy are more likely than the poor to use an HSA. Wealthy people pay higher percentages of their salaries as income tax and use HSAs as a vehicle to avoid taxation, as the money in an HSA is triple-advantaged in that contributions are not taxed, distributions are not taxed, and HSA funds grow in a tax-free manner. The HSA can roll over from year to year in contrast to flexible spending accounts (FSAs), and there is no penalty for withdrawing money for non-medical use after age 65. This is why wealthy people use them as “stealth retirement accounts,” and some investment advisers recommend ignoring the intent of the tax shelter by paying medical bills with taxed income rather than using HSA funds.
Returning to the physician I was talking to above, most of his partners had grown children and were generally healthy. An HSA is unlikely to be financially beneficial for someone with expensive health needs, takes several prescription medications, or sees a physician frequently. The HDHP/HSA may discourage preventative health care, as the consumer must pay out-of-pocket or spend some of the HSA which is being used as a retirement nest egg. The amount of salary a wealthy person shelters in an HSA is minimal compared to total salary. Why not invest in good insurance in case you need it? There is an odd irony in the fact that doctors often personally avoid the sort of comprehensive health insurance that seemingly promotes going to the doctor in the first place. As a minimum, purchasing good coverage supports the system that doctors are a part of.
A Commonwealth Fund congressional testimony reported that adults in HDHPs are far more likely to delay/avoid care or skip medication because of cost. We need young and healthy people to buy comprehensive insurance in order to pay for the elderly and infirmed. HSAs are not the answer to our health care system problems, and I am happy with my employer’s comprehensive plan. This way, I am incentivized to stay on top of my health so that I can enjoy my retirement rather than just save for it.
Cory Michael is a radiologist.
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