The anatomy of a ripoff

Converting to high-deductible is a problem if you're living at or above your means and are approaching middle age. But presumably regardless of your socioeconomic status, if you're just starting out in the market, given the choice between high- and low-, you're better served with high-.

For example, at one hospital where my family member works as a therapist: The hospital receives federal funding for area X, so the clinic area Y must accept Medicare. in Area Y, medicare pays far less than private insurance per hour of therapy, doesn't reimburse for patient no-shows, but doesn't allow the clinic to drop no-showing patients. So the clinic section of the hospital ends up paying staff hourly wages to do nothing some of the time, and is barely treading water the rest of the time.

Now, there's overhead, so it's better to have a full clinic with Medicare underpaying than a half-full clinic with no Medicare, but it's still a ripoff: private insurance / private pay is paying more for the same service than Medicare. If private insurers could and would demand the same terms as Medicare, the clinic would die.

Finally, maybe Medicare is still a good deal, due to that Area X funding? Maybe, but that's in a totally separate area, distorting the economics of both areas X and Y. It leads to political BS where the fancy X ward swimming in money and building a palace (like http://www.seattlechildrens.org/, have you seen that lobby?), so they pressure clinic Y to beg for donations from their own staff to stay afloat.

Note that the contribution is pre-tax, so if you're at the 25% marginal federal rate and contribute $3000 you have to compare that to getting at most ~$2020 in after-tax money: HSA contributions are not subject to FICA (7.65%) or federal income tax (25% on the margin per above assumption). They're not subject to state income taxes either; those can range from 0% to 12% depending on state and income level.

Another important thing to keep in mind is that this is a health _savings_ account. Your contribution stays in the account if you're not spending it on actual medical care; it doesn't disappear at year end. Money in the HSA can be invested if desired (though it's probably a good idea to leave at least the deductible amount in liquid funds). Interest, dividends, and capital gains on the money are not taxed. When you reach retirement age, you can withdraw the money for any reason, not just medical care.

So basically an HSA is just like a traditional IRA in terms of tax treatment, but with the added ability to make early withdrawals to pay for medical care. The only drawback is that you can only open one if you have a high-deductible plan (defined as at least $1200 for an individual and $2400 for a family, as of this year). So you're basically gambling that the tax savings and possible future growth of the money, plus what you save on premiums, will be higher than the deductible.

Going back to our case of a single individual at the 25% marginal rate, with $100 premiums for the high-deductible plan and $300 premiums for the low-deductible plan, the difference in premiums is $2400. If you're depositing those $3000, your tax savings are about $1000. So you'd have to spend more than $3600/year on average on medical care to lose out. For most young-and-healthy folks, spending on medical care is likely to be less than this. Note that the 25% bracket starts at a taxable income of about $34,500, so figure a salary of at most $50,000. If you're earning more than that and are single, chances are an HSA is a good deal for you.

A little better...

"HSAs that automatically get money put into them every year for those who can't afford to do so "

That's encouraging too, although I bet it doesn't refill at the same rate as topping it up yourself?

I still think it's the wrong thing to do, though. I can appreciate the market pressure idea, but there are other ways to lower prices charged for procedures, and this way still involves people actually worrying about whether they have enough money for health care. Do Americans realize just how much mental angst they cause themselves actually devoting this mental energy to worrying about whether they will have enough money to make themselves not sick, if they get sick? All this pride or whatever at choosing clever HSA solutions or having an awesome work health care policy is simply relief at not having to worry about health care bills. It's not a value add, you're simply avoiding the horror of a double whammy: getting very sick and going bankrupt (or seeing your lifestyle change drastically due to budget concerns). It's the awesome opportunity to get completely fucked.

But if this HSA/whatever is some kind of compromise towards progress... well, hope it works.

And yes, there is inefficiency unrelated to Medicare, and yes, I've seen the anecdote about how doctors who own an MRI machine refer patients to get MRIs six times more frequently.

But Medicare underpaying, alongside what I remember hearing was a "bad payor mix" from ER patients, hurts.

If you're truly curious about how healthcare works, follow this blog http://histalk2.com/ and get a flavor for what's concerning IT people (which oftentimes is money).