More Obamacare fallout: Neutering of our HSA's

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Opinion Zone,Max Borders

Now that you, Nancy Pelosi and I are finally discovering what’s in Obamacare, it’s getting ugly. In fact, for me, it’s now officially personal.

My family and I have chosen a health savings account (HSA). I have a “catastrophic” plan to go with my HSA. So instead of putting all my money towards an insurance premium each month, I put money aside for out-of-pocket care and pay a lower premium. In other words, I pay for most of my basic healthcare needs from my HSA--that is, instead of shifting the cost of my care onto you. This helps keep your premiums from going up. Why? Instead of going to the doctor and getting a $100+ prescription of Nexium - the cost of which would be dinged to the insurance pool - I go to Target and by a very similar over-the-counter drug called Prilosec. It costs me $15. It costs you nothing. If I didn’t have the HSA, I’d be passing everything beyond the copay onto the insurance pool--that is to you. And I’d probably get Nexium instead. The copay is $15--same as the Prilosec OTC, after all. Right now, my incentive is to save us money.

But guess what? Thanks to Obamacare, saving you and me money ain’t going to be quite so easy:

Under the new health care law, consumers using workplace pre-tax health savings accounts will soon need a doctor's note to pay for Tylenol and an estimated 15,000 other over-the-counter drugs.

Starting Jan. 1, employees who use flexible spending accounts (FSAs), health saving accounts (HSAs), or health reimbursement arrangements (HRAs) to pay for common medications such as pain relievers, cold medicines, antacids and allergy medications will need prescriptions. The new rules don't apply to insulin.

The new rules will also prohibit the use of FSA or HRA debit cards provided by administrative plans for over-the-counter purchases, because the IRS says there's no way to prove the drugs were prescribed.

The IRS says any money removed from HSA accounts to pay for medical expenses bought without a prescription will be included as taxable income and subject to an additional tax of 20 percent.

Seriously? A doctor’s note for Tylenol? Obamacare has created a situation in which my incentive to save us both money is now drastically reduced. HSAs have just become far less attractive and less valuable. Why in the world would anyone want to do that? I’ll give you three good reasons.

First, Big Pharma (drugs) and the AMA (doctors) were both mixed up with writing Obamacare. This was clear from the start, but the progressives looked the other way. So, an army of lobbyists made sure that if a bunch of people were going to be forced by the feds to buy health insurance, they’d want to get some goodies out of all these newly minted HSA holders. How could all those lobbyists find a way to divert all those new customers into more expensive drugs and make them to go to the doctor more? Take them out of the driver’s seat. It has nothing to do with primary care paternalism. This is good old fashioned rent-seeking at its finest. Remember, Tim Carney was all over this:

But even before the president spoke [about Obamacare], the Pharmaceutical Researchers and Manufacturers of America -- whose $26.1 million lobbying effort in 2009 was the most expensive by any industry lobby in history -- hailed the health package as "important and historic."

The second-biggest industry lobby in America, the American Medical Association, also cheered, as did the American Hospital Association, the No. 5 industry lobby. Throw in the goliath senior lobby AARP and Beltway powerhouse General Electric, and you realize Obama's underdog tale is all bark and no bite.

And all this deadweight investment has borne fruit for the special interests. The lobbyists, drug companies and overpaid doctors win. You and I lose (again). And they call this legislation “progressive.”

Second, the HSA was a popular, fast-growing and successful product. It had a lot going for it because it really put the patient in the driver’s seat. Special interests and bureaucrats hate this aspect of HSAs because it gives patients incentives to be cost conscious. For example, when I take my HSA dollars to a doctor, you know what I do? I actually ask what everything costs. When a whole lot of people start doing that, you know what care providers have to do? They have to find ways to keep your business. They lower their prices to remain competitive. They recruit more nurse practitioners to treat your sniffles instead of MDs. (And HSAs cut office paperwork significantly, so they’re able to offer lower prices). But when patients comes in with their HMO or PPO, folks just pay their copay and go home. They don’t care if the visit was $100 or $400. They don’t see the costs of processing the claims. Why? Because someone else is paying the tab. HSAs mitigate this effect because patients spending their own money suddenly wake up. Again, the money is coming out of our tax deferred accounts.

Now, just imagine for a moment if even 1/3 of Americans had the pre-Obamacare version of an HSA. Prices for doctors, prescriptions and over the counter drugs would fall pretty rapidly. New HSA doctor networks would spring up. Why? because when you have an army of price-shopping consumers, you have to compete to make money. On the other hand, the PPO-style third-party payer system means you have an army of people with the medical equivalent of a corporate expense account. If someone else is paying, you care about quality, but you don’t worry about price. (Docs and drugmakers love it, but it’s profoundly wasteful.)

Remember what Milton Friedman said about the “four ways to spend money”:

 

Now if the HSA is increasing in popularity and has this positive affect of reducing costs, it’s no wonder the special interests want them neutered, at least. The one national healthcare reform in the past twenty years that has actually done some good represents an obstruction to long term “progressive” aims. And that brings us to the third good reason for neutering the HSA.

This change works well as part of an incrementalist strategy to destroy the private insurance market--especially patient-driven healthcare. I realize that may sound cynical. But the far left has made no secrets about its desire to create a single-payer system and to use a strategy of patient trench warfare (no pun) to create it. Obamacare was a major advance towards that end and, tactically, the eventual destruction of HSAs must figure in to said strategy.

Now, this isn’t quite yet the end of the HSA. But the future of these plans is uncertain. The range of choices available to HSA holders just got a lot smaller -- about 15,000 choices smaller. And that’s going to cost you and me both in direct ways (unnecessary doctor visits for over-the-counter scripts), as well as in indirect ways (more people opting for cost-shifting plans that raise premiums).

Remember: It’s going to get worse. The most foul aspects of Obamacare don’t come online until 2014. Premiums will continue to go up as planned--particularly after President Obama either loses or is in a second term. Of course, affordability has always been the demon of health insurance. Skyrocketing premiums caused by bad government policies drove people to self insure. Obamacare is not really designed to control costs. Never was. It is designed to carry a bunch of parasitic corporations slowly-but-surely along for the ride until the government drives U.S. healthcare into a ditch. At this point they can abandon it for the Canadian model, as has always been the plan.

Max Borders is a writer living in Austin. He blogs at Ideas Matter.

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