SOTU Primer: HSA's

President Bush plans on trotting out "Health Savings Accounts" (HSA's) during his State of the Union address. I highly recommend clicking here to find out more about these brain farts... although here is a tidbit to get you started.

The idea here is simple. Conservatives believe Americans have too much health insurance, that they spend heedlessly and wastefully on care, procedures, and medications they would simply forego if insurance plans didn't pick up the tab. Ergo, HSA's, which end risk pooling, forcing care to come directly from pockets. Newly responsible for their medical bills, consumers will be spurred by the Magic of the Market to make smarter decisions, show more prudence, lead healthier lifestyles, smile more often, and smell springtime fresh. It's gonna be awesome.

At least if you're healthy. Because what HSA's really do is separate the young from the old, the well from the sick. Currently, insurance operates off of the concept of risk pooling. Since health costs tend to be unpredictable and illness isn't thought a moral failing, we all pay a bit more than we expect to use in order to subsidize those who end up needing much more than they ever thought possible. The well subsidize the sick, the young subsidize the old, and we all accept the arrangement because one day we will be old, and one day we will be sick, and no one wants to shoulder that alone.

But HSA's slice right through this intergenerational, redistributionist arrangement: they're a great deal for young, healthy folks because they don't force subsidization. Just don't get sick. And if you're already sick, don't think you can hide by remaining in traditional insurance plans: when the healthy rush towards HSA's, older plans will hold only the ill, and insurance companies will send premiums skyrocketing to recoup the difference.

Thankfully, when you're old, sick, poor, and bitter, schadenfreude will keep you warm. Eventually all those young bucks who left you for their HSA's will get sick, and when they do, it's all coming out of their pocket. And if, like most Americans, they're not terribly good savers and their HSA only has a couple thousand (or hundred) in it, it's all coming out of their bank accounts. Currently, more than half of all bankruptcies are due to medical costs. Post-HSA's, expect that number to rocket upwards. Lucky thing, then, that the financial industry, along with a compliant Congress, just made it harder and costlier to declare bankruptcy.