Sunday, November 26, 2006
I am a big fan of Health Savings Accounts but I recognize that there are real limits on how much money they are likely to save. Allowing people to spend their own money rather than an insurance company's money on the first $5000 will save some money, but much if not most of the waste occurs after the first $5000. Bryan Caplan tries to minimize this problem, but I am only partially persuaded. Not that many people are like his grandfather. Moreover, people may have important needs that lead them to spend the initial $5,000; after that, they are not significantly constrained.
A more interesting solution would be to expand HSA beyond the first $5000. Why not have people pay 5 percent coinsurance for the amount from $5000 to $100,000. That results in an additional out of pocket of a maximum of $5000 (or a total out of pocket of $10,000 counting the initial deductible). There are many people who would not pay $1000 for a $20,000 procedure unless it is useful.