Expert: Paul Walker - 7/6/2009

Question
QUESTION: I often hear the statement that prices have gone down in lasik surgery and cosmetic surgery, where there is no insurer, as part of the national health care debate, as part of the argument that health insurance is a major reason why health costs are so high.  
But these procedures are relatively cheap. An individual could pay for these out of personal savings, but major operations are extremely expensive and we need insurance for that. My question is, how do Health Saving Accounts come into this picture? I'm trying to see if there is a connection here. Thanks.

ANSWER: Hi David,

The reason why some procedure costs are cheaper to 'the man in the street' than to the insurer is largely due to two reasons.

Firstly, it will be a common procedure that has few areas for complications etc, and therefore carried out in a more cost efficient manner. Secondly, when you go to a hospital to 'pay-as-you-go', you would be required to pay for the procedure in advance.

This is both good for the hospital cash flow as paid in advance, and combined with the fact that there is no insurance company attached, means that there is no need for typical administration costs such as chasing payment and reissuing invoices etc.

You are correct in your observation that procedure costs can vary considerably. It is a posible negative to use an insurer for minor claims due to thier administrative burden, however an insurer comes into their own if your procedure is complex and longer-term.

HSA's sit somewhere in the middle, if a minor claim and paid by the memebr for reimbursement later, they can be beneficial, equally for the more complex arfeas, the insurer will haver to deal direct with the hospital - so in essence no different to a normal insurance scenario.

The big problem with insurance is that the only people who truly understand the value of it are those claiming, for all of us who are lucky enough not to need treatment, it feels like a financial burden... however, how many of us will sleep easy not having something in place should problems arise...

I hope this helps to some degree?

Paul

---------- FOLLOW-UP ----------

QUESTION: Accoding to my understanding, HSAs accumulate year by year. So how can an HSA be useful in a complex situation, if, say, the patient has only contributed for a year or two? In other words if he is relying only on the HSA and the hospital bills him $50K for brain surgery. The argument that I am hearing from others (unless I am mistaken) is that HSAs could be a REPLACEMENT for employer-provided insurance, but I don't see how that would be a good think for an ordinary person who has to fork out big bucks and he has hardly any money in his HSA. Please help me understand this. Thanks.

Answer
Hi David,

Sorry for not getting back to you sooner, I thought I had replied...

My understaning is that most HSA schemes are run in conjunction with a seperate insurance cover which takes effect after the HSA has been expired or has reached a ceiling limit. This tends to be the domain of the group / corporate market as buying capacity is greater here.

It does mean that the individual or faily who relies on their HSA has very limited coverage.

I am lead to believe that some states do offer a degree of supplementary cover which can be placed on top of the HSA, however once the premium value starts to add up, you are essentially creating just another Medical Insurance plan which will be vulnerable to the same influences as many others.

Clearly there are healthcare funding issues in the US right now, I know that President Obama is keen to address this, but a problem this big will take some time to redress.

Sorry I cannot be of any more assistance with this matter...

Paul