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July 01, 2004

The Treasury recently waived some of the requirements of the Health Savings Account rules until 2006, allowing HSAs to be set up in states with rules mandating low-deductible or no-deductible coverage, at least for some health conditions. These state provisions conflict with the requirement that HSAs be used with high-deductible health insurance plans.

The waiver seemed to us to open the door to mischief:

   Various state rules require coverage with 
   lower deductibles for certain conditions. 
   For example, Kansas until recently required
   that mental and nervous conditions be 
   covered for 100 percent of the first $100 of 
   expenses, 80 percent of the next $100, and 
   50 percent of the next $1,640.
   Such provisions were enacted because they
   had a political constituency. To avoid 
   confronting interest groups, legislators are 
   likely to instead pressure Treasury to 
   extend the Notice 2004-43 waiver.  The 
   slogans are easy to imagine: "The IRS wants 
   to take our high-risk mentally ill off their 

We didn't have to wait long. The BenefitsBlog reports that that the political pressure option appears already to be preferred in New Jersey, based on this report in the New Jersey Star Ledger:

   But changing New Jersey's lead poisoning 
   law may not be the answer, according to 
   State Sen. Joseph Vitale (D-Woodbridge), 
   chairman of the Senate Health and Human 
   Services Committee. 
   Vitale said he is in favor of HSAs, which he 
   said "could be an important tool for providing
   coverage to the uninsured."
   But rather than changing the New Jersey 
   law, Vitale said the state might consider 
   "whether New Jersey can appeal to the 
   Treasury. New Jersey is being progressive, 
   and we are trying to provide financial help 
   to people who have been exposed to lead 
   paint. I don't see why the federal government 
   would want us to revise our rules in order to 
   take advantage of the HSA."

Giving in to this pressure would inexorably turn HSAs into just another tax break, rather than a policy tool to transform health insurance into something more like, well, insurance. Most health insurance now looks more like a purchasing pool than health insurance. If auto insurance were like health insurance, we'd be filing claims with State Farm or Geico every time we had our oil changed, and the newspapers would be talking about the "crisis" in auto insurance.

Giving the responsibility for health care purchase decisions to consumers seems more likely to lead to good use of health dollars than anything a state legislature would come up with. Unfortunately, the door has been opened at least a crack for legislatures to do their thing.

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