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More Details on Why Health Savings Accounts (HSAs) Are Ripoffs

More Details on Why Health Savings Accounts (HSAs) Are Ripoffs

August 15, 2005

For some time, we've talked about how Health Savings Accounts (HSAs) are scams. Sometimes we call them "faith based health insurance" (you're supposed to pray you don't get sick), or "Houdini health insurance" (keep your eye on the hand offering you a $500 personal health account while the other hand hits you with a $2000 deductible).

Make no mistake -- HSA's are the core of the national Republican health care reform agenda. And they're making progress in pushing this agenda onto the nation (HSA's were enshrined in the awful Medicare prescription drug law enacted by Congress in 2003).

Yesterday's New York Times has a business section article showing that they're actually worse than we thought. "The Promise and Pitfalls of Health Savings Accounts" contains these juicy observations:

"Some people are discovering downsides to the accounts. Ric Joyner, president of the National Association of Professional Benefits Administrators, says he has received frequent calls from companies and individuals interested in setting up the accounts. But lately, Mr. Joyner, who is also president of eflexgroup.com, a benefits administration company in Madison, Wis., says he has been getting calls from people complaining that their account balances are shrinking even though they have not used the money.

"'The money they're setting aside for health care is being eaten up by fees,' he said."

"Typically, the companies that administer the accounts charge a set-up fee of around $20, plus a monthly fee of about $2 or $3. They may also charge an annual fee, as well as a transaction fee every time a customer writes a check or uses the account's debit card. Some charge a fee to close an account.

"American Health Value, an administrator of health savings accounts, charges a one-time, $15 fee to open an account, and $36 annually to administer it. There is also a $2.50 monthly service charge, which is waived if the balance is more than $2,500.

"In the early years of an account, when the balance is typically low, fees can take a relatively big bite out of the total. A new customer with American Health Value who deposited $1,000 during the first year, for example, could expect to pay $45 in fees ($15 to set up the account and $30 for 12 months of service charges at $2.50 each). That $45 far exceeds the $7.50 that the customer would have earned in an interest-bearing account, based on the 0.75 percent now being paid on balances of up to $1,000.

"'Unless employers are putting a bunch of money in, I really don't see how these balances are going to get much bigger,' said Gary Claxton, vice president of the Kaiser Family Foundation, a health care research and education company in Menlo Park, Calif. Some companies permit an account holder to invest the balance in stocks or mutual funds, though a certain minimum balance - say, a few thousand dollars - may be required to do so. Such investments, of course, offer a chance for greater returns - but also the risk of losing money."

Is there a lesson here advocates of "personal" Social Security accounts should heed?