Health Savings Accounts: Will They Impact Markets?

Abstract

Recently, the federal government began redirecting health care tax subsidies towards tax–exempt Health Savings Accounts (HSA). This tax program requires selection of high–deductible policies—shifting government tax subsidies away from the premium (pure insurance) component and towards the out–of–pocket (self–insurance) component of health insurance contracts. We analyze price sensitivity and relative risk burden effects from this policy change. Regarding risk burden allocations, we show HSA–eligible contracts can redistribute substantial health risk onto households. HSAs may reduce the moral hazard associated with traditional health insurance contracts but may increase adverse selection problems. Overall we find that HSAs are limited in their ability to effect heath care spending.

Keywords: Tax Policy, Health Savings

JEL Classification: H2, H51, I11