Unintended Consequences (III)

A few weeks ago, Mike reported on California’s bold new health insurance initiative. Part of the Governator’s plan requires employers with at least 10 employees to offer health cover, or face a potentially substantial fine.

One may argue about the “fairness” (or even efficacy) of such an arrangement, but some folks have decided that this is a great opportunity for some lemonade:

“The Schwarzenegger proposal requires individuals who can afford to buy their own health insurance to do so or face a state tax. Because the high-deductible health insurance plans are significantly cheaper than more comprehensive policies, Mr. McKechnie [of the Health Savings Account Council] thinks that they will become the plan of choice for many moderate-income people.”

The idea’s pretty simple (and hence, elegant): since the premium for a typical HDHP is likely to be (significantly) less than the payroll tax/fine, such plans may become very popular, very fast, at least in the Golden State. And if that’s the case, then the folks who handle the cash accounts are going to be taking a good look at this new market, as well:

“Since assets in HSAs are managed much in the manner of those in individual retirement accounts, advisers increasingly are taking an interest in HSAs.”

No kidding.

This assumes, of course, that folks fund their accounts. Whether or not they’ll do so is, of course, a mystery at this point; they’ve been gaining ground, albeit slowly, but will this potential groundswell really come about? We’ll have to wait and see.

At 4%, the payroll tax is about a third of what California employers currently spend on health care cover. So in theory, they could trade in higher priced PPO plans for HDHP’s, fund some (or most, or maybe even all) of the deductible, and still be ahead. Kind of intriguing, no?

As we’ve maintained here at IB, it’s preferable that these experiments take place at the state level. Why's that, you ask? Simple: federal experimentation could have devastating national effects on health care and its funding. By encouraging the states to “test-drive” different configurations, any potential damage is much more limited, which is desirable.

Interesting times.