Life support

If you think that the greatest significance of the collapse of the Berlin Wall 15 years ago was the freedom that event brought to several million East Germans, think again. The really important lesson from that great tumble was this: Don't ever assume that the impossible can't happen! Don't think that any captivity must necessarily last forever.

I thought about that last week with reference to two much more mundane, but still very costly, forms of bondage: health insurance and Social Security. Most of us these days typically set aside more than 25 percent of every paycheck to cover those two items, and are assured by the actuaries that we're on a trajectory where it will soon take a full third of our compensation. Still, we gloomily knuckle under and consign ourselves to perpetual oppression. Well. As candidate John Kerry would say-but not at all in the sense in which he means it: Help is on the way! The Berlin Walls of health insurance and Social Security are showing some huge cracks. And the election of 2004 will go far to tell us whether it's real or phony help. Next week, we'll look at a promising new option involving Social Security. This week, let's look at what real help might look like with reference to health insurance: A relatively new approach called "Health Savings Accounts" (HSA) is picking up speed. Part of the Medicare Reform Act effective since June 1 of this year, and therefore now the law of the land, HSAs have several advantages over traditional medical insurance. The key is in moving important parts of responsibility for health care from the employer to the employee. If your employer were to go to an HSA, it would work something like this: Your employer would buy a health insurance policy for you with a high annual deductible-perhaps something like $5,000. At the same time, your employer would put a significant sum-perhaps $3,000 annually-into a debit account for you, out of which you would pay all your routine medical expenses for each year. (You would also be able to add to this account personally on a tax-favored basis.) You would pay all your routine medical costs without any reference to co-pays, deductibles, or any other insurance gobbledygook. You might well carry a medical debit card by which payments would be made, just like cash deductions, from your account. Two things, of course, might happen during any given year. One is that you would use up the whole $3,000 in your debit account. In that case, you would have to cover the next $2,000 of costs (the difference between the $3,000 account and the $5,000 deductible) out of your own pocket. Then the high-deductible policy would kick in for all other expenses. On the other hand, if you are blessed with good health and low routine medical costs, you might spend only $1,500 out of your original $3,000 account. Under the new regulations, you would get to carry over-as part of a tax-favored account-the $1,500 you didn't use. You would be allowed to invest that $1,500 in any approved instrument you wanted. Everything you didn't use out of your account you would keep. (Figures used here are only illustrative; real-life plans might differ significantly.) The incentives are at least threefold: (1) your desire to keep the money in that account for yourself, and perhaps to watch it grow year after year, slowing down your use of healthcare services; (2) your ability to shop among a variety of healthcare providers, with no limitations dictated by your insurance company; and (3) your option to ask your healthcare provider for a discount for cash-a discount increasingly available from providers eager to escape the high cost of paperwork and process. The huge overhead of the insurance bureaucracy, estimated by many to range between 30 percent and 50 percent of all healthcare costs, would begin to disappear. Richard Matthews, a specialist in employee benefits for the last three decades, told us last week while outlining some of these details that no matter what, responsibility for healthcare provision will pass soon from the nation's employers. "Employers simply can't continue paying double-digit annual increases for health insurance," Mr. Matthews said. "Their only option-already-is to take it out of employee paychecks. So now, the only question is whether employers pass that responsibility back to individual employees for their own decision-making (just like they do for homeowners insurance and car insurance) or to the federal government and a nationalized healthcare system. It will be one or the other. The present system will not continue." In other words, this part of the Berlin Wall will either soon be torn down-or it will be built even higher. With a decision like that staring us in the face, isn't it time for a little optimism? Next week: Similar thoughts about Social Security.