When Do Health Savings Accounts Decrease Health Care Costs?

Masahito Watanabe (Georgetown University) ()
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Masahito Watanabe (Georgetown University): Department of Economics, Georgetown University

Working Papers from Georgetown University, Department of Economics

Abstract: The introduction of Health Savings Accounts (HSA) is aimed to reduce skyrocketing health care costs. Proponents argue that enrolling in the HSA program reduces demand for health services by increasing the cost-consciousness of consumers currently covered by conventional health plans. The implication is not that obvious, however. This paper uses comparative statics to address when such accounts can decrease health care costs. The HSA program consists of (i) the HSA account, (ii) tax deductibility for the account and (iii) high deductible health plan (HDHP). I show that the HSA is a taxpreferred account, which itself encourages health care consumption by lowering the effective price of health care. The cost-containment effect of an HDHP is counteracted by tax deductibility. The overall effect of the HSA program on health care costs is ambiguous and depends on these opposing forces.

Keywords: Health Savings Accounts; Medicare reform; Health insurance (search for similar items in EconPapers)
JEL-codes: H51 I11 (search for similar items in EconPapers)
Date: 2005-05-14
New Economics Papers: this item is included in nep-hea and nep-ias
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