By Lee Graczyk
MnSF Interim State Director

The new buzzword in Washington, D.C., for justification for increased premiums, co-payments and health care costs in general is "skin in the game." This holds that when consumers pay more out-of-pocket expenses for health care they are more likely to be judicious in their use of health care services.

This "skin in the game" hypothesis holds that policyholders spend so little of their own dollars before their insurance kicks in that there is no incentive to reduce health care costs. It further postulates that once patients begin spending more of their own money they will better evaluate price and quality, translating into greater savings even when they are not spending their own money.

This doesn't make sense to me. This pseudoscience is one of the premises behind the new Heath Savings Accounts (HSAs). You have to have big out-of-pocket expenses. Therefore, you can only take advantage of these accounts provided you have a high-deductible health insurance policy, one with at least a $1,050 annual deducible for individuals or a $2,100 for families.

By setting up an HSA, in an IRA-like fashion, you can build a tax-sheltered stash to cover "skin in the game" medical costs, contributing up to $2,250 for an individual, or $4,500 for a family annually.

Contributions, profits and withdrawals for health-related expenses are all free from taxation. That makes this tax benefit superior even to IRAs. With IRAs, the money is taxed upon either deposit or withdrawal. If an HSA holder uses the money for non-health expenditures, a tax plus a 10 percent penalty is paid. After age 65, a withdrawal used for a non-health purpose will be taxed, but not penalized. A taxpayer must be under 65 to start such an account.

One cannot but help postulate using this logic that if all medical expenses were paid out of pocket with no tax shelters and no third-party payers, this would translate into better prices and quality in health care. Yes, it makes all of us uninsured, but who has more "skin in the game" than the uninsured?

"Skin in the game" may not rise to the level of scientific theory but it is certainly the prevailing philosophy in Washington and the health care industry!