Letting state employees take charge of their own health care dollars has turned them into much better shoppers for health care and saved the government of Indiana money, says Mitch Daniels, Governor of Indiana. For the past five years, the state has given its employees the option of enrolling in high-deductible plans that come with a Health Savings Account. The state puts $2,750 per year into each employee’s HSA account and the employee uses those funds to cover his medical expenses up to the deductible amount. Since the funds belong to the employee permanently, he has an incentive to be a smart consumer. Writing in the Wall Street Journal, Daniels notes how well the reforms have worked:

In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18. They were admitted to hospitals less than half as frequently as their colleagues. Differences in health status between the groups account for part of this disparity, but consumer decision-making is, we've found, also a major factor.

Overall, participants in our new plan ran up only $65 in cost for every $100 incurred by their associates under the old coverage. Are HSA participants denying themselves needed care in order to save money? The answer, as far as the state of Indiana and Mercer Consulting can find, is no. There is no evidence HSA members are more likely to defer needed care or common-sense preventive measures such as routine physicals or mammograms.

The plans are so popular, says Daniels, that 70 percent of state employees choose them, and only 3 percent of those who have enrolled HSA plans have switched back to traditional insurance.

Federalism lets some states try reforms while allowing other states to see whether those reforms work and then adopt or adapt them as they like. At least, that’s how the system works up until Congress decides it has all the answers. Under various health care reform proposals in Congress in recent months, HSA plans would be regulated out of existence because they would not qualify as insurance under a mandate that all individuals must purchase health insurance.