By Jarrett Stepman
As Congress works to undo the damage caused by Obamacare, members are looking for ways to maximize their opportunity to address Obamacare’s problems that drove up premium costs for insurance and reduced access to plans.
One innovative idea currently under consideration: expanding the use of health savings accounts. These are tax-advantaged accounts that let individuals save for routine health expenses.
Created in the Medicare Modernization Act of 2003, the use of these accounts has been successful, though limited, due to restrictions placed on them by Congress.
The good news: Provisions for expanding these individualized health savings accounts have been included in both the House and Senate Obamacare repeal bills. Additionally, reports suggest senators are looking for additional ways to expand the accounts.
More needs to be done to promote this innovative reform.
Here are three big reasons for expanding the use of health savings accounts:
1.) Individual Control and Choice
One of the primary benefits of health savings accounts is that their management is put in the hands of individuals, not the government or health insurance providers.
With health savings accounts, more options are available to users to manage how, when, and where money is spent. Consumers have the option of spending money from the account or saving it for the future, depending on their individual needs.
What is also important is that the money is portable, and doesn’t go away if the account holder switches jobs.
This is a big deal.
The American health care system has been built around the employer-based model in which people generally receive a plan from the company they work at.
But Americans in the 21st century move and switch jobs at a much higher pace than previous generations. A 2016 Gallup survey showed that millennials change jobs and are open to changing jobs at a much higher rate than earlier generations.
This is an increasing reality in competitive job markets. It makes sense to have a health care system that matches their behavior.
With a health savings account, a temporary loss or change of employment doesn’t force the individual to start from scratch.
2.) Promoting Saving
It is wise to save money for a rainy day, but the American health care system does little to incentivize this behavior.
Unlike other plans, like so-called flexible savings accounts, health savings accounts permit funds to “roll over” at the end of the year—tax–free—without the money being turned over to the employer.
This means that if an individual or family wants to save their health care savings for the future, those extra funds would be available.
Allowing Americans to build up funds is not just helpful in preparation for a potential catastrophe, it can aid families bracing for expected big expenses down the road, or for purchasing long-term care insurance.
For instance, such a plan can be highly beneficial to couples who are planning to start a family. They could choose to spend less money on themselves for a few years, and then build a bigger financial war chest to meet the inevitable medical expenses when they have children.
This could take a huge burden off of young couples who may be wary of the cost of having children.
3.) Lower Costs for Consumers, and the Country
Health savings accounts come with a generous tax break that is highly beneficial for the account holder. Employee contributions are tax-deductible and employer contributions are tax-free.
Also, money withdrawn from the account to pay for qualified medical expenses—such as dental work or prescription drugs—is also tax-free.
But reduced costs do not just impact the individual consumer. When people experience a direct and positive impact from their financial decisions, both in costs and benefits, they tend to find ways to operate more efficiently.
When more individuals are making choices about their health care and more efficiently address their needs, the entire system will benefit from lower health care costs.
According to a Heritage Foundation analysis of Indiana’s health care reform for state employees, the adoption of health savings accounts had a major impact on individual behavior.
The researchers noted:
Increased responsibility for health spending encouraged consumers to substitute generics for brand drugs, avoid unnecessary emergency room visits, and use primary-care physicians instead of specialists when appropriate. Participants also had lower hospital admissions and shorter lengths of stay when they were admitted.The study estimated that the savings of this system added up to between “$17 million to $23 million” in 2010.
The impact of moving the whole country toward this type of health insurance would, of course, be far greater.
Some studies have shown that moving Americans toward health savings accounts in large numbers could save tens of billions of dollars annually.
Certainly, Congress can do more to both improve the efficacy of health savings accounts and make them
Currently, Congress requires people to have high-deductible insurance policies in order to contribute to the accounts.
This could be expanded by allowing the account to be free-standing, regardless of the type of insurance, which would allow people to make contributions while buying any kind of plan, further increasing consumer choice.
Another likely and important addition would be allowing individuals and families to use the savings accounts to pay for monthly health care premiums, which skyrocketed under Obamacare. This could potentially drive down premium costs for everyone.
The U.S. hasn’t really had a federal “free-market” health care system since the passage of the New Deal. Over time, the system has moved even further in the direction of government meddling and involvement.
Obamacare doubled down on this top-down path of government control, and moved the country closer to a single-payer health care system that is common in Europe.
By adopting health savings accounts in higher numbers, our health care system can be moved in a direction that puts it on stronger footing in the future and allows individuals to do what’s best for themselves and their families.