Health Savings Accounts have been a central component of free-market health policy for decades. But most Americans, especially those of modest means, don't have one of these savings vehicles, which allow people to set aside money for medical expenses on a tax-advantaged basis.
A bill introduced last week by Reps. Greg Steube, R-Fla., and Kat Cammack, R-Fla., could change that. The ACCESS Act allows people to accept federal contributions to an HSA in lieu of reduced cost-sharing for insurance purchased through an exchange.
The reform would bring the benefits of HSAs to millions more Americans while injecting more choice and competition into the health sector.
The cost-sharing reduction program requires insurers to reduce out-of-pocket costs by a specified amount, depending on the patient's income. Only those earning between 100% and 250% of the poverty level — between $14,580 and $36,450 for an individual and between $30,000 and $75,000 for a family of four — who are enrolled in a mid-level silver exchange plan are eligible. The further a patient's income falls below that threshold, the more generous the assistance.
The problem with this kind of subsidy is that patients lack any real control over that money. It amounts to a transfer from the federal government to a private insurer.
Depositing those same funds into an HSA, on the other hand, would give individuals more choice in how and when to spend that money.
This year, individuals can contribute up to $3,850 tax-free to an HSA; families can set aside up to $7,750. Funds grow tax-free, and withdrawals are untaxed, too, as long as they go toward qualified medical expenses.
These features make HSAs among the most attractive savings vehicles yet devised. But they can also help address some of the worst aspects of America's health system.
HSAs empower patients to spend their health dollars as they see fit, instead of forcing them to abide by the rules and network restrictions of their insurer.
By encouraging individuals to spend wisely and shop around for the highest-value care, HSAs also force providers to compete. Over the long term, this dynamic can put downward pressure on the cost of care.
These benefits have been well understood for years. The challenge has been making these savings vehicles available to more patients. That's where policies like the ACCESS Act could make a difference.
The bill is close to a proposal advanced by former Trump administration adviser Brian Blase and co-authors in a paper last year for the Paragon Health Institute. Their research projected that a typical American eligible for cost-sharing reduction subsidies would benefit by $1,400 a year if he or she instead received their subsidy in an HSA.
This HSA alternative would also give low-income Americans a valuable opportunity to save for the future. Since many younger patients have only minimal out-of-pocket health expenses, much of the money they contributed to their HSAs would remain there — and grow.
As the Paragon study notes, an annual contribution of $1,500 that grows at an annual rate of 6% — lower than the historical rate of return on the S&P 500 — would equal $119,000 in 30 years and reach $232,000 after 40 years. That's a lot of money for medical care later in life, when health costs tend to be higher anyway.
The bill addresses another problem with the cost-sharing reduction program, too. In 2014, the U.S. District Court for the District of Columbia found that the federal payments to insurance plans that provide cost-sharing reductions were unconstitutional, since Congress didn't appropriate funds for that purpose. The federal government has since stopped reimbursing insurers for reducing cost-sharing.
In response, health plans have increased their silver-plan premiums, triggering more generous federal premium subsidies to make up for the lack of cost-sharing reduction payments.
This ploy, known as "silver loading," has increased the amount of taxpayer money spent on health subsidies significantly. The ACCESS Act would put an end to this practice by officially appropriating money for the cost-sharing reductions. By one estimate, that single change could cut the federal deficit by $29 billion over 10 years.
HSAs are among the most powerful tools ever created for expanding choice, stoking competition, and bringing down healthcare costs. For them to meet their potential, more Americans need access to them. That's exactly what the ACCESS Act aims to do.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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