Democrats reportedly feel emboldened by their success in defending most of Obamacare from repeal last year and are planning to turn their attention to expanding government health care. In the words of Sen. Tim Kaine (D-VA), “We're tired of just playing defense. ... It is now time to talk about the next big idea.”
More government is not what we need when it comes to health care. Government mandates have completely distorted the health care market over the past century. The result is a system that gives bureaucrats in Washington the power to decide what type of health insurance is sufficient for individuals across the country. Now that the Obamacare individual mandate has been eliminated, Republicans have the opportunity to implement genuine free market reforms. They need to stand their ground.
Americans rightly protest government involvement in relatively trivial areas of their lives – from what they can post on Twitter to whether they can use Uber instead of a taxi. Yet they’ve ceded control over their personal health care decisions to total strangers. Republicans can make relatively simple changes to Health Savings Accounts (HSAs) that would give this control back to individuals. These changes would give consumers more choices and allow innovators and entrepreneurs to develop creative solutions to health care needs.
To begin with, Congress should enable everyone to have an HSA. Currently, only people covered by very specific high deductible insurance plans are legally eligible for these tax-advantaged accounts. There is no rational reason for this limitation. HSAs shouldn’t just be permitted for everyone; they should be strongly encouraged. Rather than trying to devise a health care plan that is all things to all people, politicians need to empower people to manage their own affairs. “HSAs for Everyone” would be a step in the right direction.
Expanded HSAs would be a powerful weapon on behalf of cost-containment. With the ability to rollover funds for future expenses, people would have the incentive to shop around for non-emergency care. Over time, this would force providers to be more transparent in their pricing. Bit by bit, HSAs for Everyone would bring market forces to bear in the health care sector.
HSAs should also be expanded by allowing people to use them for a wider variety of health-related purchases than current rules permit. Making insurance premiums, over-the-counter medicines, and other health-related items HSA-eligible would save people money. It would also encourage advances in health care services by increasing competition for HSA funds.
One of the most exciting innovations in health care provision in recent years is direct primary care (DPC), an alternative payment model that is gaining popularity. In a DPC practice, patients pay a flat monthly or yearly membership fee that covers primary care needs and preventative services. This makes health care costs more predictable. It also makes health care more affordable by removing the middleman (insurance companies).
Consolidation in the health care industry has accelerated in recent years. Now most urban areas are only served by one to three large hospital systems, and more physician practices are being acquired by hospitals. This trend, driven in large part by government regulations that increase costs, is likely to continue. Direct primary care can reduce the power of regional health care monopolies by giving consumers more alternatives.
Direct primary care also promotes closer doctor-patient relationships since doctors are able to spend more time with each patient. A recent study showed that many doctors spend twice as much time on paperwork than they do with patients. DPC practices don’t have this problem.
Current rules do not allow HSA funds to be used for DPC membership fees. Eliminating this restriction would encourage the spread of DPC practices, which would help reduce overall health care costs while benefitting patients.
Along with expanding what purchases are HSA-eligible, contribution limits should be greatly increased. For 2018, contributions are limited to $3,450 for individual coverage or $6,900 for family coverage. These arbitrary limits can easily leave people short on funds when they have multiple health expenses in a given year. Increasing contribution limits would also make it easier for people to save for the future, which is very important since health care costs increase with age.
Rather than a flat cap per family, contribution limits should be determined on a per person basis. Each member of a family could have an individual account to receive contributions. Individual accounts would give young people a great start to health saving and would protect spouses in the event of a divorce. These accounts could be modeled after 529 college plans, which allow funds to be transferred from one child to another. That way if one family member had higher medical expenses than another the funds could be used as needed. Moving forward, HSAs could be opened automatically when newborns receive Social Security numbers.
Increased contribution limits won’t help people who can’t afford to contribute even the current maximum. One solution would be to allow individuals and businesses to receive limited tax credits for contributions to other people’s HSAs. This is currently permitted in many states for K-12 and college education savings accounts. Applying this model to health savings accounts would allow low-income individuals to share in the benefits of HSAs. Family members, friends, and even strangers could help build up HSAs for individuals in need.
Allowing businesses to receive tax credits for HSA contributions would have another important benefit when it comes to increasing market forces in the health care sector. Current tax rules give preferential treatment to employer-sponsored health insurance. This stems from wage controls during World War 2 – since companies couldn’t offer higher wages, they began to offer health insurance to attract the best employees. Employer-sponsored health insurance isn’t subject to income tax, while higher wages to pay for private health insurance are. This advantageous treatment has distorted the health care market to the point where nearly 90 percent of Americans with private health insurance receive it through their employers.
If businesses could receive tax credits for HSA contributions, the implications could be enormous. Employers that do not currently offer health insurance would be able to contribute to employee HSAs, which would help those employees build up heath care savings. If one spouse has coverage through work, the other spouse could request HSA contributions in lieu of employer provided insurance. Independent contractors could negotiate HSA contributions as part of their compensation.
With people changing jobs more often than in the past and with technology fueling the growth of independent contractors, employment-based health insurance is becoming less attractive. As HSA usage expands, more insurance options will become available outside of the workplace. This will provide the flexibility modern life demands.
Americans demand choice when it comes to almost everything: cars, phones, computers, clothes, food, and more. They’ve been conditioned to expect fewer choices when it comes to health care. Expanded HSAs would inject market forces into the health care sector by giving individuals more control over their health care expenditures and broadening non-employment based health insurance options. Health care that is driven by individual needs rather than bureaucratic mandates will empower consumers, encourage innovation, and lower costs across the board.
President Trump and the Republicans have a golden opportunity to transform the American health care system in a positive way. They don’t need to complicate things with more rules and regulations. By expanding HSAs, they can put America on the path to a freer health care system.