As we enter a new presidential election cycle, it appears that health care will once again be a leading issue for candidates from both sides. Many Democrats continue to push for single-payer health care, while the Trump administration seems to be doubling down on its position to support court decisions against the Affordable Care Act. Though differences of opinion abound, one of the primary goals of health care reform is to enable people to better manage their health care costs throughout life. To this end, people on all sides of the issue should strongly consider expanding health savings account (HSA) legislation to allow all Americans to set tax-deductible funds aside for medical expenses and retirement savings.
Health savings accounts became law and were implemented in 2004 in response to rising health care costs and the subsequent burden placed on citizens to shoulder more of their health-related expenses. The foundation for HSAs was the Kassebaum Kennedy Act, a 1998 health care bill named after Senators Nancy Kassebaum (R, Kansas) and Edward Kennedy (D, Massachusetts), which earned bipartisan support and paved the way for medical savings accounts, a precursor to the HSA.
The HSA is a trust account, much like an IRA, that is owned and managed by individuals who qualify (typically by subscribing to a high-deductible health plan, or HDHP) and choose to save pre-tax money to cover health costs throughout their lifetime. HSAs were created to offer eligible individuals a way to reimburse themselves for qualified medical expenses. The maximum allowable out-of-pocket exposure on an HDHP in 2019 is $6,750 for an individual and $13,500 for a family, which aligns precisely with the amounts that can be contributed to an HSA in any given year. By having an HSA, individuals can be more proactive about saving for future health care needs and offsetting—or covering—high deductibles and expenses when medical care is needed.
HSA account holders often maintain cash balances, but more and more are choosing to invest their HSA money to achieve a higher return over time than a savings account interest rate would yield. What's more, HSAs are designed to offer an array of tax savings: Contributions are tax deductible, earnings and interest grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This is a significant “triple tax advantage,” but it is not currently available to all citizens. People over 65 years old who are receiving Social Security benefits and people who do not have a qualifying high-deductible health plan are not eligible to contribute to an HSA. Instead of penalizing these individuals, we need to provide ways for them to contribute to HSAs.
According to the 2017 Health View Retirement Health Data Costs report, the average couple over 65 should expect to pay up to $400,000 in non-Medicare related expenses. If they were able to keep their money in their HSA and continue to save and grow, they would be better able to handle expenses as they come along.
Another opportunity for Medicare savings is for people who are over 65 and still actively participating in our national workforce. People in this growing demographic could defer Medicare benefits until after they retire. This both delays and reduces the financial burden on Medicare, so it would be logical for the government to encourage this choice.
There is another gap in the legislation that deserves scrutiny: HSAs are only available for people with eligible high-deductible health plans. Forty percent of Americans with HDHPs live in just five states: Illinois, Texas, Minnesota, Ohio and California. Eighteen states account for 80 percent of the HDHP market. The reasons why HSA uptake varies from state to state are primarily due to local insurance laws and the prevalence of labor union-sponsored plans. Now, consider that nearly one-in-four people across the country have no emergency savings at all, and it's easy to see how many Americans are not financially prepared to pay for the medical expenses they face under a HDHP. This is particularly true of people on Medicaid assistance. All of these individuals should be given the option to utilize HSAs to help them save (and invest) for the healthcare costs ahead.
What began as a bipartisan effort could be a good starting place for lawmakers to close the gap on health care differences. What if federal and local legislation were successfully altered to make HSAs available for anyone to use to cover medical costs at any point in life, or to save the money for retirement to pay for qualified out-of-pocket expenses? More people would be better equipped to handle medical costs throughout their lives, and better prepared for retirement when they choose to stop working.
Craig Keohan is Chief Revenue Officer at HealthSavings Administrators.
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