Health Savings Accounts as Antidote to ObamaCare
September 9, 2013
Supporters of the Affordable Care Act ("ObamaCare") have heralded the recent slowdown in health care spending as evidence that the law is working. Unfortunately for them, ObamaCare has nothing to do with the trend, says Lanhee Chen, a research fellow at the Hoover Institution.
Economists have argued that the slowdown can be explained, in good measure, by the sluggish economy and consumers bearing greater financial responsibility for their health care decisions. In fact, President Barack Obama's signature law is impeding progress on health costs.
Republicans now have an opportunity to rally around reforms to replace ObamaCare and address health care spending. Making Health Savings Accounts (HSAs) more attractive and widely available is an important piece of the puzzle.
Key points to HSAs:
- They are employer-sponsored, tax-advantaged accounts that are fully owned by employees.
- The can be used to fund out-of-pocket health care expenses.
- Employees must purchase a catastrophic insurance plan to go with their HSA. Such plans carry annual deductibles of at least $2,500 a year for family coverage, and have monthly premiums that cost about 15 percent less than those of conventional plans.
- Annual out-of-pocket expenses are capped at $12,500 per family.
The main attractions are the significant federal tax benefits.
- Employees can make pretax contributions of as much as $6,450 a year for a family.
- Earnings are tax-exempt, and qualified medical expenses can be paid from the account tax-free.
- Employer contributions are not considered taxable income to the employee.
- All but three states (Alabama, California and New Jersey) confer the same tax advantages on HSAs as the federal government.
HSAs give consumers greater control over how they direct their health care spending. They are able to rollover unspent amounts from year to year. And because HSAs are coupled with high-deductible health plans, consumers have incentives to consider costs before making health care decisions.
Although HSAs won't cure all of ObamaCare's ills, they have an important role in a Republican strategy to replace the fundamentally flawed health care law.
Source: Lanhee Chen, "Health Savings Accounts as Antidote to ObamaCare," Bloomberg, September 2, 2013.
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