NCPA - National Center for Policy Analysis

A Better Idea for Paid Sick Leave

February 4, 2015

Mandatory paid sick leave -- it's a policy that President Obama endorsed during his State of the Union speech, as 43 million Americans do not get paid sick leave as part of their employment. But while such a policy might garner sympathy, it's full of unintended consequences that will ultimately hurt the workers it purports to help. When the government puts mandates on employers, employers respond. In this case, they won't just accept the paid sick leave requirement -- they'll reduce workers' wages, limit raises or reduce paid vacation days in order to make up for the additional labor costs of paid sick leave.

NCPA Senior Fellow Devon Herrick has an alternative idea: allow workers to use health savings accounts (HSAs) to save for sick days. HSAs are tax-advantaged accounts that allow people with high-deductible health insurance plans to deposit pretax dollars, which can be used down the road to cover medical expenses. Today, an employee could technically withdraw his HSA funds in order to recover income lost to sick days -- it would just cost him. Withdrawing funds from HSAs for "non-medical uses" hits account holders with a 20 percent penalty, in addition to regular income tax. But by allowing workers to use these funds to cover lost income from sick days, Congress could provide workers with peace of mind without imposing a mandate that will reduce wages and otherwise negatively impact employment.

Unfortunately, many people do not realize that their health plans qualify for HSAs, while others lack access to an HSA plan through their employer coverage -- HSAs require deductibles of at least $1,250, and Herrick notes that the average deductible in employer plans was $1,217 last year. He offers two suggestions: Congress should reduce the standards required to open an HSA, and exchange plans should make clear whether offered plans are HSA-eligible.

Source: Devon Herrick, "A Better Idea: Let Workers Use HSAs to Save for Sick Days," NCPA Health Policy Blog, February 2, 2015. 


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