NCPA - National Center for Policy Analysis

Health Savings Accounts: A Better Idea than Mandated Sick Pay

March 11, 2015

President Obama recently proposed requiring employers to pay sick leave to the estimated 43 million American workers do who not receive this benefit. However, the President\'s solution — requiring seven days of paid sick leave annually — will raise the cost of employing these workers, potentially reducing their pay and job prospects. Instead, the president could have proposed expanding health savings accounts (HSAs) to help workers replace income lost due to illness.

What determines who gets paid sick leave and who does not? It is not as simple as whether or not an employer is altruistic or stingy. Some workers willingly accept jobs with lower take-home pay because they prefer fringe benefits to higher cash wages. These often include sick pay. Other workers take jobs that lack fringe benefits because they prefer higher pay.

Consider:

  • Two weeks of vacation plus seven days of paid sick time amounts to 136 hours of lost productivity each year. A worker earning $15 per hour pay may prefer an additional $2,040 in gross pay (136 x $15) to 17 days of paid time off for illness or leisure.
  • An employer would have to reduce this worker\'s pay 2.7 percent (56/2,080) to compensate for seven days of paid sick leave. For a worker making $15 per hour, seven days of paid sick leave is potentially worth $840 in additional gross pay (56 x $15).

Congress should expand HSA eligibility to all workers, and allow their use to fund a wide variety of medical needs. Because workers bear the cost of their own fringe benefits, why not give them tools to manage the trade-off between wages and income lost to sick days? Allowing all workers to set aside funds in an HSA to replace income lost to sick days would allow them to reclaim those funds for nonmedical purposes when a sick day is not used, or to save for medical bills below their deductibles (tax-free). Employers would also be free to add funds to the HSA if they choose.

Source: Devon Herrick, "Sick Day" HSAs: A Better Idea than Mandated Sick Pay," National Center for Policy Analysis, March 10, 2015. 

 

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