Health savings accounts are a
good idea
U.S. tax laws are more than
the means by which the government generates the revenue it needs to pay its
bills. They are also an instrument
of public policy, influencing individual and business behavior by creating
incentives or disincentives for certain specific purposes that our politicians
want to foster. Two obvious examples illustrate the point: the deductions for mortgage interest to
encourage home ownership and the depreciation deductions for business assets.
The development of health
savings accounts is an attempt by Congress to find a way to help lower the cost
of health care for individuals by giving them direct control over their own
medical expenses, using the tax code as the vehicle to make it happen.
How HSAs work
“A Health Savings Account is
an alternative to traditional health insurance; it is a savings product that
offers a different way for consumers to pay for their health care. HSAs enable you
to pay for current health expenses and save for future qualified medical and
retiree health expenses on a tax-free basis.” (U.S. Treasury Department Website)
An HSA is “a savings account
into which you can deposit money on a tax-preferred basis. The only
product you purchase with an HSA is a High Deductible Health Plan, an
inexpensive plan that will cover you should your medical expenses exceed the
funds you have in your HSA.” (U.S. Treasury Department’s Website)
“You own and you control the
money in your HSA. Decisions on how to spend the money are made by you without
relying on a third party or a health insurer. You [will] also decide what types
of investments to make with the money in the account in order to make it grow.”
(U.S. Treasury Department’s Website)
“…The HSA then acts as an
investment account from which people can withdraw money tax-free for medical
care. The money accumulates tax-free interest until retirement, when it can be
withdrawn for any purpose. Health savings accounts provide an alternative to
the ever-rising cost of health insurance premiums for micro-business owners.”
(National Association for the Self Employed - NASE)
Individual incentive and
control
HSAs are a good idea because
they create incentives for individuals to manage their own health care budget
by giving them more direct control over their personal medical expenses. They
help correct one of the major failings of current health insurance plans, which
negotiate prices for services directly with providers and remove the insured
from the process. The result is that people usually have no idea how much they
are being charged for health care services when they go to a doctor or a
hospital. And, without a voice in
setting prices or being informed of fees prior to receiving services, there is
generally no incentive to comparison shop because someone else (the insurance
company) pays the bill.
Unfortunately, as with so
many good intentions, things become overly complicated when they run afoul of
our tax laws, and so it is with HSAs. As usual, when it comes to taxation,
there’s nothing simple about implementing a simple concept, and health savings
accounts are no exception. Although the tax rules for HSAs are somewhat
complex, the idea of putting individuals back in control of their own health
care budgets is a long overdue step in the right direction.
What our health care system
needs to cure what ails it is less government and more individual control, and
HSAs help move us toward that goal.