To young people, the high cost of health insurance hardly seems as important as food and shelter, but they still have to protect themselves from unexpected sickness or injury. California can take a simple step to help them do so.
Twenty-somethings, also called “invincibles,” account for about thirty percent of the nation’s uninsured, according to a recent Commonwealth Fund study. But they still have a reasonably cost-effective option for health coverage even as they scrape by with low wages and high rent. High Deductible Health Plans paired with Health Savings Accounts are increasingly popular among Americans, especially young adults seeking quality health insurance at reasonable costs.
Recent studies report that some 55 million Americans will purchase their own health care in the next three years, as employers struggle to provide health insurance for workers. The rise of HDHPs, caused by recent changes in federal tax law, is likely to continue with this trend. They have already grown significantly, by 3.5 million since 2005. Reports so far show that this growth has been cost effective for owners of these health plans, who also seek out the same level, if not more, of preventive health-care services.
HDHPs paired with HSAs are good for all Americans but the best option for the young and healthy. HSAs function as a kind of 401(k) for health purposes, and the 2003 Medicare Modernization Act exempts purchasers of HSAs from federal taxation on their accounts. Young people all over the country can deposit and withdraw money from HSAs for medical use, tax-free. Most important, HSAs allow them to save money in their accounts over an entire lifetime, tax-free.
Several proposals at the federal and state levels would attempt to fix the problem of uninsured young people by expanding government medicine, at the great risk of limiting choices of both health plans and doctors. Although HDHPs are still overregulated, they are a far better option than a “one size fits all” government program.
Already there are 300 general HDHP plans offered across the United States, each of which can be modified, creating about 4,000 different health plans for individuals. Average monthly premiums vary broadly, and many cost from $66 to $110. But some health insurers like Humana Inc. are offering youth-type plans with premiums as low as $26. Almost a third of HDHPs offer deductibles at $1100. Some plans targeting young people may cut out coverage for maternity care or brand-name prescriptions, but may include preventive benefits like teeth whitening and discounts for gym membership.
Most states have followed federal legislation, by making HSAs tax deductible from state income taxes, and ensuring insurance regulations allow residents to buy HDHPs. California has the secondhighest income taxes in the country after Vermont, but Democratic legislators have blocked efforts by the governor and some Republican lawmakers to make HSAs tax deductible. California is one of only five states including Alabama, New Jersey, Pennsylvania, and Wisconsin, that still taxes individual citizens for having HSAs. This adds an unnecessary barrier to the adoption of HSAs, especially among the young uninsured who need better incentives to buy their own health care.
Our employer-based system has made us dependent on our jobs for increasingly limited care rather than encouraging independence and choice from a broad spectrum of options. Also, interest groups like the California Nurses Association, Health Care for All (HCA), and others strongly oppose HSAs and would rather see the government control health care in California. Unfortunately, the government has also overregulated HSAs. Ideally, young Americans would be free to put more money into HSAs than currently allowed, and pair the accounts with any health plan they choose.
Nevertheless, HSAs are still a smart idea for young people right now, and perhaps the strongest argument in their favor is that they have helped people save money. Twenty-somethings don’t have to go bankrupt when they get a big hospital bill. Even better, they can avoid dependency on temporary, employer-provided care by saving up now. Alongside the benefit of being insured against catastrophic health costs, a tax-free HSA allows savings for routine medical bills in older years, when needs become more pressing.
HSAs can’t solve all problems but they can be a strategic part of a larger effort to repair our inefficient health system. Young Californians need increased flexibility and freedom from an employer-based structure, along with more personal choice, ownership, and savings. Instead of penalizing young people for taking responsibility for their own health spending, California should reward them by making HSAs tax deductible.
