Expansion Of Health Savings Accounts Can Bend The Healthcare Cost Curve Downwards – Pacific Research Institute

Expansion Of Health Savings Accounts Can Bend The Healthcare Cost Curve Downwards


More than six in ten Republican voters want Congress to keep trying to repeal and replace ObamaCare, according to a new Kaiser Family Foundation poll.

Lawmakers won’t be able to do so in one fell swoop, given the Senate’s failure to agree on a comprehensive reform plan. But Republicans can still roll back ObamaCare’s government takeover of the health sector piecemeal, concentrating on reforms that nearly all of them agree on. Expanding health savings accounts should be at the top of this list.

Since their creation 14 years ago, HSAs have allowed over 20 million Americans to take control of their healthcare — and saved both consumers and the healthcare system billions of dollars.

HSAs are “triple tax-advantaged.” People pay no taxes on their contributions to the accounts, which they can leave in cash or invest as they wish. Earnings from interest, dividends, and capital gains on the funds in the account are tax-free. People don’t pay taxes on withdrawals either, as long as they spend the money on eligible treatments and healthcare services.

To open an HSA, a person must first enroll in a high-deductible health plan. These plans typically have low premiums. But beneficiaries pay for most routine care out of pocket.

Traditional health plans, by contrast, usually charge higher premiums — but only require patients to pay fixed copays for routine care.

They also promote wasteful spending. Consider x-rays, which can cost between $100 and $1,000, depending on the provider.

Patients with high-deductible plans generally have to pay the full cost of an x-ray using the funds they’ve accumulated in their HSA. Since they’re spending their own money, they have an incentive to shop around and choose a low-cost provider.

A patient with a traditional insurance plan might face a $50 co-pay for x-rays, regardless of whether they choose the $100 provider or the $1,000 provider. If they choose the more expensive one, the insurer will pay hundreds of dollars in unnecessary costs.

Insurance companies don’t just eat those excess costs. They pass them onto consumers in the form of higher premiums.

High-deductible HSA plans don’t merely discourage inefficient spending. They actually drive down the cost of care.

Consider laser eye surgery, which most health plans don’t cover. So patients tend to shop around for the best deal. Eye surgeons have had to compete for their business. And costs have fallen, from about $2,100 per eye in 1999 to $1,700 in 2011.

Americans are embracing HSAs in growing numbers. Last year, there were a record 20 million accounts across the country — a 20 percent increase from 2015.

It’s easy to see why HSAs are popular. The average family’s health spending drops 21 percent the year after they switch to an HSA plan.

There are commonsense ways that Congress can make HSAs even more powerful. For one, lawmakers could increase the annual HSA contribution limit from $3,400 to $6,550 for individuals and $6,750 to $13,300 for families. That would enable folks to lower their tax bills and sock away extra cash for medical expenses.

Allowing patients to purchase over-the-counter medicines and pay insurance premiums with HSA funds would also improve our nation’s healthcare system.

Third, Congress could broaden the range of health plans that can be paired with HSAs. Currently, people who receive certain health benefits, like free telehealth conferencing or care through a workplace health clinic, can’t open HSAs.

Further, Congress could allow health insurers who provide high-deductible plans to waive fees for certain preventative treatments, even if beneficiaries haven’t reached their deductibles.

Finally, lawmakers should consider permitting Medicare beneficiaries to contribute to HSAs. The program’s trust fund is set to run out in 2029. HSAs could empower seniors to affordably shoulder more of the cost of their care.

HSAs inject a much-needed dose of competition into the health sector by empowering patients to spend their healthcare dollars as they see fit. Providers have to vie for those dollars. The resultant competition bends the healthcare cost curve downwards.

That’s something that all Republicans — and Democrats, too — should be able to get behind.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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