Taking Health Savings Accounts to the Next Level

Currently available health savings accounts were packaged into the 2003 bill that provided for Part D, the prescription drug addition to Medicare. They were first available in January 2004 and have remained available with many of the same limitations since.  The potential of their inclusion was so great as to cause some such as Rick Santorum to support a bill they otherwise probably would have not.  Had more in a position to do so like Governor Daniels in Indiana found a way to promote and make popular health savings accounts across a wide section of the population, this alone may have shown light on the folly of Obamacare and stood in the way of it becoming the law of the land.

Health savings accounts (HSA) combined with high deductible insurance plans (HDHP) are much more than just a good idea.  They form the only approach that will restore a functioning free market currently poisoned by the presence of unnecessary third-party payment that incentivizes massive overuse, incurs substantial administrative costs, and disrupts the doctor-patient relationship as nothing else.  What is lost on so many is that ceding the responsibility for payment to another willingly hands over to the other party the right to determine how that money is spent.  It is, after all, now their money and the party who has intrusted them with payment responsibility has lost much of their standing in the transaction.  Even though there remains the health insurance contract, the insurance company will look for any legitimate excuse to not spend more of their money than they must in looking out for their interest.  This is one reason why direct payment to the extent possible is so empowering (and third-party payment so enslaving), why efforts to limit it are so short-sighted, and efforts to maximize it are the proper approach.  HSAs along with HDHPs are key in restoring market forces and the personal power that comes with it in any healthcare transaction.

Since their inception health savings accounts have been tied to a required high deductible health plan.  Annual contribution limits at first were based on the amount of the deductible but have since been set free of that and indexed to inflation.  For 2012 the limits are $3100 for an individual and $6250 for a family plan.  Also a catch up provision has been added for those over 55.  There are other rules all explained in IRS bulletin 2008-25.  Health savings accounts offer rare triple tax advantage when used as intended.  Money goes in pre-tax, accrues earnings untaxed, and exits untaxed when used for intended medical purposes.

So how should health savings accounts be improved?  Where is the next level?  Four things could substantially improve HSAs.  First, there is no good reason to require the connection to any insurance.  While high deductible health plans should retain a HSA connection, HSAs should also be available to anyone who wants to establish one.  Every dollar in a HSA protects others from ever having to pick up the tab on their behalf in addition to providing the account holder the power that comes with spending their own money and the dignity of making their own choices.

Second, contribution limits should be raised to match those of 401k retirement accounts.  Keep in mind that assets in HSAs not only benefit the owners of those assets but protect others in an area where ultimately we do not want to refuse life saving treatment to anyone.

Third, anyone on welfare or unemployment should automatically have a portion of such transfers directed to a HSA.  This form of forced budgeting benefits everyone and again is justified due to the reality of universal coverage that has existed since the decision to not turn anyone away from emergency rooms based on ability to pay.  Having almost no one pay zero would greatly lessen the strains on the system.

Fourth, and possibly the most significant, gifting should be permitted from one HSA to another in cases where a medical condition would deplete the account of the recipient.  Such voluntary transfers would bolster the character of us as a people and a nation and should be encouraged.  Communities could put out the call to come to the aid of one of their own much as with bake sales or other fund-raisers.  Groups could commit to coming to the aid of each other thereby lessening the need for insurance and allowing for higher deductibles.

There is no government fix for the healthcare/insurance mess aside from policies that restore market forces surrendered over time by a short-sighted  move to have someone else pay the bill.  Health saving accounts are the best example we have of how government can help, and the time to take them to the next level is now.