A Bipartisan HSA Plan

These flaws should be fixed. First, there is no good reason to focus the HSA subsidy on individuals with high marginal tax rates. A better approach is to set an appropriate subsidy level — say, $1,000 per household — and provide that amount to all taxpayers, regardless of income. For the lowest-income taxpayers, that would mean a direct annual payment of $1,000. This subsidy could be provided to taxpayers earning up to 400% of the poverty level, the top cutoff for premium tax-credit assistance under the Affordable Care Act. Each taxpayer above the direct subsidy level would receive a 33% tax credit for HSA contributions, up to a total of $3,000. Unfortunately, the Senate Republicans’ current plan goes in the other direction: It maintains the structure that favors people in higher tax brackets, and increases the amount that can be put into HSAs, allowing even greater tax savings for the wealthy.

The Senate Republicans’ proposal does loosen rules to allow HSA funds to be spent on premiums and nonprescription drugs — which would be a positive development (and could gain bipartisan support) if paired with a move toward equitable HSAs. But the Republican plan places further limits on the number of consumers who can avail themselves of HSAs: They would only be permitted for high-deductible plans that eliminate coverage for abortions.

That’s a mistake. Congress should work to make HSAs more viable, not less. That means allowing HSA funds to be spent on procedures that are not covered by insurance and allowing people to pass unused funds in HSAs to their descendants. And HSAs should be expanded to include people who do not have high-deductible plans, as a means of defraying out-of-pocket expenses in employer-based plans or Medicare.

A more equitable HSA system that incorporated these ideas to promote access and affordability for all would cost in the neighborhood of $95 billion per year. Though not a trivial sum, that is well within the range of expenditures that Senate Republicans are considering in reduced tax credit subsidies ($50 billion per year) and expanding the current, inequitable HSAs (there are no official revenue estimates on the latest proposal, but this is expected to cost in the tens of billions per year).

Equitable health saving accounts can promote bipartisan goals in health care delivery: consumer-driven choice and greater access to affordable care. They should be favored by both sides, whatever the outcome of the current debates over the future of Obamacare.

— Read Don’t Settle for Less: Key Steps to Maximize HSA Growth Potential on ThinkAdvisor.