The policy goal should be to incentivize millions more Americans to have HSAs for routine expenses, and only insurance coverage for rare and expensive medical costs.
The policy goal in health care should be to incentivize millions more Americans to have HSAs for routine expenses, and only insurance coverage for rare and expensive medical costs.
H ealth-savings accounts have been a conservative/free-market success story in improving access to health care and lowering insurance costs. Steve Forbes first put the issue on the national stage in 1996. Now, about 36 million Americans have HSAs or Flexible Savings Accounts (FSAs).
A landmark 2010 study comparing those with HSAs and those with traditional health-insurance coverage published in Health Services Research found that “HSAs are associated with a statistically significant and economically meaningful relative decrease in spending when compared with individuals who remained in traditional plans. Overall, enrollees in HSAs spent roughly 5–7 percent less when compared with traditional health plan enrollees.”
Given these savings to consumers and taxpayers, Congress should be expanding HSA coverage. Instead, federal laws continue to impose needless restrictions on the types of services, medications, and preventive health measures that are covered by HSAs, even though these treatments can keep patients healthy and out of hospitals.
An HSA functions like an individual retirement account, with individuals making pre-tax contributions which are used to fund qualified medical expenses. Families spend out of their HSA to pay for their health-care needs. Today, individuals can contribute up to $3,850 for their own coverage or up to $7,750 for family coverage, with unused funds carrying to the next year.
These accounts empower individuals to take control of their health-care spending, and provide an incentive to shop around for products and services. That can help with cost containment, but also provide a pool of capital to help cover unexpected health expenses.
For many years, HSAs could only be used for prescription drugs, not “over the counter” (OTC) medications that millions of Americans purchase every day. Thankfully, during Covid-19, Trump signed the CARES Act, which expanded coverage.
Yet many treatments and medical products remain ineligible for HSA/FSA coverage: nutritional supplements, vitamins, weight-loss programs, alternative/experimental medicines, and some oral-care products. This only encourages patients to select expensive medications over less costly alternatives. Prescription drugs can often be five to ten times more expensive than over-the-counter treatments.
Why? Because the Congressional Budget Office says that expanding HSA coverage would cost the Treasury money. Yet by this logic, if HSAs covered far fewer services and medications, taxpayers would save money — but patients would be denied services and medications.
This ignores the reality that HSAs lower the overall cost of the health-care system by financially incentivizing families to “shop around” for the best-priced medical services. The more legitimate services that are covered, the better it is for people’s health, and for containing medical costs to taxpayers. A healthier population can translate to less health spending.
Consider the cost of prescription drugs — a major policy issue in Washington. The Biden administration wants price controls, but that will only impair Americans’ health. An analysis by University of Chicago economist Tomas Phillipson finds that drug price controls slow R&D drug innovation and can cost lives. A better solution is to create more market competition by allowing more over-the-counter treatments to be covered with HSAs. Many OTC alternative medications and treatments — covering, for example, pain management or smoking cessation — are cheaper than prescription medications.
Nearly one in three consumers have said they don’t take all of their prescribed medicines because of the expense of doing so. Wouldn’t low-price alternatives make sense for such patients?
By contrast, more free-market competition and deregulation of the health-care industry could lead to significant cost savings without stifling innovation.
The policy goal in health care should be to incentivize millions more Americans to have HSAs for routine expenses, and only insurance coverage for rare and expensive medical costs. HSAs cut out the excessive costs of insurance middle men. The more medical care covered by an HSA, the greater the incentive for Americans to purchase one — to the benefit of everyone.