Fourteen years ago this week, a new federal law set into motion an instrument that may yet rescue health insurance for the middle class.
At the time it happened, in Dec. 2003, no one hailed the creation of health savings accounts. Former President George W. Bush’s administration instead touted the central policy of the law, which was a prescription drug benefit, which he’d promise in the 2000 election. Conservatives were at war with one another over the creation of this new entitlement and the hours-long floor vote that made it possible.
But since its creation, health savings accounts have become a bigger and bigger part of the health insurance system. More than 27 million workers will have accounts covering themselves and their families by the end of next year, according to some projections. People can make tax-deductible deposits into their accounts to pay most out-of-pocket healthcare costs, including things such as dentistry that their insurance may not cover.
More people continue to discover health savings accounts each year. Their combined asset value is projected to reach $53 billion next year, up from $3.4 billion ten years ago. Total out-of-pocket health spending is $353 billion per year, meaning health savings accounts are just beginning to be significant.
Employers are discovering them, too, recognizing that matching contributions are an attractive benefit for their employees.
The model is so useful because it has a simple and practical progression through a worker’s life. After just a few years of monthly contributions and investment accrual within an HSA, a healthy young person can build up a large enough account to cover years’ worth of any major insurance plan’s out-of-pocket maximum. That means once they reach middle and old age, when health problems are more likely, their out-of-pocket expenses will be minimal.
Meanwhile, those fortunate enough to reach retirement without major medical expenses can simply live off their HSA savings without even having to pay any tax penalty. The health savings account thus doubles as a better, more useful version of the IRA.
In tandem with a high-deductible insurance policy, it is a flexible tool that can help consumers pay lower insurance premiums. It also has the effect of restoring health insurance to its proper role as the guarantor of very large medical expenses, in contrast to its role today as the billing and payment system for every nickel-and-dime medical cost.
Even though Congress failed to reform health insurance this year, it will soon have to rescue the private health insurance market from Obamacare dysfunction one way or another. It might not be an easy transition.
The poor can probably survive this through the Medicaid program and perhaps a continued system of other subsidies. The rich will always have the cash to afford America’s best-in-the-world care. But for the middle class, the HSA points the way toward a healthcare future that is more affordable and doesn’t require major compromises on quality.
