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AIS's Health Business Daily
Featured Story September 4, 2008 Think-Tank Proposals Seek Tax-Code Reform to Broaden Consumer Ownership of HSAs Reprinted from INSIDE CONSUMER-DIRECTED CARE, a biweekly newsletter with timely news and insightful analysis of benefit design, contracts, market strategies and financial results. By Bruce Goldfarb, Editor, (bgoldfarb@aispub.com) With a sense of inevitable change glimmering on the political horizon, CDH thought leaders are looking at ways that HSAs could be modified and broadened to benefit more consumers. Some observers have speculated on how HSAs may fare under an Obama or McCain administration. But while the candidates address issues such as health care with broad brush strokes, several think tanks and industry leaders are devising detailed proposals for how CDH can be strengthened and made available to greater numbers of consumers. In an Aug. 1 posting at his health policy blog (www.john-goodman-blog.com), John C. Goodman, founder and president of nonprofit D.C.-based research group National Center for Policy Analysis, sketched out a proposal for a "universal health savings account." Goodman — who calls himself the "father of health savings accounts" — contends that account-based CDH plans available today have flaws that limit their usefulness and advantages. Federal law is too restrictive about who can have an HSA, he asserts. Flexible spending account (FSA) funds don't roll over from year to year and, like health reimbursement arrangements (HRAs), are not portable if a person changes jobs, he adds. As Goodman envisions the universal HSA, every individual and his or her employer would be able to deposit up to $200 a month into the account. The universal HSA would wrap around any third-party insurance, serving as a source of funds for anything not paid by the plan. Unlike HSAs as presently configured, the universal HSA would not be tied to any particular kind of health coverage policy, and there would not be any requirement for third-party insurance, he explains. Proposal Extends Coverage to Uninsurable A flexible, universal HSA — even with modest funding — could provide consumers with coverage to pay for essential preventive and primary care services, extending benefits to even the uninsurable, according to Goodman. The universal HSA concept is similar to an idea proposed recently by Michael Cannon, director of health policy studies at Cato Institute, a Washington, D.C.-based libertarian think tank. In the current issue of the online journal Forum for Health Economics & Policy, Cannon describes how his proposal for "large health savings accounts" would overcome the shortcomings of current account-based CDH and create tax neutrality for health care. Cannon proposes changes to current law to allow most employees to receive the full amount that they and their employer spend on their health benefits as a tax-free cash contribution to the worker's HSA. Under the new concept, the annual HSA contribution limits would be roughly tripled to $8,000 for an individual and $16,000 for a family. As with Goodman's proposal, the large HSA would not be linked to a high-deductible health plan. A consumer with a large HSA would use the account to purchase health insurance — of any type from any source — and for all other health care expenses, according to Cannon. "What I wanted to do was figure out where we ultimately want to be, a place where there are no special tax breaks for health care or health insurance," he tells ICDC. "And how to get there as expeditiously as possible in a way that was doable politically." Cannon's large HSA "gives consumers ownership over every one of their health care dollars," he says. "It would allow them to decide how much to devote to health care and health insurance. It would take that control away from employers and let consumers choose for themselves, without the government telling them what kind of health plan to have." HSA Ideas May Reinforce Criticism Since Cannon's idea for large HSAs is intended to include insurance premiums and medical expenses, HSA Coalition Executive Director Dan Perrin suggests that the proposal plays into criticism that HSAs mainly appeal to wealthier consumers. "It further reinforces the misconception on the part of Democrats," he says. "If you de-link the contribution to the account from a high-deductible plan or insurance generally, you are walking into the argument that this is just for the rich." Cannon contends that rather than providing a tax dodge for wealthy people, his large HSA proposal ends tax disparity by capping annual fund contributions and eliminating other existing advantages that often go disproportionately to the wealthy. Goodman also suggests that the law be modified to encourage employers to automatically sign up employees for universal HSAs, much as they allowed employees to sign up for 401(k) retirement accounts. Employees would be allowed to opt out of the universal HSA program, he says, and receive cash from the employer to buy his or her own health plan or pay for medical bills. A flexible and universal HSA would get Congress out of the business of health insurance benefit plan design, and would allow product design and prices to be set by the marketplace, Goodman argues. "A completely flexible account frees insurers to produce products they cannot produce today," he contended in his blog. "They could create different deductibles for different services — encouraging patients to exercise discretion where discretion is possible and desirable and discouraging discretion where discretion is not possible or not desirable." Both HSA proposals work toward tax neutrality for health care, says Roy Ramthun, president of Silver Spring, Md.-based HSA Consulting Services and a former senior health policy advisor to the Bush White House. "Right now, we have a system that favors people getting very generous first-dollar insurance coverage because the subsidy [tax credit] is all about the premium," Ramthun says. "There should be a tradeoff between insurance premiums and out-of-pocket expenses. If you say that the premium and out-of-pockets are equally usable from the [HSA] account funds, people can make tradeoffs and buy a policy that covers what they need. The only question is how much money people can put into the account every year." Although some suggest that the prospects for expanded access to HSAs are weak in the immediate future, it is important to start a dialogue now in order to inform policy and ultimately spur the formulation of federal legislation, contends Cannon. "It doesn't appear that the Democrats who will likely control Congress for the next few years are going to undertake anything like what John Goodman or I propose," he says. "In fact, there is a strong contingent of Democrats who want to eliminate health savings accounts." However, when HSAs were first proposed years ago, "there weren't even Republicans willing to take up the idea," Cannon adds. "Now, 20 years later, we have them in place. We just need to build on them, to expand health savings accounts to give people more freedom." An expanded HSA may be an ideal area for politicians on both sides of the aisle to start finding middle ground, Ramthun suggests. "Not too many people have access to these accounts today," he says. "Maybe a good first step is something like Goodman's proposal, where you open [HSAs] to everybody. Once people understand how they work, there may be willingness to do the large tax-code changes to move more in the direction of Michael Cannon's proposal." "You just never know what politicians will latch onto," Ramthun says. "If there are good ideas out there and people embrace them as a middle ground where people on both sides of the aisle can agree, why shouldn't we be having these discussions?"
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