Opinion: Congress should expand Health Savings Accounts in next coronavirus relief package
by Alex Hendrie | Posted originally on The Washington Examiner
In the face of the coronavirus pandemic, policymakers are rightly leaving no stone unturned for proposals that can help mitigate the economic and healthcare damage caused by the virus. While Congress recently passed the Coronavirus Aid, Relief, and Economic Security Act to help citizens through this crisis, Senate Majority Leader Mitch McConnell has said there will likely be additional legislation in the coming weeks or months focusing on healthcare measures.
One policy that should be considered in this “Phase 4” bill is an expansion of tax-advantaged health savings accounts, or HSAs, through the Pandemic Healthcare Access Act. This legislation, introduced by Sen. Ted Cruz and Rep. Ted Budd, lifts the mandate that a HSA can only be paired with a high-deductible health plan for the duration of the coronavirus emergency.
The bill will expand HSAs to citizens on Medicare, Obamacare health plans, other government plans, and any employer plan. It will also help individuals pay for their deductible or any increased healthcare costs, allow HSA funds to pay for direct primary care, and allow telemedicine below the deductible.
This will open up HSA benefits to millions of people across the country. Individuals will be able to receive HSA contributions from their employers to spend on care, make tax-deductible contributions to their HSA for future healthcare expenses, and invest these savings for future economic security.
Since they were created in 2004, HSAs have provided an estimated 30 million American families and individuals with a vehicle to save and spend for healthcare expenses, including doctor’s visits, prescription drugs, and hospital care. Because funds are controlled by the individual, they lead to more efficient healthcare spending. Research shows that families and individuals with an HSA spend less on healthcare and use fewer medical services without forgoing necessary primary and preventative care.
HSAs also offer triple tax benefits to users: contributions made are tax-deductible, investments made within an HSA are tax-exempt, and payments made for qualifying health expenses can be made tax-free. Finally, HSAs can provide long-term health security. A user can accumulate as much as $600,000 after contributing to an account for 40 years, assuming no withdrawals and a rate of return of 5%, according to the Employee Benefit Research Institute.
Despite these many benefits, HSAs are not widely available. Why? Well, there is currently a mandate that any individual wanting to open or contribute to an HSA must be on a high-deductible health plan. This restricts how funds can be spent and which plans qualify for an HSA.
At a time when the coronavirus is expected to cause tens of billions to hundreds of billions in additional healthcare costs, this restriction is hindering efforts to protect public health. While many health plans are waiving out-of-pocket costs related to coronavirus treatment, Americans will still have significant healthcare expenses that need to be met.
This is especially true for high-risk populations, such as senior citizens.
In any given year, a typical senior can expect to pay an average of $6,000 in medical expenses. This includes premiums and out-of-pocket costs that are covered by Medicare, but also expenses that are not covered by the program, which include dental and vision care, hearing aids, and custodial care.
All of these expenses can quickly add up. A pair of hearing aids, which aren’t covered by Medicare, can cost $5,000, while custodial care in a nursing home can cost $78,000 per year. These expenses could be especially burdensome, given that many seniors may have seen their life savings depleted due to the economic shock waves caused by the pandemic.
As Congress begins crafting legislation to mitigate further the economic damage of the coronavirus, it should include legislation expanding HSAs as proposed by Cruz and Budd. Now more than ever, families need help paying for healthcare costs. HSA expansion is a commonsense way to give citizens this help, reduce their taxes, and let them save for healthcare expenses in the future.
Alex Hendrie is director of tax policy at Americans for Tax Reform.