Health Savings Accounts shot in arm
BY TERRY SAVAGE SUN-TIMES COLUMNIST Jul 14, 2006
Updated: May 3, 2013 12:14PM
America spent more than $1.9 trillion on health care in 2004 -- about 16 percent of our nation's gross domestic product and nearly double what most industrialized countries spend. Health care spending has been growing at more than twice the rate of inflation. And many households -- more than 40 million Americans -- have absolutely no health insurance.
No financial crisis in America has the potential to so completely undermine our economy. Our future depends on finding a solution.
For the past 60 years, health insurance has been primarily offered through employers. That started in World War II when wages were fixed, so employers offered health insurance to compete for workers. By the 1950s, employers could deduct the cost of health insurance, although individuals could not. Then health care packages were sweetened with promises of retiree health care -- a cost to be deferred into the future.
The future is now
Only now we're in that future, and the costs are staggering, making our products uncompetitive in the global economy. Last year, General Motors spent $5.2 billion on health care for its employees and retirees. That adds $1,525 to the price of every car!
That sets off a vicious round of job losses, pushing those without private health insurance into expensive emergency rooms. The unemployed and the very poorest patients are covered by state Medicaid programs. But low-wage workers who are not covered by their employers are faced with staggering medical bills, and even bankruptcy.
The health care system contains some bad incentives. Because employers or their health insurance suppliers are picking up the tab, individuals have absolutely no incentive to contain their health care costs. There's no tax-deduction incentive for individuals to buy health insurance policies because individuals can't deduct the premiums.
Most important, there's no reward anywhere in the system for staying healthy! That is, there was no reward until Health Savings Accounts came along two years ago. HSAs encourage people to stay healthy and spend wisely, because the money they don't spend belongs to them, and grows tax-deferred.
HSAs combine a high deductible health insurance policy and a tax-favored savings account. Instead of buying a health insurance policy with a $250 deductible, you'd buy a policy with a $5,000 deductible. It sounds scary, but that policy costs much less. The money you or the company saves on insurance premiums -- as much as 40 percent of traditional costs -- can go into a special, tax-deductible savings account and be used to pay for medical expenses tax-free. Unspent money grows for future years' expenses.
Many employers contribute some or all of their insurance premium savings into accounts for their employees. In 2006, an individual can put as much as $2,700 a year into an HSA, or $5,450 for families. But you can start an HSA account with a much lower amount. For those who can't afford a contribution, the high-deductible, low-cost medical insurance plan will at least protect them against bankruptcy caused by medical expenses.
If your company doesn't offer health insurance coverage, you can search for individual HSA plans at www.ehealthinsurance.com, run by Bob Hurley, who says his site is seeing a higher percentage of people choosing this type of health insurance.
Hurley advises younger workers to turn down employee-sponsored plans in favor of these inexpensive HSA policies. He notes that with company plans, if you lose your job you'll be stuck with expensive COBRA interim insurance. And if you have a pre-existing condition, you might not find health insurance when COBRA runs out. An individually owned HSA plan is tax-advantaged, secure and portable.
It's your money
The real benefit to society is that HSA incentives encourage people to spend wisely because it's their own money.
That's why companies such as Fontis Healthcare Services are creating online wellness tutorials. Workers who participate can earn extra HSA contributions from their employer. Says Fontis CEO James Smith: "The huge problem of spending 15.8 percent of our GDP on healthcare can only be solved by reducing the demand for healthcare in America. And the way to do that is to get people incented to lead healthier lives."
Government is not the solution. That's been tried in Canada, where the Supreme Court recently ruled that the long lines generated by a state-sponsored health system violate their guarantees of human rights.
Maybe it's time to try individual incentives to stay healthy. We'll all be better off. And that's The Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.