Health Savings Accounts (HSAs) will celebrate their 21st anniversary in January. Over the past two decades, they have provided tens of millions of Americans with financial savings and incentives to improve health. With the rise of the gig economy and the growing adoption of Individual Coverage Health Reimbursement Arrangements (ICHRAs), the potential for HSAs to benefit more Americans is greater than ever.
As Joel White, Dr. David Hyman, and I discussed in Health Affairs Forefront last week, the 59 million and growing American gig workers, unlike full-time workers, lack access to employer-sponsored health insurance. Even among full-time workers, a rapidly increasing number are being offered ICHRAs by their employers to purchase health insurance independently.
These workers can purchase individual insurance plans through the Affordable Care Act Marketplace. However, due to regulations such as community rating, essential health benefits, the medical loss ratio, and the ban on coverage caps, unsubsidized premiums in the Marketplace are prohibitively expensive, often accompanied by high deductibles.
Why not allow these workers to use their HSAs to receive contributions from employers, themselves, the government, or private parties, to fund routine medical needs and even pay for premiums?
HSAs allow patients to benefit directly from lower prices and better health, reduce their vulnerabiltiy to medical debt, and offer a triple-tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals. HSAs also enable patients to benefit from competitive cash prices and exert downward pricing pressure on providers.
Academic research has found that cash prices are often cheaper than insurance-negotiated prices, even for less shoppable services such as trauma activation fees. Numerous widely circulated cases on social media have suggested the same. In fact, while healthcare prices have generally risen rapidly, services not covered by insurance, such as plastic surgery and IVF, have experienced sharp price drops.
Why? When patients pay directly, they retain supreme bargaining power, forcing providers to compete for their business, which ultimately lowers prices and drives innovation. As Congressman Kevin Hern (R, OK-01) said, the best healthcare happens when no third party stands in between the patient and the provider.
Importantly, HSAs are not a luxury for the rich—68% of account holders live in areas with a median household income below $100,000. However, Medicare and Medicaid regulations restrict beneficiaries’ access to HSAs.
A recent study published in the Journal of the American Medical Association (JAMA) found that patients who received cash subsidies significantly reduced emergency room visits and improved general health. Subsidizing low-income patients, such as Medicaid enrollees, through cash contributions to their HSAs would be more efficient than the current system, which offers patients no opportunity to benefit from cost savings or better health.
Expanding HSA access to all Americans is the right direction. Meanwhile, insurance companies should be allowed to offer affordable plans that cover only costly medical events. Patients choose plans based on their preferences and risk tolerance.
As our decades of rigidly regulated approaches have led to disappointing population health outcomes with excessively high spending, it’s time to offer patients, providers, and insurers the option to explore more organic and flexible solutions.
When Americans gain more control over our healthcare dollars, affected interest groups will inevitably resist change. However, the demand for better and cheaper care on the buy side, coupled with the drive to innovate and achieve returns on the sell side, can create an irresistible momentum that pushes our system toward one that works for all Americans.
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