A suggestion for the “replace” after the “repeal.”

Candidate Trump promised to repeal and replace Obamacare. Thank God. It appears this will be a promise he will keep although the timetable remains a bit fuzzy.

Generally, as a dispenser of healthcare, consumer of health care, purchaser of health insurance, American citizen, and taxpayer, I consider Obamacare to be a disaster. While I wish it had never come into existence, now that it is “in existence” it is prudent to dispose of it with caution. With 2700 pages of verbiage it is wrong to think that every aspect of it was bad.

One thing that was “good” is that it caused Health Savings Accounts (HSAs) to expand.

[Source: Health Savings Accounts continue to grow, by John R. Graham]

One thing that is clearly wrong with the US healthcare system is that is thwarts the principles of capitalism. If you go out to buy a new car you realize it is a major investment and requires your careful attention. Healthcare would benefit from a similar process.

HSAs give patients more direct control over their personal health spending, thus reducing the share of spending controlled by insurers (Footnote – you should read it). Obamacare did not establish HSAs. HSAs were established by a 2003 law (yes, George W. Bush and the Republicans passed the law which was a step toward capitalism in health care but also a step toward socialism). Unfortunately the law required that the HSA be linked with a highly regulated type of health insurance policy.

[From the Graham article] These policies, like all health insurance today, give insurers power to dictate prices instead of allowing prices to be formed through interactions between patients and providers (that is, a normal market process). So, these health insurance policies are not as popular as truly consumer-driven plans should be.

Nevertheless, HSAs (which are bank accounts, not health insurance policies) are growing like gangbusters, according to new research from the Employee Benefits Research Institute (EBRI). As I wrote previously, EBRI is a rock-solid member of the health-benefits establishment. If Trump wants to expand the use of HSAs, EBRI’s evidence suggests he is pushing on an open door.

EBRI indicates there were 20 million HSAs, with assets of about $30 billion, at the end of 2015.  Over four in five HSAs were opened since the beginning of 2011. Indeed, over half of HSAs were opened in just 2014 and 2015.

Further, HSAs become quite valuable over time. The average balance in an HSA opened in 2004 or earlier… was $33,888. This is because most account-holders are able to save money in them for future health spending (even though account-holders in the 2004 or earlier cohort spent an average of $2,595 from their HSA in 2015).

This is why it pays to open an HSA as soon as possible. Young people understand this: 29 percent of account-holders are under the age of 35. Expanding patients’ freedom to use HSAs to control health spending directly should be a high priority for the next Administration.

The Rugged Individualist does not object to catastrophic insurance policies nor insurance policies that have high deductibles when these are tied to Health Savings Accounts. HSAs are your money. You will spend it more wisely than the government. Importantly these are part of the estate of the individual holding the account and pass to his/her beneficiaries.

HSAs should be deregulated and untied from requirements to accompany only specific types of insurance.

Roy Filly


How do HSAs work?

Health Savings Accounts (HSAs) offer real advantages to the individual. Both employer and employee can make contributions to the account, there is no minimum contribution required, contributions by an employer are not taxable to the employee, employee contributions may be made on a pre-tax basis, through a cafeteria plan, individuals may contribute additional funds at any time during the year up to the government-imposed caps and—unlike the 401(k)—the account is owned by the individual, not by the employer.

The HSA is portable from job to job, remaining cash balances roll over to the next year, and earned interest is tax-free.

With an HSA you can make tax-deductible contributions each year to pay for current and future health care costs. What you don’t use in any given year will stay invested and continue to grow tax-free.

An HSA works in conjunction with high deductible health insurance. Your HSA dollars can be used to help pay the health insurance deductible and qualified medical expenses, including those not covered by the health insurance, like dental and vision care.

Any funds you withdraw for non-qualified medical expenses will be taxed at your income-tax rate, plus 20% if you’re under 65. This is conceptually similar to a 401K account. I do object to the penalty imposed for withdrawals before age 65 years.

These accounts help one meet their calendar-year deductible, health insurance pays the remaining covered expenses in accordance with the terms and conditions of your particular plan.


About Roy Filly

Please read my first blog in which I describe myself and my goals.
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4 Responses to A suggestion for the “replace” after the “repeal.”

  1. trailbee says:

    Prudence, or lack there of, when replacing Obamacare is the biggest issue. Thank you. Everything is small potatoes.

  2. trailbee says:

    Try Everything else is small potatoes. 🙂

  3. Bill Grisham CPA says:

    Just repeal It! A replacement from the government is not in order!

  4. So, now with the election of a very accomplished private citizen businessman to be the US President, it appears that there can be a return of the natural competition of private medical insurance companies without the restriction of crossing State lines. Also, the establishment of medical savings accounts will advance the concept (again) of individual responsibility for one’s and families’ medical coverage. That concept will take a long time to rise again, if at all. The outlandish and entirely impractical and impossible cost of government-payed medical care for everyone (including illegal immigrants and foreign visitors) has been proven out of reach and destructive of private medical care. It appears that a return to private medical care can experience a re-beginning. It certainly will be a monstrous task, but it looks to be a start.

    I know of no other long-lasting answer to the problem of delivery of high-quality medical care, innovation, economic freedom and growth of the profession to all citizens, regardless of age, than of individual responsibility for the care and the return of the normal doctor-patient relationship. Hopefully, the new HHS Secretary will understand and support the concept of free-exchange medicine.

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