Health Savings Accounts, freedom, and you!

by Wyoming Liberty Group Staff

In the most basic of terms, a healthcare savings account (HSA) is a high-deductible savings account that is tax-deductible and can be drawn from to pay for pre-approved healthcare expenses. The idea behind HSA's is that you can set aside money for healthcare expenses that you anticipated ahead of time, as opposed to opting for a low-deductible, reactionary healthcare plan. Before talking about the many advantages offered by HSAs, it is necessary to fully examine how they work.

It should be noted that, like every healthcare plan, HSAs vary from plan to plan, with some covering dental, while others exclusively cover pharmaceutical expenses. Let us look at an example of one that could potentially save your family money down the road. First, you will need to buy into an HSA by purchasing a plan with a deductible of at least $1,350.

You will need to choose a high-deductible (and thus low premium) healthcare plan from a state exchange. Then you will need to contribute as much money into the account as possible (the maximum being $3,500 for an individual and $9,000 for a family in a year). The reason to contribute the maximum amount possible is that you can never be too prepared for a potentially high healthcare cost in the future, and HSAs have the unique ability to allow users to roll over their previous account balances into the next year. That means that you could potentially save $13,800 in two years to pay for your families' medical expenses.

According to the Heritage Foundation, "approximately 55 percent of individuals reporting HSA contributions in 2004 did not withdraw any funds from their accounts in the entire year." This is most likely a result of the fact that HSAs are typically combined with more traditional healthcare insurance plans through your employer or the government. Now that we know what a health savings account is, let us talk about how the three groups of consumers (individuals with low, moderate, and high healthcare expenses) can each benefit from setting aside money in a "healthcare piggy bank".

Again from the Heritage Foundation, "for those with low healthcare expenses, HSAs provide a sufficient level of health insurance, with catastrophic and preventative care coverage, while freeing up dollars for future health care expenses." This option would work best for someone like myself, a 20-something, relatively healthy adult who does not require comprehensive health coverage because we are less likely to become ill.

Individuals who have moderate healthcare expenses could benefit from HSAs because the plans have lower premiums (with higher deductibles), and allow for greater flexibility and the ability for consumers to be more prudent when deciding when and where to spend their HSA dollars. This option would work best for someone like my mother, who is in her early 50s and is a relatively healthy, non-smoker who has not had any serious health complications thus far.

People who have high healthcare costs, while unable to save as much for future expenses, would still have the freedom to choose how their money is spent. One example of consumer freedom in HSAs is that they could redirect their dollars from costly premiums (which you would use a lot if you have high healthcare costs) to direct payment for the medical expenses which they deem appropriate.

Of course, no policy is without its drawbacks, and HSAs are no exception. To improve the economic viability of HSAs, it is necessary to enact certain changes to healthcare policy. This is exactly what Rep. Mike Gallagher (R-Wis.) was trying to do when he introduced H.R. 603, the Health Savings Account Expansion Act to the United States Congress. The bill, among other improvements, seeks to increase the maximum contribution for an individual from $3,450 to $6,850, and family contributions from $9,000 to $18,000 per year. This would enable individuals and families to save even more money for their potential medical costs in the future.

The bill would also allow HSAs to cover over-the-counter purchases, which is currently prohibited under the Affordable Care Act. Rep. Gallagher's bill would also free up individuals to use HSAs to pay for their insurance premiums and other direct primary care expenses. This is a common-sense solution. After all, if you are putting money aside to pay for your own medical expenses, you should be able to pay for your medical insurance with those funds.

Finally, this bill would lower the tax penalty for using your funds to pay for non-medical expenses from 20% to 10%. The reason being that it is your money that you have set aside, so you should be able to use it however you see fit.

Clearly, health savings accounts are a smart way to save money for the unplannable medical issues you may have in the future. Given the affordability and convenience presented by HSAs, it is no wonder that between 2006 and 2016, the number of people covered under these plans increased from 3.2 million to 20 million individuals. It is possible that HSAs could usher in a more nuanced approach to paying for healthcare, and the Wyoming Liberty Group encourages you to look into them for yourselves.