May 18, 2020
By Trevor Bratton
While the COVID-19 outbreak has highlighted flaws in our current system of health insurance, it’s also given us an opportunity to build a better system—one where buying power rests more in the hands of the people.
Nearly 26 million Americans have lost their jobs due to the coronavirus pandemic, with many also expected to lose their health insurance. Coronavirus pays no mind to whether someone has access to health insurance or not—and now more than ever, it’s important to give more Americans flexibility and portability in their insurance. That’s exactly what health savings accounts (HSAs) do—an HSA can travel with a worker who loses their job and allows them to contribute and withdraw funds tax-free for future healthcare costs.
Currently, HSAs are restricted to a relatively small subset of the population—those with high deductible health plans (HDHP). Of those 218 million people privately insured, 178 million of those employer-based, only about 85 million hold HDHPs and are currently eligible for HSA enrollment. 111 million people, on the other hand, have public insurance and are not eligible. But in the face of the COVID-19 challenge, it’s time to expand HSA eligibility to people without private insurance or HDHPs and to those that have public insurance.
Right now, only about 10.5% of insured individuals have their healthcare spending in their hands and are taking advantage of the tax deductions these accounts provide. Everyone else, however, is either paying out-of-pocket with no tax relief, relying on government, or solely relying on their employer-sponsored plan.
But what if an expansion of HSAs allowed more workers to have access before the pandemic hit, or at least in the future? While not a cure-all, if all Americans had the opportunity to access HSAs regardless of whether they have lost a job, it would make today’s economic pain sting a little less when the medical bills come due.
Take the example of John, a hypothetical father of two, who lost his job and his private health insurance in the midst of the pandemic. John’s developed a burning cough, and especially with two children, this is not just cause for medical concern but for financial concern, too. With the HSA John has been contributing to for the last two years, the growing weight on his shoulders is relieved—if only a little—knowing he has access to funds heworked hard for,built for himself, and that make it possible to tell his kids that, financially, they’ll be okay.
But it’s not enough only to expand HSA eligibility; restrictions on their use should be eased as well. Current law stops funds from being used for insurance premiums, general expenses that may benefit health, and many over-the-counter treatments. HSA expansion should encompass these costs as well. Phase 3 of the coronavirus relief CARES Act took a step in the right direction by allowing HSA funds to be used for many common necessities like menstrual products and over-the-counter medications whose costs add up over time.
Moreover, since healthcare costs outpace inflation, so too should the maximum yearly contribution. It only makes sense to allow people to save more if the product they’re using the money for becomes more expensive.
Money withdrawn from an HSA for healthcare costs frees up funds to be used for other expenses like utility bills, rent, or groceries. In other words, an expansion of HSA eligibility and contribution means potentially more buying power not only in healthcare, but in other areas as well.
In the long run, an expansion of HSAs would enable personal responsibility in healthcare and encourage savings for future expenses, another pandemic, job loss, or other urgent concern. Phase 4 of coronavirus relief has the opportunity to do just this. Relief from healthcare costs is a bipartisan issue, and members of Congress should take initiative to give expanding HSAs a hard look.
Trevor Bratton is a Policy Analyst Fellow at the Goldwater Institute.