HSAs are A-Okay

My Congressman, Tom Rice, sends out little e-mail updates on a regular basis.  In his latest newsletter, the South Carolina US-7 representative included a link to a video (below) of his statements before Congress about expanding Health Savings Accounts, or HSAs.

The gist of the proposal is to expand health-savings accounts to allow account holders to contribute more to them.  The current legal annual contribution (in FY2018) for a single individual is $3450, up from $3400 last year and $3350 the year before.  That comes out to $287.50 a month, which can be contributed pre-tax directly from an account holder’s paycheck.

The way the law is currently written, HSAs are excellent both to cover medical expenses before reaching your deductible (and, naturally, most HSA-compliant plans are high deductible ones) and to save and invest for retirement.  You can accrue a qualified medical expense today—say, a visit to the emergency room—and you can submit that receipt in a decade (or longer—there’s no apparent time-limit) to take out that amount.

To give a hypothetical:  let’s say you have a medical bill for $3000.  Yes, your annual contribution to your HSA could cover that.  But, let’s say you’ve built up a good emergency fund, and elect to pay the bill out-of-pocket through that fund.  In, say, five years, you need to tap your HSA funds for some reason.  If you’ve kept the receipt (and credit card statements help, too), you can file that with your HSA and withdraw the $3000.

Why go through the trouble?  Because many HSA administrators—including my own, HealthSavings Administrators—allow you to invest in mutual funds with your HSA contributions.  If you’re making an 8% annual return on those contributions, that $3000 today will be worth around $4100 in five years (investment math folks, please check my numbers; regardless, you get the point—money grows).

Alternatively, if you don’t tap that money for decades—and keep contributing—you’ll have a very nice retirement account growing tax-free for all those years.

My current health insurance carries a $6550 deductible—which I didn’t even come close to hitting in 2017 when I broke my left wrist, although it was still expensive—but I’ve accrued enough of an emergency fund that I could meet that expense should the need arise (I pray it doesn’t).  If my emergency fund were sunk into something else—say, a new car, or a less flood-prone house—then I could tap into my HSA contributions from the past few years.

And here is the other benefit of HSAs, the one that I’m sure Congressman Rice as in mind:  they help you reach your deductible, and bring some market forces to bear on healthcare costs.

I suspect that one of the culprits of high healthcare costs is the lack of transparency—no one knows how much anything costs, and everything is fungible.  When I broke my wrist, I received a hefty ER bill (about $3000) about four months after the fall (I don’t understand the delay on that; it seems like they could just tally it all up and print it out at the time of the accident).  I called the hospital, and they told they were “running a special”—if I paid in full that day, they’d knock HALF of the cost off the bill.  Because I’m an extreme budgeter and have an emergency fund, I could do it, and leaped at the “special.”

Most people don’t have enough money saved up to even meet a $500 emergency, but an HSA makes it more doable.  Even without an emergency fund, if an account holder were making monthly contributions, he’d be able to take advantage of such price reductions.

HSAs aren’t a magic bullet to bringing down healthcare costs, but they would go a long way to addressing the problem.  If we lived in a pre-Obamacare age, you’d be able to get a high-deductible, HSA-compliant plan for probably $50-100 a month, depending on age and health.  Even if you didn’t want to manage the money in various investments, the incentives to save—namely, the pre-tax benefit—are enough that many Americans would likely take contribute to their HSA.

When Secretary of Housing and Urban Development Ben Carson was running for president in 2015-2016, he proposed transferable, minimally-funded ($5000 at birth, I believe) HSAs be issued for all Americans.  The ability to transfer funds between family members and to grow that wealth over time would be huge.

Similarly, President George W. Bush proposed giving Americans the option to contribute their Social Security contributions into personally-managed investment accounts.  That would reduce the astronomical costs of that federal boondoggle and give Americans much greater returns on their investments.  Naturally, Democrats rejected that plan out of hand, and accused Bush of hating old people.  Yeesh.

The takeaway is this:  whether it’s in healthcare or retirement savings, the American people know best.  Yes, we’d need some additional financial education—which we desperately need anyway—but, c’mon, are you going to continue running the same inefficient, wasteful systems just because a small percentage of people won’t adequately manage their money?

Liberty works in nearly every arena, and it would work in healthcare and health insurance, too.  HSAs are the wave of the future, and I’m glad to see Tom Rice is championing them.

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