An abbreviated version was published in The Des Moines Register on July 5, 2008
Nearly 98,000 Iowans with health insurance that's compatible with a health savings account could get slapped with new paperwork requirements from Congress.
Created in 2004, HSAs are a proven way to make insurance more affordable and to give people more control over their health spending.
Unfortunately, some federal lawmakers seem opposed to any type of free-market health reform solution. So they're trying to undermine HSAs. It would be a travesty if these lawmakers were to succeed, especially since HSAs are an attractive new option for the uninsured.
To qualify for an HSA, individuals or families purchase health insurance with a higher-than-usual deductible – health insurance that is typically less expensive than a traditional policy. Then, they can put their savings into an HSA, similar to a 401-K account that's free of federal and most state taxes. The money stays with them from job to job and rolls over from year to year.
Users pay more of their medical bills up front, but in return, they save money with lower insurance premiums and get more control over where their money goes.
In just four years since they were created, HSAs have become enormously popular. According to a just-released survey, more than six million Americans now have HSA-compatible insurance plans. Best of all, 1.6 million Americans have left the ranks of the uninsured thanks to HSAs.
Despite all this, there's a push in Congress to make HSAs less appealing.
Withdrawals from the HSA must be spent on medical expenses, such as doctors’ visits, lab tests, and some prescription drugs.
Under a measure recently passed in the House, federal regulators would need proof that each withdrawal from an HSA is spent on qualified medical expenses. The bill is now awaiting approval in the Senate.
The prospect of navigating an administrative labyrinth would scare many people away from HSAs.
Substantiating expenses would be a costly and time-consuming process. And, undoubtedly, HSA providers would simply pass these new administrative expenses along to account holders. Experts estimate that the requirement could double the monthly account fees charged to HSA users.
Forcing people to get permission for every HSA expense in real time also would slow down health care transactions. Before you could withdraw $50 for your doctor’s visit, for instance, you might first need to prove to your bank where the money is going. And before your bank could let you have the money, it might have to prove to the feds that the money is going toward a qualified medical expense.
That’s a recipe for frustration. Government bureaucrats aren’t known for their efficiency. That’s why we all dread dealing with the tax man and government regulators.
The ostensible reason for the substantiation requirement is that HSAs are prone to abuse because expenditures are self-reported by account holders.
There is, admittedly, a risk that people will lie about where their money goes, just as there’s a risk people will cheat on their taxes.
But there already are safeguards in place.
Most HSA payments are made with a specially designated debit card, so it’s easy to track where the money goes.
Unqualified withdrawals are subject to taxes plus a 10 percent penalty.
And, according to a study from the Government Accountability Office, at least 90 percent of HSA withdrawals last year went toward qualified medical expenses.
So what’s really driving the anti-HSA crusade? Politics. Opponents claim that HSAs are a tax shelter for the rich and are attractive only to the young and healthy.
But according to a new survey from America's Health Insurance Plans, a national association representing more than 1,300 insurance providers, the fastest growing constituency for HSAs is the small-group market, which is largely comprised of small businesses. HSAs have become an invaluable tool for fledgling employers looking to avoid the rising tide of health costs. And they've helped provide low- and middle-income Americans with more affordable health insurance options.
Lawmakers shouldn’t be throwing up administrative hurdles to keep Americans away from HSAs. Let’s hope petty politics doesn’t trump sound policy in the Senate.
Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market solutions to health reform. She can be reached at P.O. Box 320010, Alexandria, VA, or at firstname.lastname@example.org.