For nearly two decades, health savings accounts (HSAs) have helped people use tax-preferred dollars for health care spending and save for future medical expenses. They also are a central element in health sector reform by creating incentives for cost-conscious consumers to search for value. This in turn motivates medical providers to improve quality and efficiency.
While HSAs are extremely valuable, the funds cannot be used to pay most health insurance premiums. Fortunately, a new rule from the Trump Administration permits employers to use tax-preferred dollars to fund health reimbursement arrangements (HRAs) to reimburse employees for premiums for individual-market health insurance they purchase.
The HRA rule, which took effect on January 1, 2020, has the potential to significantly expand employees’ control over their health insurance since most employers that offer health benefits provide only a single choice of health plan. Combining HSAs with individual-coverage HRAs will maximize employees’ choices and give them more control over their current and future health care and coverage needs.
Individual-coverage HRAs, combined with HSAs, have the potential to be as transformative for health care as the 401k option has been over the last several decades for employee retirement benefits.
Galen Senior Fellow Brian Blase has written the definitive paper describing for policymakers, employers, and American families and employees how these two tax-preferred vehicles can work together to give people resources to gain more control over their health care and coverage choices.
And they even can bridge the deep partisan divide on health care:
- For Democrats, the HRA rule can be viewed as expanding the Affordable Care Act, where tax-free employer contributions are leveraged by employees to boost individual market coverage.
- For Republicans, a long-standing policy goal has been to move from health benefit plans to defined contribution arrangements where employees have greater choice and control over their coverage.
Both parties would like health insurance to be more portable to reduce job lock and give families greater flexibility and security. These combined plans chart a path to achieving those goals.
Brian’s paper is a must read for employers, employee benefits managers and consultants, and agents and brokers helping businesses with their benefit plans. It also is a guide for policymakers seeking new ways to build on this important and potentially transformative health benefits platform.
