House Obamacare Repeal Bill Limits HSAs for Millions of Americans

Hand Holding Cash ca. 1998

Hand Holding Cash ca. 1998

The House Republican American Health Care Act Managers Amendment would not allow Americans to use their tax credits to fund an HSA. Instead of using their tax credit/HSA to pay for doctor visits, prescriptions and OTC drugs, Americans will only be allowed to use their credit for insurance. This is a big mistake – and a giveaway to insurers. Millions more Americans would have an HSA if the proposed $2,000 to $4,000 tax credits were automatically deposited into individuals’ HSAs for use on health insurance premiums, copays, cost-sharing and paying for direct care.

If allowed to do so, many people may even decide to forgo health insurance coverage and use the HSA to pay directly for medical care. For most people (well over half the population), an HSA with $2,000 to $4,000 would be sufficient to fund their entire health care needs in cash. Not allowing funds (or excess funds after insurance premiums) to be deposited into an HSA will take away HSAs from millions of Americans, increase their out-of-pocket costs and lower their access to primary care in the process.

This latest amendment is baffling. The Obama Administration and numerous public health advocates have long hated HSAs because they view the ability to stockpile health care funds for yourself – for later use – violates the tenants of solidarity. Left wingers want everybody to pay into the system so those with medical needs can withdraw from the system. That’s socialism and that’s what Obamacare has done: millions of Americans now have health insurance coverage with deductibles so high that it pays little if any of their routine medical bills. But all plans are required have no annual limits or lifetime limits on benefits. Stated another way, people are required to buy health coverage that is not expected to pay for their own care; rather it’s designed to pay for someone else’s catastrophic medical needs. There is nothing wrong with pooling risk, but Obamacare goes far beyond pooling risk.

The key to reining-in runaway health costs is not to boost coverage to more and more people as Obamacare did. The key to slowing the growth in health care spending is to make more and more people care about their medical spending. To this end, it would actually be better for the system if millions of Americans decided to forgo insurance and used their tax credits on direct primary care. That is something that most policy wonks fail to understand. Increasing health insurance coverage and making it sky-is-the-limit does not reduce health care expenditures; starving the beast would though.

Purportedly the change in the language in the managers amendment preventing individuals from depositing funds from their tax credit into HSAs was designed to appease those who do not want anyone to have the ability to use their tax credit for an abortion. I can hardly think of a more short-sighted decision. The odds of that happening is so small as to be on-existent. Besides, money is fungible.

Comments (27)

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  1. Lee Benham says:

    Apparently they are not realizing in order to have a HSA account you must first establish an HSA qualified health insurance plan. You can’t have a health savings account with out having the insurance in place first ….

    • Devon Herrick says:

      Of course under current law you cannot deposit funds into an HSA without qualifying coverage. The Manager’s Amendment went even farther, saying even if you have qualifying coverage, you cannot deposit the excess tax credit funds into an HSA.

      It was my idea that the treasury regulations should be changed in the reconciliation bill to allow anyone to deposit their tax credit tax free into an HSA. They could still be prevented from depositing additional funds unless they have a qualifying plan but I’d even do away with that provision.

  2. Lee Benham says:

    Well this is good news.

    Company to bail out on its customers and let agents clean up their mess. (Oh wait, what agents)

    A nonprofit support group for Affordable Care Act public exchange program enrollers says it is closing down.

    Enroll America will end most operations in its headquarters in Washington at the end of April, and it will shut down regional operations in states like Florida and Texas a few months later, according to Anne Filipic, the group’s president.

    http://www.lifehealthpro.com/2017/03/16/enroll-america-to-shut-down?

  3. Bob Hertz says:

    1. Based on the likely increases in health premiums for guaranteed issue coverage, I cannot imagine too many persons having any tax credit money left over to put into an HSA.
    Certainly no one over the age of 50, after the 5:1 ratio goes into effect.

    This might change if tax credits were to apply to limited-benefit coverage. That is not looking too good right now.

    2. I read that conservatives actually pumped for the new limitation on HSA redirected spending, because they thought the money might be used to pay for abortions.

    I respect the anti-abortion movement in general, but this particular gambit seems bizarre to me.

    • Devon Herrick says:

      No kidding… And what about the Christian Caring & Sharing ministries whose members could certainly use an HSA to help offset the cost of their care.

    • Bart I says:

      If there’s tax credit money leftover after paying the premium, then isn’t the tax credit too large? I guess it goes back to the question, “what is the purpose of the tax credit?”

      I always pictured it as (1) a fairer alternative to the individual mandate penalties, (2) compensating individuals for the hidden tax of guaranteed issue versus pre-ACA underwriting, and (3) removing the disincentive to purchase coverage caused by the mandated higher premiums. Essentially three ways of saying the same thing.

      There may be other justifications for a tax credit, but I haven’t seen them enumerated anywhere.

      For a 60-year-old with a $12K premium, a $4K tax credit pays 33%. That actually seems reasonable to me (although I don’t know if the $12K is realistic). It’s the idea of free coverage that bothers me. It sounds like the young family in Iowa is being encouraged to shop for a luxury plan with plenty of first-dollar coverage in order to use up the tax credit.

  4. Jimbino says:

    RE: “violates the tenants of solidarity.” The proper word is tenet(s).

    I view anyone who participates in insurance rather than Medical Tourism as a fool, seeing that cash can buy you much more medical value in the infinite network overseas. And when you find your doc in Costa Rica, you can keep him/her!

  5. James Gelfand says:

    You could tell this was coming when Family Research Council began complaining, as soon as the bill was released, that this was a secret giveaway to Planned Parenthood.

    Now millions of people will end up with less money to help pay for health care.

  6. Lee Benham says:

    They are worried about abortions? They should be more concerned with what some people will actually do. Like use the money to fix their cars or buy beer, payoff gambling debts or pay for hookers.
    Desperate people will do desperate things. If they have cash setting in an HSA and they can’t make the rent payment they will use the money for rent. They will pay a penalty of 10% for using it for none medical reasons, so what they made rent.
    I say let them spend and pay the penalty. The 10% is less than the payroll tax and any money they spend will help the economy grow. We will never be able to solve the IQ problem of giving people money for one thing and they spend it on other things. As evidence I submit the history of our own government.

    • I think you have hit the nail on the head. The IRS regulates which expenses are HSA-eligible. Those that are not get a 10 percent penalty. The pro-life community could advocate a way to prevent tax credits being used for abortion via regulation, rather than stifling HSAs.

    • Bart I says:

      Are you sure it’s not 10 percent on top of the distribution being taxable?

      • Lee Benham says:

        yes it is taxable plus 10%. however if it was money they received as a tax credit that was deposited to the HSA it wasn’t their money its us tax payers money. So we kind of get a little back.

        • Ron Greiner says:

          Lee, so the good news is there is no commission on the tax-free HSA even if it is the best for the consumer. But, if all tax credit has to go to insurance we make more so not all is lost my friend.

  7. Don Levit says:

    That is bad news
    Hopefully the limited benefit plans will still be eligible and plans which do not meet 60 percent actuarial value
    I was hoping the Health Matching Account would qualify
    The demand has been awesome so not having the tax credits is not that debilitating
    When you have double the dollars of an HSA even if it earns 10 percent, the HMA will quickly make the HSA obsolete
    By accumulating 213(d) medical dollars instead of cash, decades of actuarial claims statistics determining the increased monthly growth. With cash based accounts growth is either piddly interest or a rigged stock market. Why depend on fantasy when you can rely on facts?

    • Ron Greiner says:

      Don, you spew, “the HMA will quickly make the HSA obsolete.” Please Don you only spew garbage. When you 1st showed up at the NCPA blog you said your goofball HMA was like an HSA and we proved you wrong. YOU keep coming back and when we ask you questions you say it can’t be discussed in an open forum and want personal meetings with us and nobody wants to do that.

      With the tax free HSA people can purchase real estate with their HSA balance, can you do that with your low-rent HMA?

  8. Ron Greiner says:

    The Insurance industry bought off those CONSERVATIVES because they don’t want any of “their” money going to the people, like always. So now a 30-year-old couple and 2 children will get as low as deductible as they can with the $9,000 tax credit and ALL MONEY will go to the insurance company. These dirt-bags.

    30-year-old couple + 2 kids = $9,000 tax credit TAMPA zip 34691

    $5000 deductible = $4,368 + HSA deposit = $4,632

    OR

    $1,000 deductible = $11,448 so they only owe $204/month

    BIG MONEY BOUGHT CONSERVATIVES with fake abortion reason.

    • Barry Carol says:

      Ron – Is that an apples to apples comparison? Who in their mind would pay $7K more in annual premiums to shrink their deductible by $4,000 if everything else is equal in terms of out-of-pocket maximum amounts, scope of coverage and breadth of network? It doesn’t make any sense. Or are you comparing an underwritten STM plan to a guaranteed issue exchange gold level plan?

      When I went on Medicare, I looked at supplemental plans with a zero deductible and a $2,000 deductible. The premium for the $2,000 deductible was $800 per year cheaper than the zero deductible policy. The insurer was implicitly assuming that the premium savings would incur medical claims costs equal to 60% of the incremental deductible and would make the same gross profit from either plan. As it happens, I’m told that the overall medical cost ratio on supplemental plans is about 65% as they are not subject to the MLR rules and are quite profitable for insurers and the AARP when it partners with an insurer to offer co-branded products.

      • Barry Carol says:

        Correction: Who in their right mind …

      • Ron Greiner says:

        Barry — this is an apples to apples comparison. Don’t try and use logic on me. I train agents that are selling to someone who is paying $1,200 a month with a $1,000 deductible when they say they can’t afford a $5,000 deductible, “Let’s pretend you had my $5,000 deductible now, would you pay $8,000 a year more to lower your deductible $4,000?” Then the prospect says, “NO, that would be stupid.” Then the agent closes with, “That is what I’m trying to get you to understand.” Then the agent MUST end with a question, “Doesn’t it make more sense to put that extra money into your own tax-free HSA?”

        Then the prospect says, “Yes, that makes sense.” Then the agent sticks his hand out and the prospect shakes it. We call this getting “SKIN”. Once the prospect gives you “SKIN” they have to purchase or otherwise they have broken their word and will look foolish and people don’t like to do that. It’s all in the mind Barry.

        YES, that is the prices on the same product with the different deductibles.

    • Bob Hertz says:

      according to healthcare.gov, an ACA qualified Ambetter plan in Tampa for a family of four with a $4500 deductible costs $987.26 per month. ($11,847 a year)
      You say that a $5000 deductible plan would cost $4,368 a year, which is way different.

      You may be assuming that short term plans will be eligible for tax credits. That is not a sure thing!

  9. Don Levit says:

    Rob
    The HMA is not cash based
    It accumulates 213(d) medical dollars so crediting is done through actuarial pooling, not investments
    Licensed insurance brokers who wish to be part of our growing community, call customer service at 877-850-8532 to set up a go to meeting

    • Ron Greiner says:

      Duck, 213(d) medical dollars are called Qualified Medical Expenses (QME) by HSA sales people. I have read your comment several times and it means nothing to me and you are asking for people to go to your meeting scams again.

      Do you wait till their is an HSA story here at the NCPA blog to pollute the thread with your scam?

      No one is going to your meeting like always.

  10. Jimbino says:

    The expected return on a dollar spend on health insurance is on the order of $0.80; for a spin of the Roulette wheel, it’s on the order or $0.96; for a hand of Blackjack, it approaches $1.00.

    Both SS and Medicare return much less than most any gambling game. And none of the insurance options are any fun to participate in, while it’s fun to watch the spin of a roulette wheel!

    So it’s wiser to gamble than to pay into any insurance.

    • John Fembup says:

      “The expected return on a dollar spend on health insurance is on the order of $0.80”

      Jimbino, each time you beat that drum, you rely on an unstated assumption that one’s “health care” will never cost more than their insurance premium. That’s obviously incorrect.

      If your assumption were correct the purchase of fire insurance on a house that never burns down would mean paying an infinitely large premium over the cash value of the benefit. Which is absurd.

      In every case, people who buy insurance are paying someone to insure them against risks they choose not to bear on their own, and are paying someone to administer that insurance. The risk and the admin are both costs. Those costs go into the premium. They make up the other $0.20 on the dollar you like to disregard. If you believe you will never have medical expenses greater than your premium, then don’t buy insurance, I won’t mind. But most people are not so confident – or clairvoyant.

      You also like to assume that a claim ratio of $0.80 to the dollar is always the same for all policies. It’s not. The difference for some policies is as little as $0.05, depending on economies of scale which are least for individuals and greatest for large employer-sponsored groups.

      One more thing: what no one really needs is “health insurance”. That’s because health care is free or nearly free, so there is no need for “health insurance” It’s medical care that can get very expensive – which is why most people need medical insurance. That’s what you meant – right, Jimbino?

  11. Don Levit says:

    The ratio of payouts to premiums may be 80-85 percent for the group but for claims over $50,000 it could range from 3 to 1 to 1,000 to 1 and more
    Take a family with an average group premium of $18,000 and a $2,000 deductible
    Before receiving significant benefits, they spend $20,000
    A $40,000 claim provides a 2 to 1 return while the chance of a $40,000 claim is 1 out of 15
    That is a casino I would avoid

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