In anticipation that the Supreme Court might rule in favor of ObamaCare, Avik Roy wrote in Forbes magazine that Health Savings Plans (HSAs) would be negatively impacted and possibly forced out of existence.
HSAs were first allowed under law as part of President George W. Bush’s prescription drug program passed in 2003. At the time it seemed a common sense answer to a sticky problem: over usage of health insurance benefits and the consequent rising costs to pay for that over usage.
Most of the health insurance offered by employers featured low-deductible, high-premium plans with some form of cost-sharing between employers and the covered employees. The premium for a family of four, for instance, might run $14,000 a year for insurance with a $200 deductible. The reason the premium was so high was because the plan covered nearly everything that could be crammed into the definition of “health care": regular checkups, coughs due to colds, elevated temperatures, minor scrapes, and so forth.
Plans with much higher deductibles, however, began to gain acceptance. That same family of four would have a premium of just $8,000 annually if their deductible were, say, $2,000 instead of $200. There were several obvious advantages: Aside from the $6,000 in annual savings in premiums, the plan rarely was used except for truly major medical expenses: serious illnesses, horrific accidents and the like. The deductible was paid by the family out-of-pocket, which meant that family was much more prudent about deciding if a doctor’s visit was really necessary.
HSAs amplified the advantage by allowing employees to deposit some of that $6,000 savings into a plan with some tax benefits: Those deposits were “before-tax” and monies could be withdrawn from the plan, when needed, without incurring a tax penalty. It was like paying medical expenses on a pre-tax basis. Additionally, any amounts not used up in a year were allowed to accumulate tax-free, and could, upon retirement, be used for other purposes, with taxes levied the same as withdrawals from an IRA.
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