Health (and Retirement) Savings Accounts: Additions Toward Lifelong Health Insurance
If you are a fast reader, we begin with a five-minute summary of Health Savings Accounts.
Health Savings Accounts
Enacted 2003. Subscribers as of Jan.1, 2015: 17 million.
Provisions: Briefly stated, any approved high-deductible indemnity health insurance plan, when attached to an approved tax-deductible savings account for the accumulation of the insurance deductible, or payment of other medical expenses. Deposits are limited to $3,400 tax-deductible annually, and are not taxable on withdrawal for medical purposes. Accounts presently may not be used to pay the insurance premium. The account is exchanged for a regular IRA at the time the subscriber begins Medicare coverage. (In this sense, an overfunded account earns interest until age 66 when unused funds are taxed but exchanged for any Individual Retirement Account which may then be used for any purpose. Up until that time, there is a 20% penalty for funds used for non-medical purposes.)
Suggested technical amendments: 1. Permit the account portion to pay the premiums for the insurance portion, making the entire Health Savings Account tax exempt. 2. Improve flexibility by eliminating age and employment limits. 3. Relax the deposit limits with a COLA and switch from annual limits to lifetime limits.
Suggested regulatory changes: 1. Limit costs and charges for deposits, withdrawals, and investment income to 1%, applying all the rest to the customer's account. The main purpose was not rationing, but to block expansion from Congressional intent of before-tax funding of deductibles, health expenses and retirements. 2. Permit subscribers the option to purchase index funds and take delivery on the certificates into defined escrow sub-accounts.
Suggested Areas for Future Expansion:
1. First/Last Years-of-Life Re-insurance. (To shorten the transition but extend the period for compounding interest, plus reduction of Retirement cost.) These four years consume 50% of medical costs. They are seldom paid by the patient himself, and affect 100% of the population. The present system is largely a transfer system to these four years, paid for by people who are not themselves sick.
2. Study how the savings from future disease cures could be applied to retirement (rather than mis-applied to battleships, etc) by flowing such savings into HSAs. The planning should contemplate eliminating Medicare gradually as its need disappears, a feature seldom included in the design of entitlements.
3. Study the Dis-intermediation of HSA investing. Privatization creates complicated agency problems, sometimes with excessive costs. Savings are possible from investing rather than borrowing, but the savings should reflect the risks better. The problem is how to invest several percent of GDP without using price controls.
4. Decentralize. Centralization of medical care has led to running it at great intermediary cost, unlike most businesses which become cheaper if centralized. Old people have most of the disease and do most of the medical commuting. The effective way to restore physician control is to decentralize from urban silos to suburban retirement communities. To do so gracefully, requires protracted planning. Begin with the Maricopa case of the U.S. Supreme Court.