Universal Health Savings Accounts

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Voluntary Health Reform >> Universal Health Savings Accounts

 

This proposal by John Goodman and Peter Ferrara incorporates both individual pay or play and health status insurance in a model of universal health savings accounts that would replace private heath insurance, with Medicaid as a universal back-up option.

  • Eligibility: Every potential buyer of private health insurance (roughly 200 million people) would be eligible for fixed tax credits that are refundable, advanceable and transferable. These could vary by age (e.g., $1,500 per child, $2,500 per adult).  Medicaid would become a public plan open to anyone.
  • Benefits: tax credits could be used towards the purchase of private health insurance and deposits to a Roth Health Savings Account, but would go to a local safety net institution in the case of individuals who elected not to purchase coverage. If someone joins Medicaid, their tax credit would be sent to the Medicaid program and the individual would pay a premium reflecting the difference between the tax credit plus whatever income-related amount each state elects to provide and the expected cost of their Medicaid coverage. Conversely, if someone leaves Medicaid, the expected cost of their Medicaid coverage (i.e., a risk-adjusted amount plus income-related amount that would vary by state) could be applied to the purchase of private coverage, with the individual making up any premium difference out of pocket.
  • Freedom of Choice: this proposal would expand freedom of choice for most Americans. Those purchasing coverage for less than the combined amount of the credit and employer fixed dollar contributions could keep the savings while those purchasing more expensive coverage would do so with after-tax dollars.
  • Financing. All existing federal, state and local subsidies for health insurance coverage (roughly $300 billion) would be supplemented with another $100 billion in conditional tax breaks and converted to fixed tax credits. Individuals may supplement their health insurance or Roth HSA contributions with after-tax dollars. Employers could continue to provide health coverage, but the tax exclusion for such coverage would be eliminated. The higher taxes paid for health benefits would be partially or fully offset by the fixed tax credits. Individuals who became uninsured would lose their tax credit which instead would be transferred to their local safety net institution. Conversely, previously uninsured individuals who became insured would receive the $2,000 tax credit while their local safety net institution would receive $2,000 less that year reflecting reduced need for safety net services. States would be given a block grant for Medicaid, which would encourage them to use managed care, competitive bidding by health care providers, comprehensive case management by private insurers for those on Medicaid, and to shift more long term care out of nursing homes to home and community-based care.
  • Regulation: employers would be permitted to buy portable insurance for their employees provided they make a defined contribution. Any difference between the employer contribution and the actual premium for coverage would be deducted or added to the worker’s paycheck. insurers could risk rate individuals under certain circumstances. For individuals moving from non-group health coverage, insurance must be guaranteed renewable, the insurer must offer health status insurance and must take all comers. However, they will have access to a federal high risk pool for their highest cost enrollees.

Theory

Practice

  • HSA Allowable Health Care Expenses. This is a detailed alphabetical compilation of commonly incurred medical expenses based on various IRS rulings and publications listing whether they are HSA-reimbursable and under what conditions.
  • Other Countries. No modern industrialized nation has adopted this approach to national health insurance. The closest parallel is Singapore’s Medishield program. However, this is a compulsory approach in which individuals with mandatory Medisave accounts are automatically enrolled (and premiums paid from their Medisave accounts) unless they request not to be enrolled. Medishield has a high deductible and only covers hospital expenses and certain expensive outpatient treatments, such as kidney dialysis and outpatient cancer treatments, but note that the entire arrangement is on top of mandatory and universal Medisave accounts to which all citizens are required to contribute 6-8 percent of earnings up to a maximum dollar limit; these latter accounts pay for the lion’s share of medical expenses in Singapore.