I like HSAs. I like the tax break they give consumers who are able to fund them. I like the lower premiums that come with high-deductible health insurance policies. I like the simplicity of said policies – especially if they offer 100% coverage after the deductible. I like a system that rewards people for putting a little money aside whenever they can, in order to be able to pay for medical bills when the need arises. And we encourage our clients in Colorado to apply for high deductible health insurance and set up HSAs if they are in a position to do so. But high deductible health plans are not for everyone. And people who struggle just to pay the premiums on these plans are not likely to be able to fund an HSA. Critics argue that they are just a tax-break for people who don’t really need any more tax breaks. But Brian Schwartz from Patient Power has an interesting article about how the merits of HSAs really rest in the more equitable tax system they bring to the financing of health care. He argues that the current tax exemption on premiums for employer-sponsored health insurance is inherently unfair to those of us who don’t have access to employer-sponsored coverage, or for those who would rather choose from the wider array of options available on the individual market, as opposed to having to accept whatever health insurance plans their employers are offering. He makes some very good points. Jay and I are both employees of our corporation, but we have individual health insurance for our family. Since we’re not self-employed, we are not able to deduct the premiums that we pay (roughly $5000/year). We can deduct money we put into our HSA, but not our premiums. If we were to set up a group health insurance policy instead, we could deduct all of our premiums, in addition to the money we put into our HSA. But then our health insurance would be tied to our employment and our company. Our situation is a bit more secure than most, since we own the company that we work for. But for most employees, accepting employer-sponsored health insurance means accepting that a job loss would also lead to an eventual loss of health insurance.
I don’t think that we should end the tax deduction for employers who offer health insurance to their employees. I think without it, far fewer employers would find it cost effective to provide health insurance, leaving a lot more people on their own to find individual health insurance in the “free market.” And for people with pre-existing conditions, that can be a daunting task. Instead, I like Brian’s second suggestion, that we provide more tax deductions for health insurance premiums and health care costs. I think that health insurance premiums should be tax-deductible for group and individual health insurance policies, regardless of who is paying the premiums. I like the idea that anyone be allowed to set up an HSA, without restrictions calling for a specific type of health insurance policy, or a high deductible. Or in lieu of that, at least allow people to deduct all health care expenses, not just the amount that is more than 7.5% of their income. Tax breaks for health care expenses shouldn’t be limited to those who have the means to fund an HSA, or to people who unfortunately have significantly high medical bills relative to their income.