Putting Patients First: The Case for Individual Health Accounts
Published January 11, 2024
The current healthcare system in the United States has major problems like rising costs and millions of uninsured, in large part because third parties like employers and the government negotiate healthcare costs behind the scenes. While it might be convenient, these behind-the-scenes negotiations prevent patients from being informed and from understanding the true cost of their healthcare. Individual Health Accounts are a consumer-driven approach that would create a path to lower healthcare costs and can help millions of uninsured Americans find coverage. IHAs would let patients save tax-free for out-of-pocket expenses, empowers them to make cost-effective and informed decisions, and, ultimately, allows the individual to take charge.
Additional Resources:
>> Lanhee Chen: Our healthcare system is wonderful in so many ways, but major problems remain, millions are uninsured, and costs keep rising. A big reason for this is that we, as consumers of healthcare, don't often know exactly how much our health care costs. Third parties, like employers and the government, are the ones who frequently negotiate and pay the bulk of healthcare bills, why does it work like that in America?
Well, one major culprit is our tax code, which gives workers a big tax break for health premiums paid through our employers. In many cases, we pay high premiums, get a nice tax break, and leave it to our employers and insurers to work out how much to pay the doctor or hospital where we received care.
As a result, patients and providers don't have as much of an incentive to think about the costs of their day to day healthcare choices. Over the years, there have been efforts to fix the tax codes backward incentives, around 30 million American families use Health Savings Accounts, or HSAs, to save for their medical expenses.
HSAs allow tax free saving and spending on medical costs, but HSAs have strict limits on contributions and require insurance plans with high deductibles. New adoption of HSAs is slowing, and most Americans are not eligible to use them. To remedy that, policymakers should consider creating accounts that make it as easy to save for health expenses as it is to save for retirement.
That's why we've proposed the creation of so-called Individual Health Accounts, or IHAs. IHAs would be new universal savings accounts that offer more flexibility than HSAs. They would be available to anyone with health coverage, either from private or government run plans. Contributions to these IHAs would be tax deductible, and investments would grow tax free, withdrawals from medical expenses would be tax free too.
But unlike HSAs, which have fixed contribution limits, the amount you could put into your IHA would vary based on your insurance premiums. So, if you pick a plan with lower monthly premiums, but higher out of pocket costs, you'd be able to contribute more to your IHA. But if you pick a plan with higher premiums and lower out of pocket costs, your contribution limits would be lower.
Think of it like in 2023, the typical family and their employer will spend about $25,000 a year on health insurance. If they instead chose a plan that costs $20,000 a year, that family would be allowed to save $5,000 in their IHA, and those savings would help reduce their income tax liability too.
If they end up needing that money to pay for out of pocket medical expenses, they can do so tax free. If they want to spend the money on something else, they just have to pay the taxes on it. Pegging the maximum contribution amount to an IHA to the amount paid in health insurance premiums would give Americans an incentive to choose lower cost plans.
And become more price conscious healthcare consumers while still allowing families to choose the plan that works best for them. IHAs are designed to be flexible enough so that people with different kinds of coverage and from different walks of life can benefit. Americans who buy plans on individual markets or with coverage subsidies created by Obamacare or in state Medicaid programs could all potentially benefit from IHAs.
Of course, IHAs won't solve all of our country's healthcare shortcomings, but they are a promising policy change that would lead us toward lower healthcare prices as well as better quality care, and ultimately put patience back in charge.