Healthcare Freedom Act Would Make Medical Care More Affordable
William G. (Bill) Stuart
I assist benefits professionals in helping their clients and employees seize control of their healthcare dollars.
Proposed legislation would allow most Americans to enjoy the benefits of a Health Savings Account.
Today, nearly one-third of all employees, and nearly half of all of workers in small companies, are covered by plans that have a deductible of $2,000 or more for self-only coverage (see Table F here ). In the nongroup market, the percentages and deductibles are substantially higher. Yet most of these individuals and families aren't eligible to open a Health Savings Account to help them cope with these rising out-of-pocket expenses.
Into this void steps US Rep. Chip Roy (R-TX) with proposed legislation, called the Healthcare Freedom Act , to allow all Americans to enjoy the tax benefits of a Health Savings Account to pay for these and other qualified services. His proposed Health Freedom Accounts would increase the tax benefits and expand the list of qualified services of Health Savings Accounts. It's an idea worth considering.
Defining an HSA-qualified plan
In 2003, when Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act, which included provisions creating Health Savings Accounts, eligibility to open and fund an account was tied to coverage in a high deductible health plan. The legislation defined this coverage as a plan with a deductible of at least $1,000 for self-only coverage and $2,000 for family coverage.
But the statute goes further, which is where many Americans with high-deductible plans are disqualified from funding a Health Savings Account. All services except select preventive care must be applied to the deductible. In other words, insurers and employers can't design plans that reduce barriers to certain care - say, copays for primary-care visits or generic prescription drugs, or full coverage for visits or prescriptions to keep a chronic condition in check - and allow enrollees to open and fund a Health Savings Account. These restrictions create a dilemma for insurers and employers: design a plan that incents high-value care but disqualifies employees from funding a Health Savings Account or build a plan that doesn't distinguish between low-value and high-value care but allows enrollees to reimburse out-of-pocket expenses with tax-advantaged funds.
Balancing Value and Tax Benefits
This dilemma is more than an academic exercise. It affects people's health. Imagine you're a large employer that has identified the drivers of high claims within your population as diabetes, musculoskeletal issues, and heart disease. You want to design a medical plan that covers annual podiatric and vision exams in full and steers employees and their dependents to high-value centers of excellence for joint and cardiac conditions by waiving out-of-pocket costs when workers and their family members receive care at those facilities. Or imagine an employer that simply wants to cover in full the first three visits to a primary-care physician or all visits to a retail clinic (an appropriate alternative to a PCP or emergency department visit for many common conditions).
These plan designs would save employers money - funds that they could redirect to increases in cash compensation or other benefits. And this coverage would ensure healthier employees and dependents, which would benefit not only the patients, but also the business in the form of employees who can come to work more often and be more productive.
Key Provisions of the Healthcare Freedom Act
The Healthcare Freedom Act amends Section 223 of the Internal Revenue Code - the section that authorizes Health Savings Accounts. Here are the key differences between the current and proposed programs:
Coverage. All Americans would be eligible to open and fund a Health Freedom Account. Under current law, only people enrolled in an HSA-qualified plan and not covered by a disqualifying plan can open and fund a Health Savings Account. Today, anyone enrolled in any Part of Medicare or in Medicaid or TRICARE (coverage for active and retired military personnel), or covered by a general Health FSA, are disqualified, and most patients who receive care through the Department of Veterans Services or Indian Health Services are temporarily disqualified.
Contribution limits. Under current law, the maximum contribution to a Health Savings Account in 2023 is $3,850 for self-only coverage and $7,750 for a family plan, plus an additional $1,000 catch-up contribution for any eligible individual age 55 or older. The Healthcare Freedom Act proposes raising the limits to $12,000 and $24,000, with a $5,000 catch-up contribution.
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Qualified expenses. The Healthcare Freedom Act expands the list of qualified expenses to include medical premiums, monthly fees for direct-primary care, and payments made through a healthcare sharing ministries program. Under current law, most medical premiums aren't qualified expenses. Anyone enrolled in a direct-primary care arrangement is disqualified from funding a Health Savings Account or reimbursing the monthly expense tax-free. Healthcare sharing ministries aren't HSA-qualified coverage under current law and payments aren't qualified expenses.
Not a New Idea
The Healthcare Freedom Act is not a novel idea. It's another attempt to remove the shackles that prevent millions of Americans with high out-of-pocket medical, dental, and vision expenses from reimbursing their out-of-pocket costs for those services with pre-tax funds. In recent years, Health Savings Account administrators and trustees have proposed a handful of approaches to expand tax benefits to more Americans, including:
The Healthcare Freedom Act would make these efforts unnecessary. They would also erase the threat that states impose on HSA-qualified plans. Today, in their efforts to make care more affordable, state legislators and regulators can - and sometimes do - require all insured plans under their jurisdiction to cover certain services in full. When those mandates conflict with federal rules for HSA-qualified plans, anyone covered by plans regulated by those states may be disqualified from funding Health Savings Accounts. In one example, a state mandated full coverage for male sterilization (vasectomy). This requirement not only disqualified all men, but also all women, covered by plans regulated by that state from opening and funding Health Savings Accounts.
Hurdles to Overcome
The legislation is by no means a slam-dunk. With Republicans in control of the House of Representatives, the bill will receive a fair hearing in the Ways and Means Committee. It may have the votes to move to a floor vote and to pass in the House. It will face an uphill battle in the Democrat-controlled Senate.
The key objections will be cost and misplaced focus. As to cost, the two entities charged with estimating the effect of legislation on the federal budget have historically assumed that everyone eligible for a tax advantage will fund the account to the statutory limit (even though only about 4% of current Health Savings Account owners contribute to the current maximum). These estimates make any proposed changes in Section 223 prohibitively expensive, even in an era when the annual federal deficit doesn't appear to be a barrier to other spending initiatives.
Many Democrats are focused on other approaches to managing the cost of care. These efforts include a federal government monopoly on the design, delivery, and funding of all medical care (often referred to as single-payer or Medicare for All) and various proposals to cap patient out-of-pocket costs or impose price controls over certain sectors of the market.
The Bottom Line
The prospects for passage in the 118th Congress are slim. But the Healthcare Freedom Act may serve as a foundation for the Republicans' 2024 campaign to expand their majority in the House of Representatives and recapture the Senate majority and the presidency. This proposal will gain traction among voters, analysts, and candidates who wish to empower insurers and employers to design medical coverage that offers higher value and give patients a simple tool to help them manage the cost of their medical care.