Philadelphia Reflections

The musings of a physician who has served the community for over six decades

Related Topics

No topics are associated with this blog

Recipients of Care: CHAPTER SIX

Under the HSA plan, subscribers between age 26 and 65 are in the age group most likely to be employed, and so the original act provides a maximum annual contribution of $3300. A maximum was probably thought necessary to prevent gaming and arbitrage between taxable and non-taxable income, and it has proved ample for most HSAs of the regular, annual, kind. Now that enrollments have been frozen at the age of 30, this limit probably is adequate for the moment, although it generates a need for catch-up contributions to equal the amount that more affluent subscribers were able to contribute. Looking forward to a hoped-for relaxation of the age 30 limit, another catch-up will probably be necessary, possibly included under a provision allowing cumulative amounts to be deposited, to replace year-by-year limits. Otherwise, the $3300 limit is probably not burdensome, since it would stretch the abilities of young subscribers to meet other expenses characteristic of their age group. It's quite a bargain, however, potentially offering $325,000 worth of healthcare for $132,000.

Whether or not this offer is greeted with gratitude or with jeers, it will surely stretch the budgets of many young families. Perhaps the age group should be segregated into two or three groups to meet the resources more realistically, but the invincible facts of compound interest are that the younger you are when you contribute, the cheaper the package becomes.

Looking beyond the paycheck, this $132,000 includes the likelihood that the Medicare payroll deduction might be forgiven. It is hard to know how this age bracket would respond to the offer of buying out Medicare for $80,000, or even $40,000 if the decision is made to pay off the existing Medicare debts in some other way. For some people, $40,000 is the price of a mid-sized car, but for others, it would seem an insurmountable goal. However, attitudes may well change. As this generation approaches age 65, the difficulties of accumulating enough money for a thirty-year retirement will surely be more apparent, and $40,000 will seem less formidable.

The other side of it will appear when interest rates return to normal. At the moment, $40,000 in index funds compares very favorably with the 1 or 2% available in a savings account. Much will also depend on whether the tax exemption for employer-paid health insurance is continued. At present, health insurance provided by an employer appears to be free. That appearance will fade as the pay packet adjusts upward to compensate, but the employee will probably have to fight for it, and harbor some resentment that something has been taken away.

Removing the tax advantage. At the moment, I have two suggestions for making this transition easier. The first would be to extend the tax preference to self-employed and unemployed persons. Following that, lower the tax preference for everyone by at least 25%. That would be approximately revenue-neutral.

The other suggestion is bolder but more advantageous. That is, to leave the Henry Kaiser tax exemption on the books, but lower the corporate income tax. It's double-taxation, to begin with, and the employer would enjoy no tax benefit if he became tax-free. Unfortunately, the experience of Ireland was that lowering the tax too abruptly caused foreign companies to move in Ireland, and the disruption to Ireland was extreme. The Irish experience is a vivid example of the need for monitoring these changes closely and making quick mid-course adjustments. International agreements with trading partners would also be helpful. It must be remembered that corporate donation of health insurance is a major financial support to healthcare, the tax abatement representing almost half of corporate revenue, and almost an equal amount from the employee taxes. It is something of a puzzle to know whether the double taxation of corporations does or does not double the support of business to healthcare costs. The other side of it is the apparent free lunch comes close to doubling the cost of healthcare through using the insurance mechanism to make it appear free. It is very hard to escape the suspicion that this tax preference puzzle can explain most of our cost escalation, compared with other developed nations.

Originally published: Thursday, November 27, 2014; most-recently modified: Thursday, May 09, 2019