Philadelphia Reflections

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

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Deductibles Too High?

In 1981, John McClaughry and I devised the Health Savings Account, and in 1996 it became law, in 2003 permanently. It features a high-deductible health policy, linked to a tax-exempt savings account. One of the purposes of the savings account was to contain enough ready cash to cover the deductible. Since there have been recent reports of public unhappiness with the high deductible of almost all Obamacare policies, I suggest the participants open up Health Savings Accounts in addition to their insurance. An amount equal to the deductible can probably be deposited since the current top limit is $3250 per year. Very likely, only one deposit would be necessary until a second major illness made its appearance, and all deposits are tax-deductible. They accumulate compound interest if unused, and usually, a debit card is provided for other medical expenses, once the balance to reach one deductible has been reached. At this point, a second tax shelter is available for medical expenses--the only qualified pension program to offer both front-end and back-end deductions.

Double tax deductions are common in Canada, but Health Savings Accounts are the only available American plans which provide this. Furthermore, you can't lose money on them. If you should be so lucky as to reach age 66 without using the deductible, it turns into an ordinary IRA for retirement income. By that time, many people would find the compound interest had greatly multiplied the original deposit.

As a bit of history, 14.5 million people have these accounts already, containing several billion in deposits. Among employer-based insured, 31% have these accounts, and 41% made no withdrawals in a year. One New York bank manages 900,000 accounts.

The Health Savings Account was devised as a money-saving device for Catastrophic health insurance. That is, for high-deductible policies, which happened to have the feature that the higher the deductible, the lower the premium. But although Obamacare has higher premiums to pay for extra features, there is no reason why the Health Savings Account could not be used in conjunction with Obamacare.

Most people don't have $3000 in savings lying around so they may have to make smaller deposits over time, to build up to the deductible level. Most banks and brokerages don't welcome the expense of handling small deposits so you may have to accumulate $3000 independently, and there may be an unexpected squeeze. But every program has to start somewhere, and it may be inevitable that some people are a little too late for this one. But millions of people have already found out about Health Savings Accounts, so it's a real thing when you are ready.

George Ross Fisher MD

Philadelphia PA

Originally published: Sunday, November 15, 2015; most-recently modified: Thursday, May 16, 2019