In the rush to shove governmental health care down taxpayers throats, Congress chose to conveniently overlook many provisions of the bill jammed through the House and Senate. One of the most devastating decisions made by Congress was to cap the amount of funds that can be contributed pre-tax to Health Savings Accounts, or HSAs, at $2,500 a year. This short-sighted move will result in a net increase to the cost of healthcare, not a decrease, and is definitely a provision that needs to be put up for repeal.
According to the Congressional Joint Committee on Taxation, Congress capped the contribution limit for HSAs beginning in 2013, with the goal of raising $13 billion in funding to help keep the overall cost of the healthcare package under $1 trillion over 10 years. The idea is that by cutting down the benefits of these tax-sheltered accounts, one’s taxable income will rise, resulting in increased revenues to the U.S. Treasury. The proponents of this provision also argue that this will eliminate what they consider “wasteful spending”.
The logic behind capping HSAs, however, is extremely flawed. An MBA student will spend at least some time studying the concept of the cost of quality. Cost of Quality studies propose that the activities we engage ourselves in, be it manufacturing, healthcare, national defense, or many others, deal with prevention or failure. A good example would be someone that has a higher risk of a heart attack. Two options exist for the patient. Option one is to spend money on an preventive aspirin regimen, say $5 a week, or $250 a year. The other option is that the patient does nothing and actually gets a heart attack (a failure). A heart attack will cost many thousands of dollars to treat, and more insidiously, the patient may die.
More personally, my wife has a medical condition, spina bifida, which makes traditional exercise very difficult. We pay for personal training because we both feel it is the best method to help keep her healthy and prevent additional problems down the road. While we will pay for the sessions, tax-sheltered or not, we absolutely should create incentives for those with disabilities that encourages them to engage in activities beneficial to their health. We are short-sighted in just treating the final result (the disability) without doing more to prevent or reduce the negative impacts of a disability
If a $13 billion savings resulting from a reduction in prevention costs results in failure costs of $50-$100 billion in the long term, the last thing we should be doing is discouraging people spending more money on preventive care. If anything, we should be doing more to encourage a healthy living with more and more financial incentives. Health care in its current form does nothing to reward success, and only encourages more failures. The HSA caps need to be repealed and replaced with a system that includes tax credits and benefits for those that choose to make healthy lifestyle choices.
Source: Joint Committee on Taxation, December 19, 2009, JCX-61-09.