Few have ever heard of “Health Reimbursement Accounts,” but they could fundamentally change the nation’s health care system — for the better — and destroy the Democrats’ case for socialized health care.
Late last week, the Trump administration finalized rules that will let companies put money into tax-exempt HRAs that their employees could then used to buy an individual insurance plan on their own. Seems like no big deal, right? Except it will start to unravel a 77-year-old policy mistake that is largely responsible for many of the problems the health care system suffers today.
Back in 1942, the Roosevelt administration imposed wage and price controls on the economy. But it exempted employer-provided benefits like health insurance, and the IRS later decreed that these benefits wouldn’t be taxed as income.
The result was to massively tilt the health insurance playing field toward employer-provided insurance. Today 88% of those with private insurance get it at work.
The massive tax subsidy — now valued at more than $300 billion — also encouraged overly generous health plans, because any health care paid by insurers was tax exempt, while out of pocket spending had to come from after-tax dollars.
So not only did this Roosevelt-era mistake create an employer-dominated health insurance market, it made consumers largely indifferent to the cost of care, since the vast bulk of it was picked up by a third party.
But while health care experts across the political spectrum recognize this mistake, Democrats’ response has been to get the government even more involved in health care, with the latest proposal a total government takeover under the guise of “Medicare for All.”
Republicans, to their credit, have been pushing in the opposite direction. The introduction of Health Savings Accounts — a GOP reform idea Democrats fiercely opposed — 14 years ago helped to remedy one of the tax distortions, by allowing some people to pay out of pocket costs with pre-tax money.
Even with all the restrictions Congress put on HSAs, the market for high-deductible HSA plans exploded — climbing from nothing in 2005 to nearly 30% of the employer market today. By the end of last years, consumers had saved up $10 billion in these accounts.
The rise in these “consumer directed” plans was at least partially responsible for the slow-down in health spending in recent years, according to official government reports, as consumers increasingly started shopping around.
Trump’s HRA rules will have a far more profound impact.
Under the plan, employers will be able to fund tax-free Health Reimbursement Accounts for their workers, who can then use the money to buy an individual insurance plan — thereby taking another step toward fixing the 77-year-old tax distortion. The rule also lets employers fund a different account to buy cheaper “short-term” plans.
“This subtle, technical tweak has the potential to revolutionize the private health insurance market,” wrote Avik Roy, one of the smartest health care experts around, in the Washington Post.
The administration figures that 800,000 employers will eventually move to HRA plans, and 11 million workers will get their benefits this way.
At the same time, Trump also loosened the federal rules that had needlessly impeded “association health plans.” These are plans that let members of various groups band together to buy insurance. The result will be more competition, and more affordable choices for millions of people.
The Democrats’ response? Attack these changes as another attempt by Trump to “sabotage” Obamacare. What they really fear, however, is that the two new rules will destroy their case for socialized medicine.
As Roy put: “Together, over time, these changes would give workers more transparency into — and more control over — the health-care dollars that are now spent by other people on their behalf. That transparency and control, in turn, would create a powerful market incentive for health-care payers and providers to lower prices and increase quality.”
Once that happens, the last thing these millions of newly empowered health care shoppers will want is to be shuffled into a one-size-fits-all government plan designed for the masses by socialists like Bernie Sanders.
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Stop calling Bernie a socialist. He’s a communist. ‘Bout time it was said. Over and over again.
There is no difference. Communists call themselves socialists and then portray socialism as “communism without the gulags and mass executions”, which is a flat out lie.
Please date stamp your articles and opinions.
Thanks for feedback. We’ll look into changing how that info shows up in the site.
Yes, HSA accounts are very popular; but cannot be used to pay insurance plan premiums – except premiums for Long Term Care insurance.
HSA accounts cannot be used to pay medical plan premiums, but HRA accounts can so employees can use these funds to pay premiums & the money they save can be deposited into a separate account to help offset out of pocket expenses; if their health plan is a qualified HDHP they can use those funds set up an HSA to complement the HRA. Not bad!
And employers get the tax deduction to boot!
Nicely done Mr. Trump!
Mr. Roosevelt’s rules regarding benefits were not mistakes. They were early steps in a long plan.
I would very much like to post this article on my fb page, but remove all references to Trump. Sadly, I believe it would be more widely accepted.
Write up a summary and give a citation and hyperlink to this article. As long as you give your source, it’s not considered plagiarism or intellectual property theft.
Thanks to Trump of course! and I believe its already accepted! who cares about your article!
To disconnect the employer-sponsored system, I’d rather see regional buying groups offer group insurance to individuals. These would have much bigger communities than any single employer, meaning higher comm. ratings and lower premiums.
Party membership in America seems to depend on the amount of empathy one has.
I think conservatives love money and power and hate people. It is my observation over 75 years.
Thank you for the feedback. I would disagree with your caricature of conservatives, however. I personally know many generous, loving conservatives of modest means. I also know well-to-do, stingy, unloving liberals.
Well, gosh, there are good folk everywhere, and my post was a gross generalization. Thanks for that response.
But conservatives really seem seem to be that way by their policies, do they not?
Capitalism delivers what socialism promises.
In reality, the Dem empathy is fake as the results of their “empathetic” programs leave the the focus of their empathy worse and more dependent. Is tough love, hating people or actual empathy seeking solutions leading to improvement in the lives of the poor.
No, what conservatives love is individual freedom, and that implies respecting the ability of people to make their own decisions.* Those of he Left, on the other hand, seem to be willing to sacrifice individual freedom in order to be taken care of by government. Basically, the Left has nothing but contempt for the ability of people to make their own decisions.
*Except when it comes to abortion, an inconsistency that mystifies me.
But abortion is making a decision for someone else. It’s a human being, in or out of the womb. What’s the limit before we shouldn’t kill it? One week old? One year old? How about the profoundly retarded? They probably have little more awareness than a new-born. Or as we’re seeing in parts of Europe, euthanizing grandpa because he’s become inconvenient?
That little clump cells is inconvenient – better to get rid of it. And if its a fully developed baby ready to be born – well, just a bigger clump of inconvenient cells. And that’s really the word, isn’t it? The USSR, the Nazis, Mao, Pol Pot, and that ilk had the solution for people who were inconvenient. You folks who support abortion should realize that once you start down that road you’re at risk of later being found inconvenient yourself.
Until cognition kicks in, there is no “someone.” Granted, the point in ontogeny when that occurs is open to question, but there’s no question that no single oocyte or spermatocyte, no 8-cell embryo, is capable of cognition or self-awareness.
“I think therefore I am.” implies that, in the absence of thought, there is no “I.”
Funny how virtually every study of personal donations to various causes or to aid others, has show that Conservatives are consistently far more generous than “liberals” ! Liberals are only “generous” with other people’s money, not their own!
Since when is “empathy” the measure of anything? But if you hold that is the case when it comes to personal contributions made in support of others, then at least get your facts straight, George, about what types of individuals actually contribute or donate more of their personal fortunes as Conservatives are clearly shown to do!
An ad hom attach on conservatives ? I’m not surprised.
I agree that a government run health care system would be a disaster. However, all of these reforms are about insurance cost, not health care cost. Patients can not be wise consumers for many reasons. The first of which is that there is no real means of comparison. In the auto market there are many independent evaluations of cars. Consumers have the ability to make choices based on the ability to pay. There are big cars, small cars, new cars, used cars, prestige cars, functional cars and so on. So too with most other items available in the market place. Second, no one want to buy the Kmart of health care as a substitute in the market place. (my apologies to Kmart) Worse yet, no one really knows who is providing the Kmart of health care. There is very little useful public data comparing quality. Now, all of this is true, in spades, of a government run health care system.
I am not arguing this is a bad reform. It is a good reform. It is not however, transformative in terms of health care cost or quality. Self insured employers, with their ability to evaluate some health care outcomes in their own market place, do have the ability to affect cost and quality. They can shift their business from one health care system to another when cost or quality becomes an issue. I believe it will take pricing transparency meaning full disclosure on deals the health care systems have cut with employers and useful, transparent data on quality before health care costs are under control.
Sounds like executive overreach. The constitution is dead apparently.
Or, one could argue the original overreach was the Roosevelt decision to make health care benefits non-taxable.
Do you mean like when Obama care required Americans to buy something whether they wanted it or not?
When will everyone learn there is a difference between health care and health insurance? Health care is the service of providing care to patients. Health insurance is how most cover the cost of treatments, etc.. The MSM often focus their wrath on Pharmaceutical companies due to the cost of medicines, but not cite the cost of their alternatives. When will they look into the insurance companies? I pay $6K and my employer $12K per year for health insurance. I barely use more than $2K per year in care services and medications.
Compare the cash flow and asset requirements between the two industries. Pharma companies need to invest in R&D for new medicines and facilities to produce them. Insurance companies only need an office building. Who are the real robber barons?
“The Democrats’ response? Attack these changes as another attempt by Trump to “sabotage” Obamacare.”
Which is highly ironic since the intent of Obamacare was to sabotage private health insurance.
While the idea is very good, ACA individual policies typically are very narrow network PPO/HMO plan designs. As soon as the owner sees that limitation, they will stay drawn to typical employer based health plan. Maybe this will work for a business where the owner is covered through their spouse’s employer sponsored large network plan design, but I don’t see this as a dramatic solution to the healthcare mess we are in. Theoretically, someone could purchase a 3 year short term medical policy via the HRA–those have large networks. The problem with that solution is states such as Illinois limit short term policies to 180 days. 30% of our lifetime healthcare costs are spent in the last 3 months of our life–if you figure out when someone is in the last 3 months of their life and changed healthcare to comfort management, you just knocked a big chunk of cost out of healthcare. Additionally, the medical industrial complex has been built up to the point of substantial over capacity–you need an x-ray? You are getting a MRI! We have to keep that $250,000 machine generating revenue!
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