The HSA Revolution That’s Already Here

The new book America’s Health Care Crisis Solved has been praised as providing a detailed, free-market solution for healthcare’s future. This it does, but what’s almost as fascinating about the book is its description of what is going on in the present, with consumer-driven health savings accounts (HSAs). Almost without notice, HSAs have grown dramatically and have solved for millions of Americans the problem of healthcare’s lack of portability.

First, some background. In the 2003 law that was rightly derided for massively expanding Medicare with a new prescription drug benefit was a separate section that let many more working-age people to take advantage of HSAs. This provision allowed any adult under 65 to open a savings account for medical expenses that receives much of the same special tax treatment as employer-based health care.

As a result of this change, you can qualify for an HSA by getting health insurance with at least an $1100 deductible for individuals or a $2100 deductible for families. So long as you don’t have another insurance policy, you can get a tax deduction for contributing up to $2900 for an individual or $5800 for a family to an HSA. Or your employer can contribute some or all of that amount. In either case, the money grows untaxed and can be withdrawn tax-free for health-care expenses.

And unlike the old flexible spending accounts, which you have to “use or lose” by the end of the year, an HSA can accumulate interest, dividends and capital gains year after year for 20, 30, or even 40 years until you reach the age of 65. And the same insurance policy remains in your hands regardless of whether you change jobs or become self-employed.

The book’s authors — insurance entrepreneur J. Patrick Rooney and longtime HSA advocate Dan Perrin — marshal impressive statistics to shatter critics’ myths that HSAs are only used by the young, wealthy and healthy. Citing statistics from, the authors note that more than 40 percent of HSA buyers had incomes lower than $50,000 a year, more than 50 percent were age 40 and older, and one-third had been previously uninsured.

And there has been a seven-fold increase to 3.2 million people with HSAs since just after the program began in 2004. In an interview with Open Market, co-author Perrin notes that, by contrast, it took several years to get to just one million individual retirement accounts after those were created.

In the interview, Perrin also credited HSAs with widespread innovations in the health care market. He says that the “minute clinics” that offer cheap and convenient medical services at Wal-Mart and other stores came about in part because of cost-conscious consumers with HSAs. When the government levels the health insurance playing field and consumers are spending their own health care dollars, market innovations arrive that make health care cheaper and better, just as other technologies and services have become cheaper and better when the consumer is in charge.

Much more could be done, Rooney and Perrin write, by the government, employers and insurance companies to make HSAs more accessible. HSA insurance premiums should be made tax-deductible, just as employer-provided insurance premiums are. But HSA have proven themselves as a way of dealing with the costs of U.S. healthcare by empowering patients, rather than empowering governments and limiting choices as socialized medicine does.