Congress should move quickly to give more Americans an ownership interest in the dollars they spend on medical care. The quickest way would be to make HSAs more affordable, more flexible, and accessible to more Americans. Congress should:

• Make individual health insurance premiums tax-deductible. HSA holders who purchase their own coverage may deduct their HSA contributions from their income taxes, but must pay their health insurance premiums with after-tax dollars. Full deductibility of individually purchased health insurance would make coverage more affordable for millions.
• Eliminate insurance requirement.Government has no business telling consumers whether they should purchase health insurance or what type of insurance they should buy.Some consumers prefer lower deductibles, while some prefer higher deductibles. Allowing HSAs to be opened by the uninsured or combined with any type of insurance will foster diversity and competition in health insurance, and greatly expand HSAs’ appeal.
• Increase contribution limits. Individual and family contribution limits should be uniform and higher than current contribution limits. One option would be to set contribution limits as high as the most that any employer and worker jointly contribute toward tax-free health benefits. This would give employers the flexibility to make their entire contribution toward a worker’s health benefits directly into the worker’s HSA. In turn, the worker would then own all her health care dollars, and have the flexibility to purchase health insurance from her employer or another plan.
• Turn HRAs and FSAs into HSAs. Flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) also give workers direct control over funds dedicated for their health expenses. Both can be combined with any type of health insurance. However, neither FSA nor HRA enrollees truly own the funds in these “accounts.” Congress should transform FSAs and HRAs into real savings accounts, by allowing workers to roll FSA funds over from year to year, and allowing them to take FSA and HRA funds with them from job to job.
• Allow transfers into HSAs from other tax-preferred savings. If HSAs are tied only to high-deductible health insurance, many Americans will not have enough savings to meet the deductibles. Congress could ease these growing pains by allowing individuals to transfer limited amounts from other tax-preferred savings vehicles – such as 401(k)s, IRAs, or Roth IRAs – into their HSAs.
• Eliminate the 10-percent penalty on non-medical withdrawals. This penalty promotes excessive medical consumption by encouraging patients to value health care more highly than other items.

Further, policymakers should encourage the growth of HSAs in programs like Medicare and Medicaid, to encourage beneficiaries to be more prudent consumers of health care.