The Trump administration has taken a small step in the right direction. Starting in 2020, new rules for health reimbursement arrangements (HRAs) will let certain workers avoid that penalty when purchasing portable coverage directly from insurers — whether a costly ObamaCare plan or (in limited cases) affordable, renewable‐term health insurance that is exempt from ObamaCare’s hidden taxes.
But HRAs don’t let workers save that money and take it with them from job to job.
Congress should go further and totally eliminate this tax penalty by expanding health savings accounts (HSAs) — tax‐free accounts that consumers own and can take with them from job to job. Congress should apply the tax exclusion that exists for employer premium payments instead to HSA contributions; increase HSA contribution limits so employers and/or workers can contribute, say, $18,000 per year tax‐free; let workers use these “large” HSA funds to buy coverage tax‐free; and eliminate any requirement that HSA holders carry health insurance.
With these changes, the tax code would no longer force workers into health plans they don’t want. Workers would be free to remain in their employer’s plan; to buy ObamaCare plans; to buy ObamaCare‐exempt plans that make coverage more secure for the sick; or just to save their money tax‐free for future medical expenses.
If employers want to stay in business, they would have to give that $828 billion back to the workers who earned it, either as tax‐free HSA contributions or higher wages. When a tax change leaves workers with more control over their earnings, that’s a tax cut. Workers with family coverage would see their cash compensation rise an average $14,069. The effective tax cut would be 38 percent bigger than Ronald Reagan’s 1981 tax cuts and four times the size of Trump’s 2017 tax cuts.
Congress can deliver this enormous, effective tax cut without increasing the deficit. HSA contribution limits would act as an adjustable cap on what is currently an uncapped tax exclusion.
Economists of all political stripes agree the tax preference for employer coverage is ailing America. Large HSAs are the cure.