“will medicaid cover that?
In order to reduce the burden on patients who find themselves in a medical crisis, at least three states—Hawaii, New Mexico, and North Carolina—have applied for a waiver to allow consumers to be automatically enrolled in a high-deductible health plan instead of an FSA or HRA, and then be covered for catastrophic medical expenses.
The federal government should rethink making HSAs mandatory.
According to the Kaiser Family Foundation, in 2015, only 4 percent of workers with employer-provided coverage had an HSA. We know that the tax status of HSAs favors higher-income households. And we know that only about half of Americans are even able to afford the high deductibles of HSA plans. And we know that tax-preferred accounts are generally not an effective strategy to help low-income households and those with high medical needs.
In addition, the Affordable Care Act has prompted employers to start offering HSAs as an alternative to employer-sponsored coverage, not a supplement to it. Although the ACA originally did not require employers to offer HSAs, the IRS later said that in order to avoid the ACA's “Cadillac tax” on expensive health plans, employers could use HSAs to lower their premium contributions. This prompted many employers to offer HSAs and little or no employer-sponsored coverage, and some employers to eliminate any employer-sponsored coverage.
The IRS has since said it will address this problem by penalizing employers who rely on HSAs to avoid paying for health care coverage. However, the IRS is not yet tracking employer-sponsored coverage that is offered alongside an HSA.
And, despite the mandate, HSAs are not the primary form of high-deductible coverage. High-deductible health plans with lower deductibles—but no HSAs—are more common.
In addition, a portion of HSAs are used to pay for penalties associated with the ACA's individual mandate, which also has been repealed.
Instead, the federal government should rethink making HSAs mandatory. If it does, employers should be required to offer high-deductible health plans with lower deductibles and no HSAs. Such a rule should provide a level playing field and would be a simple, effective, and administratively efficient way to help workers and families pay medical bills.
Repeal of the Individual Mandate
The individual mandate is the only provision of the ACA that has a direct impact on low- and moderate-income people.
For many low- and moderate-income people, the individual mandate is the only ACA provision that has a direct impact on them.
The individual mandate requires people to purchase health insurance or pay a penalty on their federal tax returns. The penalty is $695 per adult and $347.50 per child—or 2.5 percent of household income, whichever is greater. People with household incomes under 400 percent of the federal poverty level are exempt from the penalty.
The individual mandate is designed to encourage healthy people to buy coverage and thereby lower premiums for everyone. But, it doesn't work well.
Most of the individual mandate's penalties are paid by households with incomes below $50,000.
In addition, most of the individual mandate's penalties are paid by households with incomes below $50,000, according to data from the IRS.
A potential new rule from the IRS could eliminate the penalty for anyone who does not have health coverage in 2018 and does not qualify for an exemption.
Because the individual mandate is not well-targeted and not especially effective, it is not surprising that Congress has not used the tax code to solve other problems. The Washington State legislature is currently considering legislation that would create a state individual mandate, which would be similar to the ACA's. However, the bill would not include a penalty. The state's insurance commissioner and governor have also said they would not enforce a state mandate if the federal government repeals the ACA's. And, a similar bill in Vermont was not pursued this year.
Repeal of the Individual Mandate Creates a $338 Billion Tax Cut for Wealthy Americans
Repealing the individual mandate creates a $338 billion tax cut for wealthy Americans, at the expense of people with low and moderate incomes who need financial assistance to afford coverage.
The Affordable Care Act reduces the tax deduction for health insurance premiums from 7.5 to 10 percent of adjusted income to 3.8 percent of adjusted income for people who have access to employer-sponsored coverage. The law also eliminated the tax exclusion of contributions to Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) and limited the amount that can be contributed to HSAs, MSAs, and Flexible Spending Accounts (FSAs) to $2,600 per year (indexed for inflation).
As a result, the most affluent households with high health spending will no longer be able to deduct unlimited amounts for employer contributions to FSAs, HSAs, and MSAs and will no longer be able to exclude unlimited amounts for contributions to Archer MSAs and FSAs.
These policies increase tax revenue from upper-income households by $338 billion, according to the Joint Committee on Taxation.
Repealing these provisions reduces the amount that high-income households can contribute to HSAs, which can then be used to purchase high-deductible insurance.
In addition, repealing the individual mandate will increase the number of households eligible for the medical expense deduction from 7.5 to 10 percent of adjusted income to 15 percent of adjusted income.
Some people assume that eliminating the individual mandate will significantly increase the number of people who purchase health insurance. However, few people who do not purchase health insurance are subject to the penalty.
Only about 6.5 million Americans out of more than 40 million who are not covered by employer-sponsored coverage have