Senate’s proposed expansion of health savings accounts would be a win for the middle class

Health Savings Accounts are a powerful tool for families take control of their own healthcare expenses. By repealing ObamaCare’s taxes on HSAs and doubling the existing contribution limit, the Senate health bill could save middle-class families billions of dollars over the next decade.

The HSA provisions in the Senate health bill are just a few of the many reasons why GOP senators should support the bill.

Contributions to HSAs use pre-tax income, and account holders receive an HSA debit card for qualified expenses. With consumers in charge of their own health purchases, medical providers are forced cut their prices in order to stay competitive. HSAs help cut out the insurance middle-man and bring free market competition back to the health care industry.

{mosads}ObamaCare, however, reined in the power of the free market by imposing new taxes and limitations on HSAs. These new regulations meant middle class families could buy less with their savings.

Before ObamaCare, HSAs covered both prescription and nonprescription health items. If a parent went to the store to buy medicine for their child and charged the purchase to the HSA, the medicine would not be subject to federal income tax. American families opted for HSAs as a sensible way to pay for everyday medical items and to save money in case they were faced with an out-of-pocket medical expense.

Unfortunately, ObamaCare’s Medicine Cabinet Tax restricted the kinds of health items that a person could buy using an HSA. Over-the-counter medications were no longer covered, including cough medicine, decongestants, hemorrhoid cream, feminine personal care items, and dozens of other products. These items can now only qualify if they are prescribed by a doctor – but most people are unwilling to set up a doctor’s appointment and take time out of the work day to get a prescription for aspirin. 

American families had already deposited $10 billion into HSAs when ObamaCare unexpectedly changed the rules of the game and enacted the Medicine Cabinet Tax. At the same time, ObamaCare increased the penalties for non-qualified expense withdrawals, meaning those who wanted to take money out of their HSAs after Obamacare passed would pay a steep 20 percent tax right off the top.

The Senate’s Better Care Reform Act saves taxpayers $5.7 billion over the next decade by repealing both the Medicine Cabinet Tax and the HSA withdrawal tax. If the bill passes, HSA users will be able to spend more of their savings on medical expenses and less on taxes.

The BCRA not only restores HSAs to their pre-ObamaCare state, it improves them by doubling the maximum contribution families can make in a year. Individuals can currently contribute a maximum of $3,400, and families a maximum of $6,750. The Senate bill takes these amounts to $6,550 and $13,100, respectively. This change will greatly improve options for middle class families, and provide nearly $20 billion in tax relief over the next decade.

Under current law, HSA holders over the age of 55 can make “catch-up contributions,” or contribute up to $1,000 in excess of the annual limit. The BCRA expands catch-up contributions to an HSA holder’s spouse, updating the policy so that it reflects how real couples save for the future. The BCRA also allows the total HSA savings of married account holders to exceed the annual limit for families – a common sense solution for spouses who maintain separate savings accounts.

Yet another idea for expanding HSAs comes from Sen. Ted Cruz (R-Texas). Cruz has proposed revising the BCRA to allow families to use HSAs to pay for their insurance premiums. This simple change would make health care more affordable for millions of Americans. Average individual market premiums doubled from $2,784 in 2013 to $5,712 in 2017, according to the Department of Health and Human Services. Allowing HSA users to pay their insurance premiums using pre-tax dollars would help struggling families recoup some of their losses.

Barack Obama pledged not to raise any form of tax on any middle class American, but ObamaCare raised taxes on every person who uses an HSA. Just as the individual mandate forced individuals to purchase government-designed health insurance, ObamaCare’s limits on HSAs stripped away consumer choice. The ObamaCare taxes made it more difficult to save for the future, affecting a household’s ability to purchase everything from insurance to ibuprofen.

By voting for the BCRA, senators have the opportunity to repeal the ObamaCare taxes, expand the benefits of HSAs, and make essential health products more affordable for millions of American families. It’s time to replace ObamaCare and restore stability for those who have put their faith – and their savings – in HSAs.

Elizabeth McKee is a federal affairs associate at Americans for Tax Reform.

The views expressed by contributors are their own and are not the views of The Hill.