The President Wants - Universal Health Savings Accounts

President Obama is right about one thing.  Healthcare needs to be addressed.  He also called for universal savings accounts for Americans.  Let us give him a plan.  We have to answer this call from the American people. 

The Medicare Modernization Act of 2003 was a great accomplishment for the American people. For the first time we were given the opportunity to save on a tax-free basis for our own and our family’s health needs.  This was accomplished by the establishment of the Health Savings Accounts (HSA).  For the first time consumers were empowered to be incentivized to wisely use their healthcare dollars.  We can only control healthcare costs by empowering consumers.

The time has come to propose an expansion of HSA and make it the universal foundation of American healthcare.  Universal HSA should come with a mandatory major medical indemnity and prescription plan.  These will be the same plans offered to Federal and private-sector employees through their employers.  These are also known as ERISA plans (Employee Retirement Income and Security Act) which national employers choose in order to avoid compliance issues in the 50 individual States.  Any funds contributed to the HSA after the payment of the indemnity premium will be saved for future needs be it co-pays, co-insurance or what the accountholder deems necessary.  The savings accumulated may be left to account holders heirs without estate taxes.

I propose the contributions to be funded directly to individual and household HSA’s with a national modified value-added tax (VAT).  I will call this the “healthcare added tax” or HAT.  The HAT will be assessed when a good arrives at a retail center and a service is rendered.  After the adoption of the HAT funded universal HSA, all employer provided healthcare funding will be taxable.  There will be no need for new enrollees in Medicare and Medicaid for they will be phased out.  Present and near term elderly Medicare and Medicaid enrollees would have their needs after the HSA evaluated in order to ensure that there will be no unconscionable loss to them.

The goal would be to collect at least $7,900 per person.  Estimated Gross Domestic Product (GDP) for 2008 was $48,000 per capita. The US consumer is 67.5% of GDP.  The HAT tax on goods and services would be 24.5%.  $7,900 is 24.5% of ($48,000 times .675).  In 2007, the average US household spent an average of $32,700 outside of housing.  The HAT would be on average 24.5% of $32,700 for $7,900.  Assume 3.2 persons on average per household is $25,280 per household.  Why the discrepancy? The rich will pay more for the same HSA.

Let us look at an example, a car arrives at an auto dealership that is expected to retail for $25,000.  It does not matter whether the car was manufactured in the US or elsewhere, there will be a 24.5% HAT or $6,125 added when the car is sold.  Sounds expensive? Consider this…the average private sector employer –provided health plan costs $7,200 per year per employee.   That is $7,200 of benefit that an employer spends to pass to an employee tax-free.  If the HAT-funded HAS is in place, wages should rise.

           The Federal Government spends $5,400 per household every year on Medicaid and Medicare.

          The average US State spends nearly $1,050 per person every year on Medicaid.

Healthcare in the United States cost 17 percent of the US Gross Domestic Product in 2008.  The United States pays more for healthcare a percentage of GDP than any other society.  Canada spends 9.7% of its GDP, following the US is Switzerland at 11.6%.  The average for most of the developed world is 9.0%.  Make no mistake about it we have the best healthcare.  Canadians cross the border to seek healthcare in the US.  Great Britain pays its doctors so poorly that they import doctors from the third world to staff their facilities.  A group of doctors in the UK actually executed an act of terrorism.

Healthcare cost growth consistently outpaces GDP growth by 3%.  In 2008, healthcare costs increased by 6.9% over the level in 2007, twice the rate of inflation.  It is estimated that we will increase by 7.4% the dollars spent on healthcare in 2009.  The prognosis for GDP growth in 2009 is not good.  Even in the best of times recently healthcare cost increases have outpaced GDP growth.  The Gross Domestic Product of the US economy grew from 2003 to 2007.  The five year annual average was 3.2% per annum adjusted for inflation. 

The medical profession is interested in a VAT for healthcare.  Please refer to the Journal of American Medicine, October 2008.