Senior Policy Analyst
The House will consider three health-related bills this week that would mainly benefit high-income taxpayers and corporations while doing little to help moderate-income families or the uninsured. The bills would raise contribution limits for health savings accounts (HSAs) and expand the allowable uses of those accounts, suspend for two more years a tax on health insurance companies, and repeal the excise tax on medical devices. They would reduce revenues by about $85 billion over the next decade, increasing pressure for cuts in Medicare, Medicaid, and other health care programs.
Let’s take these issues one at a time:
Expanding health savings accounts. HSAs are a boon to higher-income taxpayers because they’re the only savings vehicle that delivers three tax benefits: tax-deductible contributions, tax-free earnings on investments, and tax-free withdrawals if they’re used for out-of-pocket medical costs. Higher-income people are much likelier to establish HSAs than lower-income filers and likelier to contribute the maximum allowable amount; they also receive a larger tax benefit per dollar contributed since they’re in a higher tax bracket.
One of the House bills (H.R. 6311) would double the amount that people can shelter in HSAs, tilting the accounts’ tax benefits even more toward higher-income tax filers without helping the uninsured or those with moderate incomes. (That’s because only people wealthy enough to “max out” their contributions under the current limits would benefit.) As we’ve previously discussed, that bill and H.R. 6199 would also expand who’s eligible to contribute to HSAs and how those funds can be used. For example, an accountholder could use HSA funds for medical items not prescribed by a doctor or even things other than medical care, such as gym memberships and cycling classes. Granting a tax break towards the purchase of ski boots and similar recreational items would have negligible health benefits, at great public expense.
Suspending the health insurance tax. An annual fee on most businesses that sell private health coverage to individuals, employers, and governments, the tax took effect in 2014 but policymakers suspended it for 2017 and 2019; H.R. 6311 would suspend it for two more years. Insurers argue that the delay would make coverage more affordable but, at best, it would reduce individual market premiums by less than 3 percent, according to industry-sponsored estimates, at a cost of about $25 billion for two years. Other policies, such as federal funding for reinsurance (which reimburses insurers for some of the costs associated with the highest-cost enrollees) or increases in federal premium tax credits that help low- and moderate-income people buy health insurance, would do much more — and at lower cost — to make individual market coverage more affordable.
Repealing the medical device tax. The medical device industry has heavily lobbied Congress to repeal the device tax, but its arguments don’t withstand scrutiny. The tax will have a minimal effect on consumers; it doesn’t apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other devices that the public generally buys at retail for individual use. It doesn’t cause manufacturers to shift production overseas since it applies equally to imported and domestically produced devices. While it was in effect from 2013 through 2015, it had little or no discernable effect on employment or innovation in the device industry. H.R. 184 would repeal the tax, which policymakers have suspended through 2019, at a cost of about $19 billion over ten years.