President Joe Biden’s American Families Plan (AFP) includes a number of value transfers (not “benefits”, “entitlements,” or other baggage-laden terms) from the federal government directly or indirectly to individuals.
The Biden administration’s stated goals could be reached with many ancillary benefits; but when it comes to healthcare changes, they need to be pursued with different tactics such as providing relief via health savings accounts (HSAs) and changing taxation policies regarding healthcare benefits.
The plan currently contemplates transfers of cash to individuals for healthcare needs, broadly defined so that it includes childcare, nutrition, family leave, and the extension of the Child Tax Credit.
A better way to approach these issues would be to fund health savings accounts with this same amount of money so that it is tax-advantaged when received if it earns a return while it remains in the health savings account and when spent on healthcare costs. Why does this work better? Because the money in the HSA is owned by that individual who gets to keep whatever is in the health savings account into perpetuity.
In other words, this is a savings account owned by the individual that is designed to pay for healthcare costs. The benefit is that the individual can pay for healthcare costs, including fees associated with everything from doctor visits to blood tests, with cash from the health savings accounts.
By removing insurance companies from the transaction, the cost associated with those fees can be negotiated down and the savings are retained by the health savings account owner. Further, the information exchange is more beneficial both to the provider and the individual or patient, so that they can care for themselves better.
To be an equal-opportunity antagonist, I suggest we change the taxation of benefits. Tax policy should not be regressive in nature, meaning it should not disproportionately affect those with lower incomes more than those with higher incomes. One area where this is not the case is the taxation of health insurance as a “benefit.”
Under the present tax code, benefits are not taxed. But this is an antiquated exception because it encourages employers to offer employees health insurance and other benefits to be competitive. And our tax policy obscures the cost and disproportionately and adversely affects lower-income families. Neither should be intended or seems fair.
Instead, we should tax benefits in the same manner as income. This would diffuse some of the inconsistencies in tax policy and would bring about $500 billion to the U.S. Treasury, thus offsetting other costs in the “robust” set of initiatives set forth in the American Families Plan.
Creating consistency in tax policy and transparency in insurance costs, while increasing the money going into the US Treasury, also supports greater healthcare consumerism. In fact, noted healthcare economist Devon Herrick describes my approach as one that would “correct nearly 80 years of perverse incentives in health care.”
Just these two things would significantly change the debate. The goal of this is not to advocate a partisan approach but rather to propose a way to accomplish the goal in a manner more favorable to all concerned.
We should want Americans to have the privity of contract and direct relationships with their care providers. They should know the price and be able to negotiate the price of services rendered by those providers. We should also encourage information flow that comes along with that payment obligation. The costs will go down further because of the reduced overhead associated with not having to file claims with insurance companies or wait to be paid by those insurance companies.
The healthcare industry should function in a way that provides greater access to services at more affordable rates to healthcare consumers. Providing Americans with more money to healthcare saving accounts and updating tax policies will help get us one step closer to that goal.
Todd Furniss has more than 30 years of global experience in private equity, consulting, and operations as a senior-level operating executive.
