By Jack Towarnicky

If America could successfully get to the moon and back over 54 years ago, it makes me wonder, what can stand in our way today when it comes to health coverage?

In a single word, inertia!

Perhaps unintentionally, Congress added various new tax preferences for health coverage – such as Internal Revenue Code Section 125 (IRC §125) cafeteria plans in 1978. It was a great example of “they know not what they do”! For example, in the 1978 Joint Committee on Taxation report, adding IRC §125 was scored as: “Revenue effect: This provision will have no effect upon budget receipts.” Yes, Congress concluded adding pre-tax cafeteria plan contributions would have no impact on federal budget revenues.

Today, IRC §125 is part of the largest federal “tax preference” – pre-tax contributions via cafeteria plans are approximately 25% of the total exclusion from federal revenue resulting from employer-sponsored medical benefits. Pre-tax contributions will reduce federal revenues by almost $1 trillion for the ten-year budget period 2023 – 2032.

Similarly, the Medicare Modernization Act of 2003 added Health Savings Accounts (HSAs). Congress may have thought it had learned its lesson. They were so concerned about the HSA’s tax preferences, that they scaled back the initial HSA proposal so the 10-year budget impact (2004 – 2013) was estimated to be $6 billion. However, the actual “tax expenditure” for 2013 alone exceeded $2 billion. And, the projected “tax expenditures” for the ten-year budget period 2023 – 2032 for HSAs/MSAs is estimated at $178+ billion!

The Health Savings Account is America’s most valuable, tax preferred benefit!
BUT, if you are like most plan sponsors who offer health coverage to your employees, neither you nor your workers have received even ONE CENT of the HSA’s tax breaks over the past 20 years. You’ve missed out! According to the 2023 Kaiser survey, only 53% of firms offer health coverage, and of those who offer health coverage, only 24% offer HSA-capable coverage. For you actuaries out there, .53 * .24 = .13 or 13% of all firms with employees captured in the Kaiser survey offered an HSA-capable coverage option.

Worse, while only 13% of firms offered HSA-capable coverage, most employers offer HSA-capable coverage as one of multiple health choices. And, unsurprisingly, where workers have a choice, most do not select the HSA-capable coverage option. Average spend on medical services for more than 50% of Americans is less than $400 a year. Because most workers never meet their deductible, a super majority are “over-insured”!

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