Inside the Republican vision for health insurance reform
House committee chairs have been holding brainstorming sessions as Republicans chart a path forward to address rising health care costs and propose an alternative to Affordable Care Act subsidies.
Lawmakers are under pressure as millions of Americans face drastic hikes in health insurance costs during this year’s open enrollment season. The deadline for most people to select a health plan is Dec. 15 for plans starting Jan. 1.
Republicans have long scrutinized the Affordable Care Act approach, in which the federal government pays subsidies directly to health insurance companies on a monthly basis to lower the cost of insurance for millions of Americans.
When the Affordable Care Act first passed in 2010, it guaranteed these subsidies for only the lowest-income people. During the COVID-19 pandemic, these tax credits were extended to all Americans through 2025. These expanded subsidies cost the U.S. government just under $100 billion in 2023. That year, the U.S. government spent $1.6 trillion on health care, including through Medicare and Medicaid.
Throughout October and early November, Republicans and Democrats were deadlocked over extending these subsidies beyond this year. Democrats capitulated, and last week President Donald Trump approved a spending bill that ended the shutdown but did not extend the tax credits. (The bill instead called for a December vote on the issue. It is unclear if such a vote will take place.)
Some senators are reportedly drawing up a compromise to temporarily extend the subsidies. While some Republicans support the idea, others — including Senators Bill Cassidy,R-La., Roger Marshall, R-Kan., and Ted Cruz, R-Texas, and members of Congress such as Kat Cammack, R-Fla.,and Greg Steube, R-Fla., — are pushing alternative solutions. Although details are still light, the general idea is this: Rather than route federal subsidies through insurance companies, these funds would go directly to Americans through either flexible spending accounts or health savings accounts, as two similar Republican-backed proposals outline.
A health savings account, or HSA, is a specific type of savings account that allows individuals to put in pre-tax dollars to use for qualified medical expenses.
Currently, the only way to contribute to an HSA is to have a high-deductible health insurance plan. (A deductible is the pre-determined amount of money a patient has to pay toward health care costs before insurance kicks in.)
Finance experts love HSAs because they offer a triple tax benefit: Individuals contribute pre-tax dollars. Interest or earnings from the account are not taxed. Then, patients withdraw money from the account for medical expenses tax-free. HSA funds never expire, so Americans can put in funds in their 20s and save them, accruing interest, until their 80s or 90s.
Republicans advocate for HSAs because of their tax benefits and also because these accounts give individuals more control over their health spending. Outside of the subsidy debate, some Republicans have pushed for expanded access to HSAs, removing the requirement to have a high-deductible plan.
Republicans reported that extending the Affordable Care Act subsidies would put $26 billion into the pockets of insurance companies. They argue that money could instead go to Americans.
Trump voiced his support for this solution, writing on Truth Social earlier this month that he recommends the, “Hundreds of Billions of Dollars currently being sent to money sucking Insurance Companies in order to save the bad Healthcare provided by ObamaCare, BE SENT DIRECTLY TO THE PEOPLE SO THAT THEY CAN PURCHASE THEIR OWN, MUCH BETTER, HEALTHCARE, and have money left over.”
What do Democrats think of the HSA solution?
Several Democratic politicians and left-leaning think tank researchers have voiced concern about the HSA solution, arguing in a recent report that it would be a “giveaway to banks and big insurance” and would likely increase health care costs further.
In the report, Senate Finance Committee Democrats pointed out that banks profit from HSA account fees and that some banks that administer HSAs are, in fact, owned by health insurance companies. The bank Optum, for instance, which holds about 20% of all HSAs in the country, is owned by UnitedHealth Group. The authors conclude that the HSA solution would not achieve its goal of keeping money in Americans’ pockets; rather, it would be a longer route to enriching banks and insurance companies.
While banks would earn some money from account fees, it pales in comparison to the billions the federal government currently pays insurance companies directly through subsidies. Most HSAs charge less than $5 per month; some charge no fee when the account reaches a certain balance.
Will Republican reform efforts lower the cost of health care in the US?
Republican supporters of the HSA solution and some right-leaning health policy think tanks argue it would drastically reduce the price of health care in the U.S. Some Democrats and left-leaning think tanks say the opposite.
HSAs are generally a better option for younger, healthier, higher-income people. If those individuals move from typical health insurance coverage toward HSAs, the remaining pool of people seeking traditional insurance would be disproportionately older and sicker and therefore higher cost, the Senate Finance Committee Democrats argued in their report. Consequently, insurance companies might raise the price of premiums.
It isn’t clear right now though if individuals who elect for HSAs would not purchase insurance as normal. Currently, HSAs work in tandem with insurance. In fact, the only way Americans can access an HSA is through specific insurance policies.
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Ella Rae Greene, Editor In Chief
