The House Ways & Means Committee has voted to borrow $100 billion to subsidize gym memberships and high-cost employer-sponsored health insurance, and expand Health Savings Accounts, which primarily benefit households with incomes between $100,000-$500,000.
Last week, the panel voted to approve 11 separate bills, nearly all aimed at cutting health care-related taxes for mostly high-income people and their employers. The biggest beneficiaries would not be the super-rich but relatively high-wage workers. Collectively, the tax cuts would add nearly $100 billion to the national debt at a time when the Congressional Budget Office predicts the debt will approach $29 trillion by 2028.
It all seems like a less than prudent fiscal choice.
Tennis anyone?
The package includes several long-time Republican favorites.
For example, delaying the effective date of the Affordable Care Act’s “Cadillac tax” on high-cost employer-sponsored health insurance plans has become a nearly annual event. The bill would put off the excise tax yet again, this time until 2023. The bill also would postpone a provision of the ACA that imposes a tax penalty on large employers that do not offer their full-time workers health insurance with certain minimum benefits.
Then, there was the plain dumb. One bill would expand the medical expense deduction for the costs of gym memberships and certain sports equipment. It would exempt golf, a modest improvement over an earlier version. But not tennis. Horseback riding is out but you’ll probably be able to deduct the cost of ski equipment. We are not talking about physician-ordered physical therapy, which already is tax deductible. We are talking about the cost of playing sports. For fun.
Expanding HSAs
Just last year, in its version of the Tax Cuts and Jobs Act, the GOP-controlled House proposed eliminating the medical expense deduction entirely. Now they want to expand the tax break by making it available for gym memberships and ski boots. Seriously?
But the committee’s most-far reaching choices involved HSAs. These savings plans accompany high-deductible health insurance and allow you to put aside funds tax-free for medical expenses. Not only are contributions excludable from income, but withdrawals are tax-free as well as long as you use the money for qualified medical expenses. Those who do not use the funds for immediate health care costs can use HSAs as just another retirement savings vehicle. Starting at age 65, people who withdraw funds for non-qualified expenses must pay taxes on the distributions, but are exempt from paying penalties.
Who would benefit?
Because contribution limits are now relatively low--$3,450 for singles and $6,900 for family coverage—participation has been modest. Still, according to the Treasury Department, about half of the $20 billion in 2014 contributions were made by households with incomes between $100,000 and $500,000.
The Ways & Means bills would raise the contribution limits to $6,650 for singles and $13,300 for families. They’d also make HSAs available to more people. For instance, those over 65 who are still working and enrolled only in Medicare Part A (but not Part B) could contribute. So could those whose spouses have a Flexible Spending Account (FSA). Other bills would make HSAs more flexible. One would allow people to dip into both HSAs and FSAs to buy over- the-counter drugs.
HSAs already are regressive, benefitting higher income workers far more than those households with lower incomes. Raising contribution limits will almost surely make them even more regressive for a couple of reasons.
Message bills
The most obvious, of course, is that high-income people are more likely to have the extra disposable income to put into a more generous HSA. In addition, high-income workers are more likely to contribute the maximum amount to their retirement accounts (such as 401(k)s) and use HSAs as added tax-favored savings. Another, less obvious reason, is that some very high income people simply may not bother to enroll in a plan where they can contribute merely $6,900 annually. It just may not be worth the trouble. But $13,300-a-year starts looking more like real money, even if you are an investment banker.
The House likely will pass these bills this summer, giving GOP candidates more tax cuts to talk about in their campaigns. And the measures are just as likely to die in the Senate, which will spend the next few months in a bitter battle over President Trump’s Supreme Court nominee. But even if they are just message bills, they don’t seem like a very good use of $100 billion in borrowed money.
