Among the dozen-plus bills that Gov. Brian Kemp vetoed after the 2023 legislative session, one piece of legislation would have provided nearly 500,000 state employees with the opportunity to utilize health savings accounts, commonly referred to as HSAs.
HSAs function like a debit card to use pre-tax dollars for health expenditures such as deductibles and copayments, but plans also cover “everyday” medical needs such as ibuprofen or allergy medicine. They even cover qualified long-term care services for those planning for retirement. These funds not only roll over from year to year, but are personal accounts and completely transfer with the individual, even after a change in jobs.
One unexpected bonus for HSA users is the introduction of price transparency for the transactions.
“HSAs return consumerism to healthcare by exposing the cost of office visits, medications and hospital procedures, inviting the HSA user the option to shop (for) lower prices,” added Hal Schlenger, managing director at Great South Benefits. “Remember, there’s no badge of honor reaching your deductible. Instead, keep the money in your pocket.”
Employers can also contribute tax-free money to their employees’ HSAs as an additional benefit, but the legislation that was vetoed did not direct the state in this manner.
Traditionally, HSAs have been associated with high-deductible health plans. In a high-deductible plan, the consumer pays lower monthly premiums with the understanding that the insurer will only begin to pay its share once the consumer spends a specified amount every year.
However, some insurers now offer a HSA option for plans with deductibles as low as $1,400 for an individual and $2,800 for a family. Which is lower than the deductible threshold for many commercial plans currently available in the marketplace that do not offer HSAs.
One common complaint about HSAs is the sticker shock that many patients receive when they hear there are no discounted copays until you reach your deductible. This often comes after previously being on a plan with lower copays before reaching your deductible. But for infrequent users of healthcare (such as young, healthy individuals) this can be a plus, as the HSA covers any additional expenses incurred during the visit as well.
The Foundation has long championed HSAs as one path to greater financial security and individual choice in healthcare.
So why was this bill vetoed after near unanimous passage out of the General Assembly?
In his veto statement Kemp wrote, “HSA benefits may be a valuable benefit to state employees; however, the fiscal impact of these changes is unknown. Adding these programs without a full understanding of the fiscal impact risks significant financial harm to the State and to affected employees. While I support expanding benefits to our state employees, I cannot do so without a clear understanding of the financial implications.”
Even at surface level, without utilizing economists and budget staffers, we know this option would save the state a significant amount of money as the number of HSA users increase. First, the cost of administration for HSAs would be offset by the lower cost of premiums.
Second, because HSAs utilize pre-tax dollars they also save the employer from multiple taxes, including federal income tax, Social Security and Medicare (FICA) taxes, federal unemployment taxes and most state income taxes. In this case, the state of Georgia would have avoided paying the 7.65% payroll tax per beneficiary to cover FICA taxes.
Lastly, those individuals that the state covers and choose to a plan with HSAs are now incentivized in their utilization of healthcare. This in turn lowers what the state spends on each of these beneficiaries.
Far too often, legislation is passed and signed without any thought to the long-term fiscal implications. But on this one, state employees and taxpayers alike will lose out for at least another year.