03/17/2005: As health care costs (including prescription drugs) continue to rise, politicians from both parties insist on providing new federal programs to deal with a clear economic problem.
Most of the proposed solutions are tantamount to government control in the form of subsidies. Whether it involves federally-funded insurance (John Kerry’s plan to extend federal employee insurance plans to all uninsured Americans) or President Bush’s HillaryCare Lite prescription drug plan, the mechanism is the same: solve the problem by providing subsidies to Americans. The end-result: we inch ever closer to socialized medicine.
However, one proposal that is now generating some steam–thanks to Bush seeing the light during the 2004 campaign–is health savings accounts and medical IRAs. Those are more viable solutions because they are market-oriented.
Currently, some employers allow for flexible spending accounts. These allow workers to save pre-tax dollars into an account, from which they can draw to pay health care expenses during the year. The only drawbacks to this are (a) any unused dollars get lost at the end of the year; they cannot be carried over to future years and (b) these accounts do not draw interest.
A medical IRA–with no upper limit on contributions–would provide Americans with a health care solution that solves both problems, while allowing Americans–in general–to defray their health care costs.
Currently, our system of insurance is inefficient and expensive. It is inefficient because insurance premiums–which can be quite steep–are wasting assets. If you spend $400 per month on medical insurance ($4,800 per year), and you don’t incur any health care costs beyong normal doctor’s visits, you lose more than $4,500 per year. Invested at 8% over the course of a 30 year career, that is almost $600,000 in opportunity costs. A family could easily spend over $800 per month for a comprehensive plan.
With a medical IRA, someone paying $800 per month could invest $600 per month in the IRA, which would accrue savings invested with interest, while purchasing a catastrophic health care package (which would cover hospitalizations and so forth) with the remaining $200. You could use your medical IRA money to pay for prescription drugs, or regular doctor visits.
While this would hardly be perfect–some people need the comprehensive plan–it would encourage Americans to live healthy lifestyles (They would see the financial implications of their decisions) and provide them the ability to economize with respect to their own health care choices. At retirement, such a one would be less dependent on federal and state programs, such as Medicare and Medicaid.
The added advantage: without an upper limit for investment, this would be a huge middle class tax shelter.
Remember, medical IRAs are hardly a cure-all. Economic solutions are never perfect; they are tradeoffs. However, medical IRAs are a more market-driven approach that minimizes the federal albatross. For this reason alone, it is more viable than any socialist alternative.