Monthly Archives: March 2017

Healthcare Reform May Harm Pension Plans

“American Health Care Act” May Drain Money From Retirement Savings

House Republicans introduced the “American Health Care Act” today,  following up on their campaign pledge to “repeal and replace Obamacare.”  I won’t opine on the provisions of the bill since I am not a healthcare  expert.

However, the bill does contain a provision which many retirement professionals believe will be damaging to retirement savings.  The bill eliminates many of the subsidies Obamacare provides for lower-income Americans to pay for health insurance.  To replace the subsidies, the bill provides for “tax credits” Americans may use to partially offset the cost of paying health insurance premiums.  And, since these tax credits will likely not provide for the same level of funding as current Obamacare subsidies, the bill encourages Americans to save for healthcare expenses in Healthcare Savings Accounts, or “HSA’s.”  This is a bad idea for many reasons:

  • First of all, we know that the vast majority of Americans aren’t saving enough for their retirement.  If they are now told they have to also start putting money aside for healthcare expenses, the combined burden may be impossible for most Americans.
  • As you would expect, many Americans can’t fully fund their retirement savings accounts AND their healthcare savings accounts.  So, they have to make a choice. Most retirement professionals agree that providing for current healthcare needs will outweigh the need for “down the road” retirement.  So, retirement savings rates will drop for many Americans so they can (try) to fund their healthcare needs.
  • While HSA’s have been promoted for decades as a way to provide for healthcare expenses, the fact of the matter is that they don’t work.  The vast majority of Americans don’t save the amount of money to cover expenses for “high deductible plans.”  For wealthy Americans, they are a viable option.  But for the majority of Americans HSA/high deductible plans  don’t work and we should stop pretending that they do, or will.

There may be merits to portions of the healthcare bill introduced today, but the inclusion of HSA’s is not one of them.  There is the old adage that “retirement depends on savings”, and “healthcare depends on premiums.”  Let’s keep it that way.