Universal Savings Accounts: The Path to Freedom in Health, Wealth, and Retirement


Despite savage resistance from Democrats, Health Savings Accounts have grown dramatically over the last seven years, surging from under 1 million accounts in 2005 to more than 13.5 million accounts earlier this year. Why? They work. Pure and simple. President Bush strongly advocated HSAs in his 2006 State of the Union address. But while Democrats are quick to look for problems with HSAs, it is not a Republican "trick" to enrich the health care industry. This is not a partisan issue and shouldn't be.  

The biggest problem with an HSA is that it is in competition with socialized medicine, which is "free" in that you will pay for it whether you use it or not, so of course, you will use it. And socialized and insured medicine keeps alive all of our current bad habits, allowing the market to effectively ignore cash payment. But by being in competition, it automatically creates detractors and derision. But let's look at what is possible with HSAs, or in this case, a more expansive and advanced concept I call the Universal Savings Account (formerly detailed here as a Medical/Retirement Savings Account).  

In the USA concept, the HSA is bundled with Retirement Savings Account and, optionally, a "Self-Insurance Account" and is a complete replacement for Social Security, Medicare, Medicaid, unemployment insurance and other costly government monopolistic systems. Most importantly, it is your money and the government may not touch it. And it can be passed on as inheritance.  

The system is designed by nature to be flexible. While the basic framework is somewhat rigid and set, the actual amounts and percentages are set up as part of a a simple equation and can be modified slightly by Congress to changes in the market as part of the tax code. In this concept, the user would trade a complicated tax for a simple flat tax, in the range of 20-25%. I use 25% as an example. There would be only one deduction, which is a full deduction for all money that is deposited into your USA. Your employer would send 75% of your paycheck to you, 25% to your USA, up to a designated amount, typically $10,000, more if you have dependents. Once you have used up your allotment the flat tax will be sent to the federal government for the rest of that year. If you have not used your full deduction, you will receive a credit for future earnings and will pay no taxes that year.  The interest bearing account will be held and managed by the institution of your choice and will only allow for investments if you choose. Competition will yield the highest rates of return and lowest fees.   The funds are portable for maximum competion.

USA owners will have a debit card that only functions for health care purchases, which would include medicine, medical products and even such things as bicycles, gym memberships and exercise machines.     You would only be able to use it for your personal bills when you turn 65-70 years old. You would of course be free to retire earlier, but would need to have enough money to bridge the gap until you get 100% of your benefits. You might attempt to defraud the system, but then, you would only be defrauding yourself.  

The largest benefit of the USA is that is has the capability of reducing medical costs by as much as 75%. How? Competition and accountability. It is your money. You will spend it in the most effective way possible. You will shop for health care services, buying those that you feel offer the best value. You will buy the medicines that are most cost effective. You will select the procedures that make sense with *your* money, not with "free" money from someone else. And just as importantly, you will avoid some expenses completely, while being incentivized to live a healthy lifestyle. A $500 bicicyle expense and a modified diet can save you from a $50,000 bypass surgery. By law, medical providers will be required to divulge the costs of their services prior to providing them, unless it is an emergency procedure to save the life of a patient. This ensures that you can make a phone call and go to another health care provider if the price is too high. To see how a well run HSA program can quickly reduce costs, read about the Indiana HSA program.  

We know this system will work because with procedures and medicines paid in cash, the price goes down. Procedures and medicines that are paid by a third party go up. Dramatically. People will be far less likely to choose expensive procedures, causing the prices of these procedures to deflate dramatically, or disappear altogether. With 300 million fickle customers holding on to trillions in their bank accounts, the competition to produce more affordable and efficient health care will be tremendous.  Those that can't will fail. Those that can will succeed unlike ever before. Patients will become more educated because it is their money on the line. And while $10,000/year won't always pay for seriously debilitating diseases or terrible accidents, the system will naturally cause the costs of these diseases to plummet via competition and smart purchasing behavior. And the most expensive, out of the ordinary life saving treatments can be handled through a built in catestrophic insurance or automated pooling system, at the choice of the USA owner. Another options is to have government fund only these treatments, such as necessary organ transplants or experimental surgery until they have become mainstream enough to become competitive.These types of modules can be added to address specific issues with the system. 

But there are more reasons to shift to a USA. As people build up hundreds of $thousands in their accounts, they can activate other features, such as the ability to withdraw small amounts money for periods of unemployment, in order to make payments on their home, for instance. The ability is there to pay for a child's education with their own money you have saved for them. The ability to use up to a fixed amount for a downpayment on a house. Even the ability to become self-insured for driving or home insurance. And what happens when people are self-insured? They drive more carefully. They fix that bad electric receptical or fuse panel. They install an alarm or get a professional safety inspection. Because it is their risk, not someone else's risk.  

While the system is designed primarily for use with a flat tax, it can readily be adapted to a Fair Tax as proposed by Gary Johnson and others in Congress though clearly this adds a more socialist element to it. Rather than the money being collected via tax, each American citizen would automatically get approximately $10,000 deposited into their USA, including smaller $2500 for each child. Because this is now the account owner's money, the incentive to spend it as wisely as possible will be in full force.   Because preferably, no person would want to spend a dime on being sick if it were avoidable. This becomes an account that assists even the poorest person to become healthier, more educated, more in charge of their own future.  

For more information about the USA concept, go here