An estimated 26 million people are managing some of their own health care dollars by means of a Health Savings Account (HSA). Although exact figures aren’t available, it’s possible that an equal number are managing some of their own health care spending by means of a Health Reimbursement Arrangement (HRA). Between 33 and 38 million people have a Flexible Spending Account (FSA).

These accounts allow people to make their own decisions about how to use the dollars they spend on health care, rather than conform to the rules of a health plan administered by an employer, a health insurance company or the government.

Some time ago I explained the advantages and disadvantages of these accounts at the Health Affairs Blog, an exercise I won’t repeat here. Let’s jump to the bottom line: We could have all the advantages of all three accounts and none of the disadvantages if we combined them into one, easy-to-use account, with very few restrictions.

(Interestingly, Sen Ben Sasse (R-NE) has introduced a plan that would move us in this direction.)

There are three social benefits of self-directed care. First, people are always more careful when spending their own money than when spending someone else’s money. Second, virtually all the patient-pleasing innovations that have occurred in recent years are for services people buy with their own money. For example, walk-in clinics emerged so that patients paying out-of-pocket could save on time and money. Online mail-order pharmacies came into existence to compete with local pharmacies for patients who buy their own drugs. Long before Covid hit, doctor consultations by phone, email and teleconferencing were available to millions of patients who paid for the services out-of-pocket. None of these innovations would have been likely if Blue Cross were paying all the bills.

Third, when patients are spending their own money, they get the full benefits and bear the full costs of their own decisions. That means one person’s wasteful decisions don’t impose costs on others. It also means that third-party insurance can be restricted to those activities that can’t be easily individualized. That makes third-party insurance less expensive and more efficient.

In addition to unifying the three types of medical savings accounts, there are three additional changes that are needed. They are explained in greater detail in my book, New Way to Care.

No Across-the-Board Deductible. Under current law, access to a Health Savings Account requires an across-the-board deductible. For the year 2021, for example, people must pay the first $1,400 (individual) or $2,800 (family) either out of pocket or from their HSA, before insurance kicks in. The only exceptions are certain preventive procedures.

This makes it very difficult to structure rational insurance. Say an employee is a diabetic. The employer might want to make medications available for free, since lack of compliance with drugs is a major cause of problems with many chronic patients. But if the patient is noncompliant and ends up in the emergency room, the employer might want the employee to pay for that expense himself. This kind of rational insurance design is not possible under the rigidities of the current HSA regulations.

Special Accounts for the Chronically ill. Studies show that chronic patients can often manage their own care, with minimal patient education, as well or better than relying on traditional doctor care. If they are to be allowed to manage their own care, they should be allowed to manage the dollars that pay for that care. No patient should be forced to do this, but in return for the patients’ willingness to manage their own care, health plans should be able to put money into an account controlled by the patients themselves.

One highly successful example of patient-directed care is the Medicaid Cash and Counseling Program. Started several decades ago, this program originally allowed the homebound disabled to manage their own budgets. That meant they had the right to hire and fire the people who serviced them and any money they saved could be spent in other ways that benefited the patient.

Satisfaction rates in this program were in the mid-90th percentile (something rarely seen in any health program anywhere in the world). And because of this success, the program has been expanded. Today, for example, the family of an Alzheimer’s patient can receive a budget to manage the patient’s care.

Special Accounts for Primary Care. The ability to talk with a doctor by phone or email or Skype—day or night and on weekends—used to be a privilege only the rich could afford. We used to call it “concierge care.” The benefits are obvious. The coronavirus and other medical problems don’t just crop up during working hours. And a trip to the emergency room is not only expensive, these days it has health risks as well.

Today, Atlas MD in Wichita offers all primary care—round the clock and by means of phone, email, Skype, Zoom and Facebook if needed—for $50 a month for a mother and $10 for a child. This “direct primary care,” or DPC, not only offers patients the entire range of primary care services, it helps patients make appointments with specialists, helps them get discount prices on MRI scans and other medical tests and (in the case of Atlas) provides generic drugs for less than Medicaid pays in some instances.

This type of care needs to be an option for people spending from an HSA. Under current law it is not.

Roth Accounts for Seniors. The payment of health insurance premiums and deposits to Health Savings Accounts for young people with employer plans are made with pre-tax dollars. That means the choice between third-party insurance and individual self-insurance is made on a level playing field under the tax law. People are free to make these choices without regard to the tax consequences. Something similar needs to happen for seniors.

Senior premiums for Medicare Part B, C and D and for Medigap insurance are all paid with after-tax money. So, senior deposits to an HSA also need to be made after-tax. The accounts that allow this are called Roth Health Savings Accounts. Deposits are made with after-tax dollars, and withdrawals (for any purpose) are tax-free.

Roth HSAs, therefore, are a way of using the tax law to encourage health insurance for the elderly and the disabled without distorting any important decisions.

The choice between self-insurance and third-party insurance would be made on a level playing field under the tax law. The choice between spending out of the account on health care or on non-health goods and services would also be made on a level playing field. And the choice between spending from the account on anything in the current period and spending on health and non-health in all future periods would also be unimpeded by tax-law distortions.