GOP lawmaker targets Fed interest payments to banks as way to fund healthcare

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(The Center Square) – The Republican lawmaker who sponsored the Great American Healthcare Act presented a plan Wednesday to help fund the bill: Stop the Federal Reserve from paying interest on bank reserves.

Under that plan, the estimated $1 trillion the Federal Reserve will spend over the next decade on bank reserve interest payments would instead be redirected toward implementing the legislation.

“Every healthcare proposal eventually runs into the same question: How do you pay for it?” U.S. Rep. Eric Burlison, R-Missouri, stated. “My bill answers that question. By reforming the Federal Reserve’s authority to pay interest on reserve balances, we can use the savings to help offset the cost of putting patients back in charge of their healthcare.”

Among other measures, the Great American Healthcare Act would expand eligibility to Health Savings Accounts to people without high-deductible plans and raise yearly HSA contribution limits.

It would require both hospitals and insurance brokers to show real dollar prices instead of estimates for the cost treatments and healthcare plans, respectively.

To increase price competition, it would also extend authority to prescribe low-risk drugs to a broader pool of qualified professionals, as well as give businesses and other groups greater flexibility in offering group healthcare plans.

But Burlison’s plan to halt most interest payments on banks’ monetary reserves housed in the U.S. central bank system might not lead to dollar-for-dollar savings.

If the Federal Reserve stops paying interest, banks would likely pull out their reserves to invest elsewhere, eroding the Federal Reserve’s control over economy-wide interest rates, according to the Anderson Institute for Finance and Economics.

As a result, the Federal Reserve would likely sell a bulk of its bonds, losing the federal government money. That, in turn, could raise interest rates, including for national debt interest payments, which topped $1 trillion in fiscal year 2025.

Moreover, fewer bank reserves at the Federal Reserve jeopardize its ability to respond to fiscal crises, the Brookings Institute predicts.

Burlison’s proposed payment method is embedded in the bill. Given the magnitude of such a change, as well as congressional Democrats’ general opposition to the bill’s healthcare reforms, the legislation is unlikely to become law during the 119th Congress.