Most of the conversation surrounding the healthcare legislation currently under debate in the Senate focuses on how it will leave over 20 million people without insurance over the next decade. Less attention has been paid to what the bill will add — namely, an inducement to invest more in health savings accounts, or HSAs.
HSAs are a special class of savings account that can be used to pay for medical bills. Republicans love them because, as CNBC’s Tom Anderson explained last month, they offer generous tax discounts: “First, contributions are tax-deductible. Second, those contributions can be invested and grow tax-free. Third, withdrawals aren’t taxed as long as you use them for qualified medical expenses, such as doctor’s visits, prescription drugs and dental care.”
Republicans have long proposed HSAs as a solution to perceived inefficiency and waste in American healthcare. After their introduction in 2003, President George W. Bush said, “Health Savings Accounts all aim at empowering people to make decisions for themselves, owning their own health-care plan, and at the same time bringing some demand control into the cost of health care.”
Before winning the presidency, then-candidate Donald Trump touted the benefits of HSAs as he railed against Obamacare.
And last year, Rep. Erik Paulsen (R-Minn.) pushed legislation that would expand access to HSAs through the House Ways and Means Committee. At the time, Paulsen wrote, “Twenty million people are using HSA-eligible health plans because they want more choice and flexibility when it comes to health care decisions. It’s important to streamline and expand access to these popular accounts so that we can further empower patients as consumers.”
While Paulsen’s bill never got a vote in the House, the Republican healthcare bill currently stalled in the Senate would fulfill at least one of its central goals — raising HSA contribution limits. The Senate bill encourages investment in HSAs by raising contribution limits from $3,450 for individuals and $6,900 for families to at least $6,650 for individuals and $13,300 for families.
But there are a number of problems with HSAs. First, they mostly benefit the rich. The Center on Budget and Policy Priorities found that 70 percent of all HSA contributions came from households with annual incomes of over $100,000.
Second, HSAs don’t actually expand access to healthcare. The uninsured are typically uninsured because they can’t afford health insurance, not because they don’t want it. If they can’t afford health insurance, they certainly won’t be able to sock much away in an HSA. And, as the CBPP explains, “Even if they can contribute, their tax benefit is minimal: at least 90 percent of the uninsured before the ACA were in the 15 percent tax bracket or lower, so at most they would save 15 cents in taxes for each dollar put into an HSA.”
Plus, if you have a prolonged illness or chronic medical condition, all that stands between you and bankruptcy is the money in your HSA and other savings accounts. And if that money runs out? Well, then you’re in a world of trouble. Indeed, before full implementation of the Affordable Care Act in 2014, medical bills were the largest cause of bankruptcy in the U.S. As the ACA went into effect, however, bankruptcy filings fell by 50 percent. HSAs would do nothing to prevent a new wave of medical bankruptcies.
Finally, HSAs are only available to people who have high-deductible health plans — a plan with a deductible of at least $1,300 for a single person or $2,600 for a family.
Paulsen and his Republican colleagues have had years to come up with a better alternative to Obamacare — and there are better alternatives. But health savings accounts are not one of them.
Featured image via YouTube.