National Consumers League

Health savings accounts: dubious benefits for the wealthy, disastrous for the rest of us

Spotlight on Health Care Series, Part 3: As America's health care system is facing uncertainty, NCL staff is exploring the topic in a new weekly blog series.

The failure to successfully repeal and replace the Affordable Care Act (ACA), if nothing else, exposed a Republican party divided (perhaps irreparably so) on how to reform America’s healthcare system. Despite the GOP’s devastating legislative defeat, we should not underestimate their determination to resuscitate their repeal/replace efforts. 

It’s clear there aren’t too many things the party as a whole agrees on these days, particularly surrounding healthcare, but there are a few ideas that are likely to re-appear in future attempts at healthcare reform. One of those ideas is the expansion of health savings accounts (HSAs). The American Health Care Act (AHCA) was a huge endorsement of HSAs, expanding Americans’ latitude to use them as a primary means to cover their health expenses. 

Under current law, HSAs are married to high deductible health insurance plans (HDHPs). HSAs supplement HDHPs by allowing consumers to set aside funds to pay for out-of-pocket medical expenses. Despite the high deductible, HDHPs are attractive to many consumers as premiums are typically much lower than those of traditional plans. Another draw of HSAs is the tax advantage; the money you contribute is untaxed, the money grows tax-free, and you pay no taxes if/when you take the money out, as long as it’s used on health expenses. Even so, the long-term benefits of HSA-driven healthcare are dubious at best, even for the wealthy who can afford to take full advantage of these accounts. For the rest of us, it could be a disaster.

The healthcare landscape in a system dominated by HSA supplemented-high deductible health plans would be drastically different than that under the Affordable Care Act. The ACA was designed to ensure healthcare for all Americans- and not just access to care, but quality health coverage. The law requires that insurers cover a wide range of benefits, from preventive services to maternity coverage to mental health. Republicans argue that mandating these benefits drives up costs, so they propose skinnier benefit packages to lower premiums and increase “access.” Proponents of HSAs submit that putting more of consumers’ skin in the game will compel them to shop for cheaper care since they are spending their own money rather than an insurer’s. The idea is that this will drive down health care costs, all while bolstering competition in the marketplace and increasing consumers’ flexibility to choose the care they want. Too bad this lofty goal isn’t bound to reality. 

The fact of the matter is that HSAs have not been and will not be a feasible means to achieving health care for all. HSAs tend to benefit the wealthy, as those with lower incomes often have minimal, if any, disposable income to set aside in a savings account. In fact, a 2015 study found that people from high-income households were not only significantly more likely to have an HSA, but more likely to max out their contributions than people from low-income households. Considering that nearly half of Americans can’t come up with $400 to cover an emergency expense, we can hardly expect most Americans to have the ability to come up with cash to meet a high deductible. Even the wealthiest among us could go broke should a costly medical emergency occur. Moreover, the idea that HSAs afford consumers more flexibility is misleading -- the real flexibility most Americans will have is deciding which health services they will have to forego. Studies have shown that even those who are able to contribute nominally to their accounts ultimately reduce the amount of care they seek, rather than shopping around for cheaper prices. Patients especially avoid things like filling their prescriptions, or proactively seeking preventive care that can mitigate health risks down the line. While the primary goal of the Republicans may be to reduce health care costs, we cannot sacrifice the well-being of the American people in those efforts.

President Trump called on Congress to create a “better healthcare system for all Americans,” however much of what he and his party have put forth only creates a better system for a fortunate few. HSAs are most valuable to those who earn the most and have the most to gain - it is not a solution that works for everyone. We cannot stand for higher cost burdens and coverage cuts across the board, only to give another tax break to the wealthy, and we must not let the Republicans shift us towards a system that will leave millions of low-income and middle-class Americans behind. While the future healthcare landscape is anything but certain, we would all be well served to stay clear-sighted about what could still lie ahead.