Who Benefits From Health Savings Accounts?
As GOP lawmakers in Washington work out the details of repealing and replacing the Affordable Care Act, one proposed element of their new plan is an expansion of health savings accounts. The accounts allow people to put aside money for medical costs, tax-free.
On what an HSA is
“Well, HSAs are health savings accounts. Previously they were called medical savings accounts. This is something that Republicans have been saying for years, that the problem with health insurance, the problem with health care cost, is that there is an insurer and a provider, and the individual never knows how much anything costs, because the insurer pays for it, and you get this sort of incomprehensible document from your insurer. So the idea with the health savings account is that people would be more responsible for their own bill, so they would find out how much things cost. If consumers had a better idea of how much medical care costs, they would spend less, that would get providers to compete, it would drive down health care spending overall. That’s the theory.”
On the advantages of health savings accounts
“It’s one of the most tax-advantaged accounts you can find. The money is tax-free going in. It is tax-free as it grows over the years if you don’t use it. And it is tax-free coming back out, as long as you use it for qualified medical expenses. In fact, if you don’t use it for qualified medical expenses, it’s still only a 20-percent penalty which, depending on what your tax bracket is, might be still more favorable than other forms of saving and spending.”
On caps on how much individuals can contribute to a health savings account
“Well, right now — and this is one of the things that Republicans complain about — individuals can put in $3,400 a year, and they can put in $6,700 a year if they’re a family. Individuals can put the money in, employers can put the money in, and then the money would not be counted towards the worker’s taxable income. Generally, individuals put in more money than employers do. And you can have… you can then spend out as much money a year as your deductible or your maximum out-of-pocket cost. And we should point out that health savings accounts are intended, in fact can only be used, in conjunction with a high-deductible health insurance plan. So there is a catastrophic plan underneath all of this. The question is whether you can afford to put as much into this health savings account as you would need to reach that deductible.”
On who benefits most from health savings accounts
“Well, and this has been the case from the very beginning when these first started as a little pilot program in 1996, that they benefit most people who are healthy — so they don’t use a lot of money for health care — and people who are wealthy, so they have enough money sitting around that they can put into these accounts. As I mentioned, employers can put money in, but the average employer contribution is under $1,000. So if you really want to get it, you know, funded all the way up to where you would be protected in case of a serious health problem, you would have to have, if you’re a family, $13,000 to put away.”
On how the accounts are managed
“It’s generally managed by professional management groups. It’s a lot like your 401(k). Think of it as a personal retirement account, but for health care. So it can be just cash, or it can be other kinds of investments. But yes, generally it is. The banking industry has a big interest in this, because they make some of the money off of the management fees.”
On how a health savings account functionally compares to a 401(k)
“It really is the health care corollary to the 401(k), although the idea is that people will use this money… where your 401(k) goes until you retire, the idea is your health savings account, the money would come out as you needed it for health care expenses. I should point out that the high-deductible health plans that have to go along with this are required to cover certain preventive care, before you reach your deductible. So that would be covered by the insurance plan. The other advantage to having an insurance plan and not just a savings account is that you generally, if you stay in within your plan’s network, you will get the negotiated rate, which is good for you, but it kind of defeats the purpose of people then finding out really how much health care costs, because now you’re getting a rate that was negotiated by your insurance company.”
This conversation is part of a weeklong series on health insurance and the American Health Care Act, the Republican plan to repeal and replace the Affordable Care Act. You can find links to the rest of our stories below.
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