Health Savings Accounts Can Be a Bad Deal for Low-Income Marketplace Enrollees

Recent federal policy decisions by congressional Republicans and the Trump Administration have made health care even more unaffordable for millions of people. In the wake of their actions that have worsened health care affordability, President Trump and some Republicans in Congress have pushed to expand health savings accounts (HSAs). But this doubles down on an inequitable coverage model that can burden low- and middle-income families with medical debt when they face an unexpected medical crisis — even though they have health insurance.

Medicaid cuts and other provisions in the harmful Republican megabill enacted last summer will take away health coverage from 10 million people. This year, private insurance costs rose significantly, and for people who buy health coverage on the Affordable Care Act (ACA) marketplace, premiums more than doubled as some congressional Republicans refused to extend expiring premium tax credit enhancements at the end of 2025. Millions of people are struggling to afford health coverage to get the care they need.

Some congressional HSA proposals would expand eligibility for HSAs. Some proposals would give enrollees the option to receive federal funds directly into an HSA, including by offering people the option to take HSA contributions in lieu of premium tax credits and/or cost-sharing reductions. However, vague offers of cash are not an alternative to comprehensive coverage.

Here are some key facts about HSAs:

• HSAs do little to help people with low and moderate incomes who are struggling the most to afford health coverage and care. In reality, HSAs offer a triple tax advantage for the wealthy — a tax shelter masquerading as health policy.
• HSAs benefit insurance companies and financial firms, while saddling low- and moderate-income consumers with high fees and below-market interest rates, contrary to misguided claims that HSAs “[empower] the patient.”

HSAs are available to people enrolled in health insurance plans with high deductibles, as well as certain plans (bronze and catastrophic) offered in the individual insurance market, which includes the ACA marketplaces. Once enrolled in an HSA-eligible plan, people can select a financial institution to open an HSA, generating opportunities for financial firms to profit from junk fees and below-market interest rates. People can elect to transfer tax-deductible dollars into an HSA that they can withdraw tax-free to pay for certain out-of-pocket health expenses (not most premiums, though some HSA expansion proposals would change that).

HSAs provide the biggest tax breaks to people with high incomes who can afford to contribute to the account and leave the money there to accrue tax-free investment earnings over time. Meanwhile they provide far less financial benefit to people with low or moderate incomes — and may even cost these individuals more than if they didn’t have the account at all.

HSAs are not a substitute for high-quality health coverage. Providing a few thousand dollars in an HSA coupled with a high-deductible, bronze, or catastrophic health plan is no substitute for high-quality insurance, like silver or higher metal level plans available on the ACA marketplaces. In fact, high-deductible plans are associated with reduced or delayed health care and worse survival outcomes among cancer survivors.

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HSAs benefit financial firms at the expense of low- and moderate-income consumers. HSA providers often structure these arrangements so that dollars the account holder reserves to pay for medical expenses (referred to as “uninvested deposits”) stand to earn far less interest than amounts the account holder invests. When financial institutions offer interest on uninvested deposits at below-market rates, they can make money on the spread.

If a person is relying on the HSA to cover medical expenses while they are meeting their deductible, they are unlikely to invest the amount — even if the federal government deposited several thousand dollars into the HSA, as at least one bill proposes. Under current law, only 7 percent of HSAs in 2023 included invested funds, according to the Consumer Financial Protection Bureau (CFPB).

And, if a person with limited savings puts money into an HSA and later needs that money for non-medical expenses before they turn 65, they face a 20 percent tax penalty for withdrawing these funds, on top of income tax owed.

HSA fees hit people with low incomes or high health care needs. A 2024 CFPB report found that many HSA providers have “costly, complex, and captive junk fee structures.” CFPB reported receiving numerous complaints about junk and surprise fees for monthly account maintenance, funds transfer requests, and account closure requests.

Additionally, a recent Government Accountability Office report noted that HSA providers waive some of their fees for people with higher account balances, further increasing the value of HSAs only for people with high incomes or low health care costs. While employers cover some of these fees when providing an HSA to employees, all fees fall to individuals when ACA marketplace enrollees or others buying coverage on their own get an HSA.

People whose HSAs have low balances and who have limited investment knowledge could pay more in fees than they gain in interest. For example, a person maintaining a $1,000 balance for a year could accrue 50 cents or less in interest, while paying as much as $47 in annual fees.

Financial relationships between insurers and HSA providers are often blurred. For many HSAs, including those offered with individual market plans, insurers promote a default or preferred HSA to their policyholders. In some cases, the payer and the entity offering the HSA are subsidiaries of the same parent company (for example, UnitedHealthcare and Optum Bank), or the payer and trustee work in close partnership (like Aetna and Inspira Financial), enabling them to steer enrollees into specific HSAs.

HSAs are a convenient savings and investment vehicle for people with enough disposable income to save, but half of adults in the United States report being unable to afford an unexpected $500 medical bill and 41 percent have debt related to medical or dental bills. Setting aside enough money to cover anticipated medical expenses is not realistic for most households, particularly those with the lowest incomes who struggle to meet basic needs, and HSAs could cost people more than they save.