What Is a Health Savings Account?
January 25, 2017
A printable PDF of this backgrounder is available here.
Leading GOP alternatives to the Affordable Care Act (ACA) rely on Health Savings Accounts (HSAs), which do little or nothing to help the uninsured afford coverage but offer high-income people lucrative tax-sheltering opportunities.
Under current law, people in a high-deductible health plan — meaning a deductible of at least $2,600 for a family, which applies to virtually all services except preventive care — may establish an HSA to save for out-of-pocket health expenses.
Uninsured receive little benefit. After paying premiums and paying up front for needed medical care prior to meeting the deductible, many low-income people won’t have money left to put into an HSA. 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.
High-income people get the biggest benefit. They are less likely to need a tax break to pay for insurance or health care, yet they receive the largest tax break for each dollar put into an HSA because they are in the highest tax bracket. Someone in the 35 percent bracket, for example, saves up to 35 cents in taxes for each dollar put into an HSA, can earn investment gains, and can withdraw the money tax-free.
Share of total value of HSA contributions from households with incomes over $100,000
Comparing Health Plans
(Based on actual plans currently available in Virginia)
Marital status: married with one child
Annual income: $35,000 (10% tax bracket for married joint filers; 174% of the poverty line)
Pre-existing condition: Diabetes, requiring regular office visits estimated at $200 per visit, insulin, and other medical supplies. Without insurance, managing his diabetes would cost an average of $5,400 a year.
|COMPARING HEALTH PLANS|
|2017 Marketplace Plan||High-Deductible Plan with HSA|
|Bottom line: Higher out-of-pocket costs|
|Bottom line: Little benefit for people with modest incomes|
|Bottom line: Challenges for people with significant health costs|