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How HSAs Fit Into Healthcare Reform

HSAs featured prominently in recent healthcare reform efforts

Jake Spiegel

 

The future of healthcare reform in the United States is hard to predict, but there’s enough evidence to make educated guesses about the future of health savings accounts. Despite several setbacks, recent legislative efforts make it clear that HSAs will be prominently featured in any healthcare reform.

In recent posts, we explored our research on the top 10 providers of HSAs and how we assessed these accounts as spending and investing vehicles. In this last post of the series, we’ll take a look at the role HSAs might play in healthcare reform.

Proposals signal intent on HSAs

The American Health Care Act, which the U.S. House of Representatives passed in May before it stalled in the Senate, included several HSA-centered provisions. The bill proposed roughly doubling current HSA contribution limits from $3,400 and $6,750 to $6,650 and $13,300 for single coverage and family coverage, respectively. The bill also explicitly tied contribution limits to the statutorily defined out-of-pocket maximums of high deductible health plans. And the list of allowable medical expenses would be expanded to cover over-the-counter drugs without a prescription.

Another recent bill, the Empowering Patients First Act, was introduced in the House of Representatives by current Health and Human Services Secretary Tom Price in the previous session of Congress. This bill would have increased HSA contribution limits to match those of IRAs and instituted a one-time $1,000 tax credit for opening an HSA. It goes a step further than the American Health Care Act in expanding access to HSAs by opening eligibility to include people covered by Medicare or Veterans Affairs health plans.

Both of these proposed bills signal a clear legislative intent that HSAs will figure prominently in any future healthcare reform. There may be some seismic political shift that obviates this discussion. But based on the facts at hand in the current political climate, HSAs appear poised to continue proliferating.

Lawmakers should exercise caution

This approach does have some drawbacks, however. If the healthcare system is reformed by a bill that does raise contribution limits and expand access to HSAs, the benefits may not be all that widely shared.

In an analysis of 400,000 HSA accountholders, I found that accountholders tended not to max out contributions. In the dataset, only about 5% accountholders contributed the maximum allowed by law—other analyses have yielded similarly low shares of max-contributors. It’s likely that even fewer would contribute the maximum with dramatically higher contribution limits.

Legislators should consider carefully who will benefit from a dramatic increase in contribution limits.

The bottom line on HSAs

HSAs are a valuable tool for saving for healthcare and retirement, but few accountholders are currently maxing out their contributions—and even fewer would likely max out under higher contribution limits. There’s some hope for improvement, though. Better education and messaging surrounding HSAs might make it easier for accountholders to see how contributing more to their HSA can improve their bottom line.

For more on our HSA assessment, download Morningstar's "2017 Health Savings Account Landscape."

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