The Truth About Health Savings Accounts

President Bush will use tomorrow’s State of the Union address to promote “health savings accounts” as a solution to America’s health care crisis. Multiple studies have shown that HSAs are likely to increase the number of uninsured and increase health care costs, all while costing taxpayers tens of billions of dollars. In other words, President Bush is proposing to do for health care what he’s already tried with Social Security — placing more of the cost burden on individuals, while making the system more attractive to the wealthy but less effective for ordinary Americans who need health coverage most.

WHAT ARE HEALTH SAVINGS ACCOUNTS?: Generally speaking, they are tax-free savings accounts combined with high-deductible insurance policies that people obtain through their employers or buy independently from insurance companies. More on HSAs here.

HSAs LIKELY TO INCREASE THE NUMBER OF UNINSURED: According to the Commonwealth Fund, health savings accounts are “not likely to be an important contributor to expanding coverage among uninsured people” because most of uninsured Americans “do not face high-enough marginal tax rates to benefit substantially from the tax deductibility of HSA contributions.” Another study by the Center on Budget and Policy Priorities finds that the number of people who would lose coverage due to employers drop health insurance or reducing the amounts they contribute toward their employees’ health insurance costs would likely exceed the number of uninsured people who would gain insurance.”

LOW- AND MIDDLE-INCOME AMERICANS GAIN LITTLE OR NO TAX SAVINGS FROM HSAs: “Low-and middle-income uninsured people will gain meager or no tax savings” from health savings accounts, according to a Commonwealth Fund study. Currently, roughly 50 percent of uninsured adults pay no federal income taxes, meaning that “tax incentives for high-deductible health plans would have little impact on uninsured adults.” Moreover, “uninsured people in the middle income tax bracket would see potential savings of just 3 percent to 6 percent on a typical high-deductible health plan premium of $2,000.”HSA USERS PAY MORE OUT-OF-POCKET COSTS: Individuals with “consumer-driven” health plans (CDHPs) and high-deductible insurance plans (HDHPs) are “more likely to spend a larger share of their income on out-of-pocket health care costs plus premiums than those in comprehensive health plans. According to one study, “more than two-fifths (42 percent) of individuals with HDHPs and 3 in 10 (31 percent) in CDHPs spent 5 percent or more of their income on out-of-pocket costs plus premiums in the past year, compared with about 1 in 10 (12 percent) in comprehensive health plans.”


HSAs COULD COST TAXPAYERS $41 BILLION OVER TEN YEARS: The health savings accounts envisioned by President Bush will cost American taxpayers roughly $41 billion over ten years, according to government studies. The Bush administration estimates that the provision of the Medicare drug bill that established health savings accounts will cost $16 billion over the next decade. President Bush has also proposed an additional tax deduction on the accounts, which both the Bush administration and the Joint Committee on Taxation estimate will cost roughly $25 billion over the same period.

HSA USERS MORE LIKELY TO AVOID, SKIP, OR DELAY HEALTH CARE BECAUSE OF COSTS: Individuals with “consumer-driven” health plans (CDHPs) and high-deductible health plans (HDHPs) — both elements of health savings accounts — “were significantly more likely to avoid, skip, or delay health care because of costs than were those with comprehensive insurance, with problems particularly pronounced among those with health problems or incomes under $50,000.” According to one study, “about one-third of individuals in CDHPs (35 percent) and HDHPs (31 percent) reported delaying or avoiding care, compared with 17 percent of those in comprehensive health plans.”

HSAs WILL UNDERMINE EMPLOYER-BASED HEALTH CARE SYSTEM: The current policy of promoting high deductible plans (including the proposal for a new tax deduction for individual high-deductible policies) will weaken the employer-based health care system by providing employers who are already seeking relief from high health care costs with an excuse to drop coverage altogether, sending employees to the individual market. This market cherry-picks the healthy and creates barriers to coverage for the sick. In other words, this policy undermines the purpose of insurance (whether health, homeowners, car, or any other type), which is to pool risk.

HSA EXPERIMENTS HAVE FAILED IN OTHER COUNTRIES: Justas Americans learned of the pitfalls of Social Security privatization from experiences in Chile and the UK, so we can learn about the flaws of President Bush’s health care proposals from South Africa and Singapore, which both implemented versions of HSAs. A study by the Harvard School of Public Health analyzed the health savings accounts enacted in Singapore and found they had “caused financial hardship for Singapore’s citizens and…adversely affected the cost-effectiveness of its health care system.” Likewise, in South Africa, which has “a decade’s worth of experience with similar consumer-driven health plans,” the cost of specialty care has increased 43 percent, the cost of hospital care is up 65 percent, and uninsured rates have “continued to grow rapidly.”

HSAs TO ENRICH FINANCIAL SERVICES INDUSTRY: The New York Times reports, “Banks, credit unions and money management firms are now quietly positioning themselves to become central players in the business of health care” by offering HSAs, tapping into the “$75 billion or so in new money to manage [that] will soon be at stake.” According to the Times, “Banking lobbyists have met with White House officials at least three times over the last year to discuss the rules governing health savings vehicles,” and have now established a lobbying group, the H.S.A. Council, and “are spending millions of dollars to roll the plans out.”