Health Savings Accounts: Much Ado About Nothing

Perhaps because the Republicans are now in the minority, their favorite reform idea—consumer-directed health plans (CDHPs)—has not attracted much attention lately.  But a new proposal in the U.S. Senate to put new limits on health savings accounts (HSAs) might revive this debate.

As you’ll recall, CDHPs combine high-deductible policies with HSAs, which are tax-favored bank accounts that can be used to accumulate funds for medical expenses. This year, the government allows individuals to contribute $3,000 to their HSAs; families can contribute up to $5,950. But the Senate proposal would limit the allowable contributions to the amount of the account holder’s deductible. Since the minimum size of deductibles in CDHPs is $1,150 individual/$2,300 family, this change would reduce the amount that people could sock away on a pretax basis.

When the Bush Administration introduced HSAs, the Democrats resisted, saying that CDHPs would be used mainly by “the healthy and wealthy,” who don’t need to be subsidized by taxpayers. They renewed their criticism last year after congressional investigators revealed that the average gross income for people with HSAs was $139,000, versus $57,000 for everyone else who filed taxes.

Naturally, the banking and insurance industries oppose any change in the rules for HSAs. In a letter to Senators Max Baucus and Charles Grassley of the Senate Finance Committee, one lobbyist complained, “Implementing the suggested policy changes would simply cripple one of the few health-care reforms that are accomplishing the president’s stated goals” of reducing the number of uninsured people. About a third of health savings account holders, he said, were previously uninsured.

But is this true? The 2009 report on CDHPs from America’s Health Insurance Plans notes that in 2007, “27 percent of individuals purchasing HSA-eligible plans were previously uninsured.” Now, it’s possible that since 2007, that percentage might have risen to 33 percent. But an “HSA-eligible plan” is simply an insurance policy with a deductible high enough to qualify for a health savings account. And studies have shown that fewer than half of the people enrolled in such plans have HSAs.

Overall, AHIP says that 6.1 million people had HSA-eligible high-deductible plans in January 2008, and about a quarter of them bought those policies in the individual market, where workers without employer-based coverage seek insurance. But if only half of those people have HSAs, and the rest just bought high-deductible policies because they couldn’t afford anything else, CDHPs are having a relatively small impact on the 47 million uninsured.

That effect isn’t likely to increase significantly in the near term: According to the U.S. Department of Labor, only eight percent of workers have access to a CDHP.