How Do Health Savings Accounts Work under Obamacare?
October 17, 2014
Health Savings Accounts (HSAs) are savings accounts that allow the holder to deposit money, tax free, into an account whose funds are intended to be used for medical expenses. HSAs are only available to Americans who have a high-deductible health plan (which, in 2014, meant a deductible of $1,250). Enrollees can make deposits into their HSAs and use the funds to cover unexpected health costs.
Health Savings Accounts are considered a "consumer-driven" health care reform, meaning that they put the consumer in charge of his own health care spending. The idea is that an individual spending his own money will be more frugal than an individual spending another person's money (in the case of health care spending, the other person is an insurance company). That idea has proven true in empirical studies. A major health study conducted by the RAND Corporation from 1971 to 1986 found that an increase in cost-sharing up to 25 perfect reduced spending by 20 percent.
Manhattan Institute fellows Paul Howard and Yevgeniy Feyman have released a new study on HSAs and how the accounts are impacted by Obamacare:
- The Affordable Care Act disadvantages HSAs by requiring plans to offer certain essential health benefits and have an actuarial value of 60 percent (meaning that the insurance plan must cover at least 60 percent of costs).
- Such reforms limit the ability of a person to exchange high premiums for a high deductible.
- Additionally, the ACA prevents the use of HSA funds to pay for over-the-counter medicines and raises the penalty if a person uses HSA funds to cover non-medical costs.
Despite these changes, Howard and Feyman write that HSAs are still good options for consumers, and one-quarter of all health plans on the exchanges are HSA-eligible plans. The authors offer a number of reforms that could improve HSAs and enlighten consumers as to their advantages, including:
- Plans on the exchanges that are HSA-eligible are often not marked as such. Identifying HSA plans would improve access to them.
- Additionally, the authors suggest that the exchanges provide a "cost calculator" that would allow consumers to compare costs and savings between HSA and non-HSA plans.
- Lawmakers could do away with the many regulations concerning HSA eligibility and make plans with qualifying deductibles automatically eligible for an HSA. Or, Howard and Feyman suggest making any plan with an actuarial value below 70 percent automatically HSA-eligible.
Howard and Feynman write that increased use of HSAs can do much to control health care costs. Indeed, the NCPA has published extensive research on this subject. As Senior Fellow Peter Ferrara has written, HSA plans cost 25 percent less than traditional health insurance plans and have annual cost increases that are more than 50 percent less than traditional insurance.
Source: Paul Howard and Yevgeniy Feyman, "Health Savings Accounts under the Affordable Care Act: Challenges and Opportunities for Consumer-Directed Health Plans," Manhattan Institute, October 2014.
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