President-elect Donald Trump has expanding health savings accounts as an alternative to the health law.聽More than 20 million people now have high-deductible health plans that can link to the tax-advantaged accounts, and the average account balance grew by more than a third last year to聽more than聽$1,800, according to a new analysis. But consumer advocates warn that health savings accounts would do little to help lower income people who would lose their health insurance if the health law is repealed.
Since their introduction in 2004, health savings account plans have grown steadily. Nineteen聽percent of workers with employer health insurance are now enrolled in one, according the Kaiser Family Foundation鈥檚 annual employer .聽(KHN is an editorially independent program of the foundation.)
Consumers and employers can deposit money in the accounts to pay for medical expenses. The health plans that link to HSAs have to meet federal , including having a deductible of at least $1,300 for single coverage and $2,600 for families in 2016 (the amount will remain the same in 2017).
Health savings accounts provide a triple tax advantage that鈥檚 not available in other types of savings accounts: Money that鈥檚 deposited in the accounts reduces taxable income, earnings in the accounts grow tax free and the money isn鈥檛 taxed when it鈥檚 used to pay for qualified medical expenses.
At the end of 2015,聽the average HSA balance was $1,844 鈥� 38 percent higher than the average $1,332 balance at the beginning of the year, according to an analysis of 4 million accounts with $7.4 billion in assets by the Employee Benefit Research Institute. Eighty percent of the accounts with contributions last year also had payouts of an average $1,748.
鈥淲hen people first have the health savings account, they just see it as a way to pay their medical expenses,鈥� said Paul Fronstin, director of the health research and education program at EBRI, who authored the analysis. 鈥淏ut then at some point they realize they can leave it in because it grows tax free.鈥� If people withdraw their account funds to use for they鈥檒l be taxed on the income and may be assessed a 20 percent penalty.
But the tax advantages of HSAs skew heavily toward people with higher incomes, say policy experts. People whose income doesn鈥檛 meet the 鈥� about $10,000 for one person or $20,000 for a couple 鈥� get no tax benefit at all, and those in lower tax brackets get less benefit from the tax deduction than those in higher income tax brackets. In addition, poorer people are less likely to have cash to spare to invest in the accounts, said Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities.
Trump鈥檚 proposal is short on details, but Republicans have a variety of HSA expansions, including raising the maximum contribution limits and expanding what the accounts can be used to pay for.
鈥淚f that鈥檚 the plan, poor people aren鈥檛 going to be helped,鈥� Lueck said.
Fifty-eight percent of tax returns that claimed HSA-deductible contributions in 2013 were from households with incomes of more than聽$100,000, according to an by the Center on Budget and Policy Priorities of data from the Joint Committee on Taxation. The analysis also found that 70 percent of the total value of HSA聽contributions that year came from households聽above that income amount.
HSAs aren鈥檛 a good substitute for the premium tax credits and cost-sharing subsidies that people with incomes up to 400 percent of the federal poverty level (about $47,000 for one person) will likely lose if the health law is repealed, Lueck said.
For lower income people, 鈥淗SAs are a phantom benefit,鈥� she said.
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