GOP bill expands health savings plans but consumers don't use them

A growing number of employers are offering workers insurance that links to health savings accounts, and now congressional Republicans want to expand the contribution limits and uses for these tax-exempt funds. But do consumers want them?

A new study found that fewer than half of people with health savings accounts (HSAs) deposited any money in them in 2016. The average total account contribution, including both employer and employee deposits, was $2,922, significantly lower than the maximum allowable contribution for family coverage ($6,750) or individuals ($3,350), according to the study.

Republicans would like to expand the use of health savings accounts and promote them as a way to help consumers play a larger role in controlling their health spending. Plus, they say, the tax advantages of HSAs help consumers afford their care. But the latest study suggests that current legislative proposals may miss the mark.

"If your goal is to increase the number of people with HSA-eligible health coverage and thus HSAs, simply increasing the contribution limits isn't going to get you there," said Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute and the author of the report.

Only 13 percent of account holders contributed the maximum amount, Fronstin said.

Money that employees contribute to a health savings account doesn't count as taxable income, and interest and other earnings in the accounts grow tax-free. In addition, to remain nontaxable, the funds must be used to pay for medical expenses, such as doctor or hospital care, dental services and prescriptions. The accounts must be paired with a health plan that has a deductible of at least $1,300 for individual coverage and $2,600 for family coverage.

Both employers and employees can contribute to the accounts, and the money belongs to the employee if he leaves his job.

People with coverage on the individual market who buy a plan that meets federal HSA standards can also open and fund health savings accounts.

In 2016, 20 million people were enrolled in high-deductible health plans with a health savings account, according to America's Health Insurance Plans, an industry group.

Republicans have proposed to increase the limit on health savings account contributions to equal the deductible and out-of-pocket spending limit starting next year, or at least $6,550 for individuals and $13,100 for families. Their bills would also allow spouses to make catch-up contributions to the same health savings account and let people use funds from their health savings accounts to pay for over-the-counter medications, among other things.The bill being advanced by Senate Majority Leader Mitch McConnell (R-Ky.) also would allow beneficiaries to use their account to pay premiums.

Critics charge that expanding health savings accounts will provide little benefit to lower-income people who have no spare cash to fund them.

The EBRI analysis is based on its database of 5.5 million health savings accounts with $11.4 billion in assets, representing 27 percent of all HSAs. The EBRI study found that roughly two-thirds of account holders withdrew funds that totaled an average annual $1,771 in 2016.

People's account balances grew over time, the study found. Accounts opened in 2016 had an average balance of just over $1,000, while those opened in 2004 had an average balance of nearly $15,000. Since most people don't have high health care expenses in any given year, they can build up balances over time, Fronstin said, and people also might contribute more as they learn how the accounts work.

"The longer you've had the account, the better you understand the tax benefits and understand the value of making a contribution," he said.

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