Health Savings Accounts Are No Substitute for the ACA’s Financial Assistance

https://www.americanprogress.org/issues/healthcare/news/2017/07/14/435850/health-savings-accounts-no-substitute-acas-financial-assistance/

Like the House Affordable Care Act (ACA) repeal bill, the Senate’s Better Care Reconciliation Act (BCRA) would loosen a number of restrictions on health savings accounts (HSAs). HSAs are intended to allow individuals to put aside pretax dollars to cover out-of-pocket medical expenses, though in practice they are often used as tax-sheltering devices for the wealthy. A new proposal supported by Sen. Ted Cruz (R-TX) that has been added to the updated version of the BCRA would also allow enrollees to use HSA funds to pay for premiums, in addition to out-of-pocket costs.

Although conservatives generally frame HSAs as a pro-consumer measure to improve affordability, in reality these accounts primarily benefit the wealthy rather than families who have difficulty affording health care costs. In addition, since HSAs currently must be paired with high-deductible health plans, they come at the cost of greater financial risk. The BCRA would push individual market enrollees toward less generous plans with high deductibles; this tradeoff would be particularly extreme for enrollees who currently benefit from the ACA’s cost-sharing reduction subsidies (CSRs), which significantly lower cost-sharing for low-income enrollees and would be eliminated after 2019 under the BCRA.

Allowing HSA funds to go toward premium payments would fail to make up the gap between the financial assistance that lower- and middle-income people would receive under the BCRA versus the ACA. As a result, millions of Americans would still find health insurance much harder to afford under the BCRA.

Current policy on HSAs

Consumers can use money saved in an HSA to meet deductibles and other forms of cost-sharing, such as copays and coinsurance. These funds cannot be used to pay insurance premiums. Currently, people can contribute to an HSA only if their health plan has an annual deductible of at least $1,700 for individual coverage or $2,600 for family coverage. Contributions to HSAs are tax-deductible; earnings within the account and withdrawals made for qualified expenses are tax-free.

As of 2017, the maximum contribution limit for an HSA was $3,400 for individual coverage or $6,750 for family coverage.

HSAs are mostly a tax break for the wealthy

Research and tax data demonstrate that HSAs primarily benefit upper-income households, since they are more likely to use the accounts, have more money available to invest in them , and receive a greater tax benefit by using them.

U.S. Department of Treasury data show that at the end of 2014, just 5 percent of tax filers with adjusted gross income less than $100,000 held money in an HSA, while 20 percent of filers with incomes of more than $500,000 did. HSA users with incomes less than $100,000 had account balances averaging about $1,700, while HSA users with incomes greater than $500,000 had account balances averaging nearly $10,000. The low- to middle-income group contributed an average of $1,800 into their accounts that year; this average includes both direct contributions by a policy holder and those made by payroll deduction from a policy holder’s employer. The high-income group, on the other hand, contributed an average of $5,500.

Upper-income households not only use HSAs more frequently and put more money in them, but they also get a bigger tax break for using them. Since higher-income earners are in higher tax brackets than middle- and lower-income earners, they save more money for each pre-tax dollar they shelter in an HSA. For example, a couple in the highest 39.6 percent tax bracket (with taxable income of more than $470,700) saves 39.6 cents in federal income tax for each dollar they contribute to an HSA. Meanwhile, the vast majority of low- and middle-class families are in the 0 percent, 10 percent, or 15 percent income tax bracket, which means they save either nothing, 10 cents, or 15 cents, respectively, on each dollar they contribute to an HSA.

According to Treasury data, families with incomes less than $100,000 making tax-deductible HSA contributions saved an average of about $400 off their taxes. Families with incomes greater than $500,000 saved an average of more than $2,000 when they made HSA contributions—five times as much.*

Wealthy people also get a proportionately bigger tax break on the investment returns that compound within HSAs. In fact, they are able to avoid not only income or capital gains taxes on investments by sheltering their wealth in HSAs, but also the Net Investment Income Tax (NIIT)—a 3.8 percent tax on investment income paid by people with incomes greater than $200,000 (or $250,000 for couples) that was enacted in the ACA to help pay for coverage expansions. Although the House ACA repeal bill and prior versions of the Senate bill repealed the NIIT, the most recent Senate bill leaves the NIIT in place. Many Republicans, including House Speaker Paul Ryan (R-WI), have suggested that they will seek to repeal the NIIT as part of tax legislation later this year.

The Senate bill expands HSAs, in part by raising the annual contribution limits. The benefits of higher contribution limits are likely extremely skewed to the wealthy. Naturally, high-income families are much more likely to max out their contributions into an HSA because they have more money to put into them. For a family making $50,000, the current contribution limit of $6,750 is 14 percent of their income.

Consider how raising the HSA contribution limits would affect two families: First, a middle-class family earning $50,000 and contributing $1,700 into an HSA, which is about the average contribution for HSA users of that income range. And second, a millionaire household maxing out its HSA.

Assuming the middle-class family is in the 15 percent tax bracket, it would save about $250 by deducting a $1,700 contribution into its HSA. Raising the contribution limits wouldn’t change these savings, although the Senate bill expands the potential uses of HSA. Meanwhile, the millionaire family that maxes out its HSA now contributes the full $6,750, getting a tax break of $2,673. Under the Senate bill, it can contribute $13,100 to an HSA, nearly doubling its tax break to $5,188. Of course, lower- and middle-income families may contribute more to HSAs under the Senate bill—but they are less likely to be able to afford to do so, and even if they do, they would get a smaller tax break.

The bottom line is that HSAs are a tax break that is skewed to wealthy families—one that the Senate bill makes larger.

HSAs in the Senate repeal bill cannot offset less generous tax credits

Like the House bill, the Senate’s BCRA would expand the use of HSAs. It would significantly increase the contribution limits to the maximum out-of-pocket limit amounts for high-deductible health plans, which are $6,550 for individuals and $13,100 for families in 2017. The bill would also permit spouses to make catch-up contributions to the same account, along with other changes.

In addition, it would reduce the tax penalty for withdrawing HSA funds for nonmedical expenses from 20 percent to 10 percent for people younger than age 65. In other words, this would make it easier for people to use HSAs as a tax shelter and later use the funds for nonmedical expenses.

Finally, the updated BCRA would enable enrollees to use HSA funds to pay their premiums. Unlike the House bill, the BCRA would retain the ACA’s premium tax credit structure, but would cut off eligibility at 350 percent of the federal poverty level instead of 400 percent, and would make the credits less generous.

Allowing HSA funds to pay for premiums does not come close to compensating for this reduction in financial assistance for low-income Americans. As described above, the tax benefits of HSAs are upside-down: They give a much bigger tax break to upper-income households in higher tax brackets while doing little or nothing for low- and moderate-income families. Refundable premium tax credits, on the other hand, work by directly reducing consumers’ premium costs. The ACA’s premium tax credits are designed to be most generous for people with lower incomes, who may have the most difficulty affording insurance otherwise.

Not a replacement for cost-sharing reduction subsidies

One often-overlooked but essential component of the ACA is the cost-sharing reduction subsidies, which go to enrollees earning between 100 percent and 250 percent of the federal poverty level—which, in 2017, is $12,060 to $30,150 for an individual in most states—who select certain plans on the marketplace. CSRs are a crucial support to help low-income enrollees afford their cost-sharing, such as deductibles and co-pays. CSRs work by directly upgrading the insurance plan’s actuarial value, or the percent of costs that the insurance company will cover rather than the enrollee. In contrast, HSAs are currently tied to high-deductible health plans. Thus, rather than serving as a replacement for the CSRs, low-income enrollees would be required to take on increased cost-sharing in order to even qualify for an HSA, with the HSAs providing little or no tax benefit.

The BCRA would reduce the actuarial value of the individual market benchmark plan; instead of the benchmark plan covering 70 percent of enrollees’ costs, it would only cover 58 percent. CSR recipients would see an even greater drop in plan value because the BCRA would repeal the CSRs with no replacement. CSRs increase the actuarial value of plans to 94 percent, 87 percent, or 73 percent, depending on a CSR enrollee’s income.

These changes would leave low-income enrollees facing significant higher deductibles and other cost-sharing. As the Congressional Budget Office (CBO) explains, “the deductible for a plan with an actuarial value of 58 percent would be a significantly higher percentage of income. … As a result, despite being eligible for premium tax credits, few low-income people would purchase any plan.”

Illustrating this, CBO estimates that benchmark plans under the BCRA will have deductibles around $6,000. Currently, among benchmark plans under the ACA that have combined medical and prescription drug deductibles, those deductibles average $3,609. For low-income enrollees who receive the highest level of cost-sharing assistance, the CSRs reduce their deductibles to an average of $255. This means that these CSR enrollees would see their deductibles increase by more than $5,700 on average under the BCRA, a more than 2,200 percent increase. An individual who qualifies for the highest level of CSRs earns less than $18,090 per year; thus, a $6,000 deductible would represent at least one-third of their income.

Enrollees who currently benefit from CSRs aren’t the only ones who would be hit hard by this increase in deductibles. Medicaid beneficiaries who would lose eligibility due to the BCRA’s rollback of Medicaid expansion funding or per capita caps on funding would also find coverage with these types of deductibles very difficult to afford. Medicaid beneficiaries pay little to no premium costs and have very low cost-sharing; they would face sharply higher costs on private coverage under the BCRA. For example, for someone currently covered by Medicaid expansion and earning 101 percent of the federal poverty level—or $12,180—a $6,000 deductible would be about one-half of their income.

As this calculation makes clear, low-income enrollees would face significantly higher cost-sharing under the Senate bill. Moreover, as the CBO concluded, few low-income enrollees would be able to afford any health care plan at all.

Conclusion

HSAs are primarily a tax shelter for the wealthy, not a solution to help low- and middle-income people afford coverage. Combined with the elimination of cost-sharing assistance and the downgrading of the generosity of the benchmark plan, the BCRA’s HSA provisions represent a shift toward significantly higher cost-sharing. Far from providing better care, the new HSA provisions will not change the CBO’s projection that the Senate plan would price most low-income enrollees out of the insurance market entirely.

*Authors’ note: When also taking into account HSA contributions made from payroll deductions, the average total income and payroll tax savings on HSA contributions for families with incomes under $100,000 is nearly $600, compared to about $2,300 for families with incomes over $500,000.

Who Would Gain Under the Proposal to Expand Health Savings Accounts?

http://www.commonwealthfund.org/publications/blog/2017/apr/gains-under-proposal-to-expand-health-savings-accounts

Image result for health savings account

The U.S. House of Representatives leadership’s bill to repeal and replace the Affordable Care Act (ACA) would have significantly expanded the use of health savings accounts (HSAs), which people can use to save tax-free money to pay for certain medical expenses. This effort isn’t new and it’s not likely to go away just because a vote on the House bill, the American Health Care Act (AHCA), has been tabled. Amendments to the tax code to encourage HSAs have been a staple of Republican health care proposals, and the HSA provisions in the House legislation were introduced as a standalone bill last year.

Why all the interest? HSA proponents suggest the accounts offer cost savings and give consumers freedom to spend their money how they see fit. An HSA must be paired with a high-deductible health plan (HDHP), and there is evidence that the combination of an HDHP and HSA does reduce health care spending—by leading consumers to skip care, both needed and unneeded. Yet there is little basis to conclude that HSAs expand access to care, or that the tax benefits these accounts promise reach most Americans. In practice, most financial advantages have accrued to the top 5 percent of earners, who can afford to contribute to the accounts during the year and reap larger gains at tax time.

HSAs: The Basics

HSAs were created in 2003 in legislation establishing a Medicare prescription drug benefit. They are tax-preferred savings accounts funded by consumers and sometimes their employers. Consumers can contribute to an HSA only if they are enrolled in an HDHP, which in 2017 is an individual or group health plan that has a deductible of at least $1,300 ($2,600 for a family plan). Unlike other savings vehicles established under federal law, HSAs provide what amounts to triple tax benefits: contributions are tax-deductible; account funds are invested and grow tax-free; and withdrawals are tax-exempt (if they are used for qualified medical expenses).

HSAs are far more attractive to higher-income individuals, who are more likely to have sufficient income to fund the accounts and gain a greater tax benefit than are lower-income individuals subject to lower tax rates. In 2013, tax filers with income above $200,000 were 10 times more likely to claim a tax deduction for HSA contributions than those with incomes below $50,000, and the tax-advantaged contributions these high earners made were, on average, more than twice as large. A study of HSA take-up in the group market from 2005 to 2012 found similar results and observed, perhaps unsurprisingly, that high-income households were substantially more likely to fund their HSAs fully (with their own dollars and contributions from employers) than were middle- and lower-income filers.

Enhanced HSAs on the Horizon?

The AHCA would have expanded use of HSAs by authorizing higher tax-free contributions (increasing the amount from $3,400 to $6,550 for an individual plan) and more tax-free uses for funds. The AHCA also would have cut in half the penalty for withdrawals for nonmedical expenses.

Other proposals would provide similar and sometimes greater benefits to account holders. Legislation previously authored by Health and Human Services Secretary Tom Price would increase HSA contribution limits while also making it easier to shelter those funds and other retirement savings from taxes when they are transferred to heirs. Senator Rand Paul’s (R–Ky.) ACA replacement bill would go still further, erasing the requirement that HSAs be linked to a high-deductible plan and eliminating contribution limits altogether.

There is little doubt these expansions would encourage HSA take-up. Likewise, the proposals would make HSAs even more attractive as savings and estate planning vehicles for high-income households—particularly those who earn too much to contribute to other tax-advantaged retirement accounts and those who have maxed out such contributions. At the same time, the financial services companies that manage these accounts would reap substantial benefits, too.

Looking Ahead

HSAs are already growing under current law: by 2017, nearly 21 million accounts held more than $41 billion in assets, while the cost of the program to taxpayers has steadily increased and will nearly double by 2020. The AHCA would have dramatically accelerated this trend, causing federal spending to shoot up nearly 50 percent over the first three years following enactment and by a total of more than $19 billion by 2026.

The Congressional Budget Office estimated that the AHCA would have reduced insurance coverage dramatically, especially among Americans with low incomes. Moreover, the people most likely to need assistance paying for coverage and out-of-pocket costs—those with incomes under 200 percent of poverty, or around $24,000 for a single person—are the least likely to benefit from the bill’s approach to making coverage more affordable: HSAs. Given an ACA replacement’s potential impact on federal spending and coverage, spending billions of dollars on a program that primarily helps those least likely to need assistance purchasing coverage and paying out-of-pocket costs warrants scrutiny.

3 Republican concepts for replacing the ACA — and what they mean

http://www.healthcaredive.com/news/3-republican-concepts-for-replacing-the-aca-and-what-they-mean/437475/

The bottom line

These policy ideas popular among conservatives could certainly push health insurance costs down for some — like those with few healthcare needs and reliable income — but they also would undoubtedly offer fewer benefits to those with low incomes and high healthcare costs.

“The value of the policies that insurers are offering is going to go down under all these options,” Blumberg said. “They’re going to end up attracting the higher needs population and they can’t sustain that.”

Hospitals would see significant revenue losses if millions lose coverage under repeal of the ACA and are unable to afford new coverage under the replacement plans the GOP has put forward. Some executives have warned they would have to cut vital services, such as behavioral health.

A report prepared for the American Hospital Association found that hospital revenues would decrease nearly $400 billion between 2018 and 2026 with ACA repeal. The plans put forward by Republicans would barely dent that projection, experts say.


Hospital revenues are projected to decrease by $400 billion between 2018 and 2026 under ACA repeal, according to the AHA.


The leaders of the American Hospital Association and Federation of American Hospitals have written to President Donald Trump asking him not to repeal the ACA without an adequate replacement.

“Losses of this magnitude cannot be sustained and will adversely impact patients’ access to care, decimate hospitals’ and health systems’ ability to provide services, weaken local economies that hospitals help sustain and grow, and result in massive job losses,” they wrote. “As you know, hospitals are often the largest employer in many communities, and more than half of a hospital’s budget is devoted to supporting the salaries and benefits of caregivers who provide 24/7 coverage, which cannot be replaced.”

Republicans continue to debate whether, how and when to replace the ACA. Just as the reform law had major impacts on the industry, the process of finding alternatives will have significant consequences as well.

 

HSAs: ‘Tax-Break Trifecta’ Or Insurance Gimmick Benefiting The Wealthy?

HSAs: ‘Tax-Break Trifecta’ Or Insurance Gimmick Benefiting The Wealthy?

Doctor holding piggy bank

They are just three little words — “health savings accounts” — but they are generating a lot of buzz as Republicans contemplate plans to repeal and replace the Affordable Care Act.

Expanding the use of such accounts, based on a long-held conservative view that consumers should be more responsible for their health care spending, is part of almost every GOP replacement plan under consideration on Capitol Hill.

Here’s the theory behind HSAs: Making consumers bear a bigger up-front share of medical care — while making it easier to save money tax-free for those costs — will result in more judicious use of the health system that could ultimately slow rising costs.

While the details of the current proposals differ, they all generally seek to allow larger tax-free contributions to the accounts and greater flexibility on the types of medical services for which those funds can be used. Some include tax credit subsidies to help fund the accounts.

Supporters say premiums for the insurance linked to an HSA are lower, and they like HSAs’ trifecta of tax savings — no taxes on contributions, the growth of the funds in the account or on their withdrawal if spent on medical care. But skeptics note the tax break benefits wealthy people more than those with lower incomes.

Still, expect to hear a lot more about HSAs in the coming months. Here’s what you need to know:

 

Don’t Let The Talking Points Fool You: It’s All About The Risk Pool

http://healthaffairs.org/blog/2016/03/15/dont-let-the-talking-points-fool-you-its-all-about-the-risk-pool/

Insurance 2