In 2017, with the inauguration of a new president and with Congress openly discussing healthcare reform, Health Savings Accounts (HSAs) are getting a lot of renewed interest. This has many people wondering, what is the future of HSAs?
What is an HSA?
HSAs have been in effect since 2004, following approval by Congress and President George W. Bush. Individuals with a qualified high deductible health plan (HDHP) have been able to utilize the savings account to help them cover out-of-pocket healthcare expenses for themselves and their families. Each pay period, a pre-tax deduction is made from the individual’s paycheck into the account.
A major driving factor behind the approval of HSAs was to help lower the cost of healthcare through lower insurance premiums. In addition, HSAs were designed to empower account owners to take more control over their personal healthcare decisions; using their own tax-free money, individuals can pay for their deductibles and choose which services or products to use instead of being confined to only what their health plan covers. In 2017, individuals can contribute up to $3,400 to their HSA, or up to $6,700 for those with a family.
Initially slow to take off, HSAs are becoming more and more popular, especially as the availability of HDHPs continues to rise. Thirteen years after HSA implementation, HDHP growth is staggering and so is HSA adoption. In 2015, total enrollment in HSA-eligible HDHP plans was estimated at 19.7 million, and since 2013, HSA enrollment has risen by nearly 54 percent. Furthermore, in the first half of 2016, 37 percent of new HSAs were due to health plan partnerships.
Why are HSAs so Popular?
Health savings accounts are popular for a variety of reasons. First and foremost, HSAs offer triple tax savings. Account holders make pre-tax contributions from their paychecks, withdrawals made from the account for eligible medical expenses are tax free, and interest and investment income earned on the account is tax free.
Another contributing factor is that HSA funds can be used for a wide-range of IRS-approved medical expenses. This goes a long way toward helping make healthcare more affordable.
HSAs also have a ton of other benefits which make them popular, including that, unlike other employer-sponsored benefit accounts, the individual owns the HSA forever. There is no forfeiture of funds if the account holder retires or leaves the company. Another benefit is that, after age 65, account holders can use their HSA for any expense without penalty, though withdrawals are taxed if not used for medical expenses. So, an HSA can be used as a quasi-retirement account, if the account holder chooses.
The Future of HSAs
With ACA reform as a main priority for President Trump and the majority-Republican Congress, there are many questions surrounding the future of HSAs. As a candidate, Donald Trump promoted wider use of HSAs as part of his healthcare plan. After winning the election, the Trump administration touted HSAs as a solution for a “patient-centered healthcare system that promotes choice, quality, and affordability.”
In Congress, there have been at least two competing visions for the future of HSAs. The first came from House Speaker Paul Ryan. Outlined in a white paper titled “A Better Way: Our Vision for a Confident America,” Speaker Ryan’s plan suggests raising the maximum tax-free contribution limit for an HSA to total as much as the insurance plan’s deductible and out-of-pocket maximum. This could total more than $14,000 per year for families, according to NPR, or more than double the current maximum. In addition, the white paper also promotes catch-up contributions from spouses, and expands HSA accessibility for certain groups, among other things.
Another Congressional plan was put forward by Kentucky Republican Senator Rand Paul. Senator Paul’s plan, titled the Obamacare Replacement Act, promotes several HSA reforms, including:
- Eliminate restrictions on HSAs
- Allow the account funds to be able to purchase insurance. In conjunction, the insurance would not have to be a high deductible health plan.
- Remove the contribution limit for HSAs
- Permit individuals to opt for a $5,000 tax credit for HSA contributions
These are just a few ideas that are going around the halls of Washington, D.C. Clearly, leaders in the nation’s capital have a few ideas in mind for ACA reform and HSAs are central to their policies, with greater access to the accounts and increased contribution amounts. While at this time the exact future of HSAs is unclear, it appears that they will continue to be an integral part of consumer driven healthcare for the American public.