Health Savings Accounts (HSAs) are tax-free savings accounts that can be used only with high-deductible health plans, not with traditional insurance. An individual with an HSA places money in a tax-free account to pay for current and future health services, presumably until the health plan deductible is met. These high-deductible plans create incentives to delay or forgo care, especially primary care.
Why are HSAs a problem for consumers?
- HSAs create incentives to delay or go without care. With a high-deductible HSA plan, an individual must spend a substantial share of money out of pocket on health care before his or her insurance begins to cover health costs. This encourages individuals to put off necessary care, especially if they have moderate incomes. This increases costs in the long run because people are sicker when they finally seek care.
- HSAs provide a larger tax benefit to richer consumers who least need help. Each dollar placed in an HSA saves an individual in the 35 percent tax bracket 35 cents, while it saves a person in the 10 person bracket only 10 cents. This may make HSAs an appealing choice for people in high tax brackets who have extra income to save, but they are a poor choice for the people and families who need help the most.
- HSAs can also raise the cost of insurance for some consumers: HSAs attract healthier individuals who do not expect to face high health care costs and who have high incomes. As healthier and wealthier individuals move into HSAs, sicker and poorer people are left in traditional health plans, and their costs are driven up. This phenomenon is known as adverse selection.
More on HSAs from Families USA
Next: Interstate Health Insurance and Association Health Plans
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