For years, healthcare costs have been a hot topic in the United States. As an alternative to the usual health insurance, “health savings accounts” have become a part of the conversation. A health savings account, or HSA, is pretty much what it sounds like – a savings account you put money into to go towards your medical expenses – with a bit of government assistance to build up that amount.
Compared to an ordinary savings account, the money in an HSA is tax deductible. This means that the money put in is tax-free, grows with interest tax-free, and can come out of the account tax-free. The HSA essentially lets you use untaxed income for eligible medical expenses.
However, in order to qualify for an HSA, you must be enrolled in a high-deductible health insurance plan (HDHP), where monthly premiums, fees to remain enrolled in the policy, are lower but the deductible, the amount you have to pay yourself before the insurance company starts paying your bills, is high. The HDHP helps families minimize up-front costs while the HSA allows them to save for future expenses.
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HSAs have been heralded for incentivizing consumers to make “smarter” healthcare choices because they pressure customers to seek care they can afford – a system that does not work for people who cannot afford the care they need.
HSAs are not ideal for everyone. A study found that high-income and older tax filers fully funded their HSAs four times more often than low-income and younger filers. Contributing to HSAs requires having a disposable income to put into a separate account, and families with lower-incomes simply do not have the disposable funds to put into an account with restricted usage.
Low-income families are further disadvantaged by the high deductible requirement of the HDHP because it might be difficult to save up enough to meet the high deductible. While it also pushes families to be more cost-savvy, unexpected healthcare costs can easily exceed the amount in an HSA, and the pressure to save may lead to a reluctance to seek necessary and vital healthcare services.
The Affordable Care Act added limitations to the usage of HSA funds, restrictions for over-the-counter purchases without prescription, and larger penalties for withdrawing HSA funds for non-medical purposes. In addition, a wide range of preventive services was no longer subject to deductibles in HSA plans. The GOP proposal on the Senate floor aims to raise the limit on contributions to HSAs, remove the restriction on non-prescription medical expenses, and allow the use of HSA funds to pay for insurance premiums.
The ability to pay for care with a debit card without sweating complicated insurance policies may be a draw for many families, but this system only works for those who already have the means to pay and access to HSA policies that benefit the consumer.
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