For many Americans, health insurance is a luxury they cannot afford. Having health insurance means that when you or your children are sick, you can go to the doctor without worrying about how you are going to pay. It provides a sense of relief and peace of mind to know that you will not be placed deeply in debt should sickness find it’s way into your home.
Health Savings Accounts (HSAs) have been touted as a way to help improve the current health care system. These types of plans have a high deductible, often $3,000 or $5,000 per year. In addition, the insured can open a Health Savings Account and deposit up to the amount of the annual deductible. This is considered to be a “consumer driven” health plan and the purpose is to have people shop around for the best health care at the best prices, thereby driving down the high cost of health care in this country.
Advantages of a Health Savings Account
There are a number of advantages to a Health Savings Account:
- Plans with higher deductibles have lower premiums.
- The money placed into HSAs has distinct tax benefits.
- Money placed into HSAs is yours to keep, as opposed to Flexible Spending Plans, if not used, will continue to accrue interest and can be used toward retirement income.
HSA Disadvantages
There are also disadvantages:
- The large deductible may cause people to delay or avoid obtaining the health care they need, especially if they have not saved enough money to cover their deductible. One study showed that 35% of people on consumer driven health plans will delay health care as opposed to 17% on traditional plans.
- People with chronic health conditions, maintenance medications, or families may actually spend more money annually with HSAs than with traditional health insurance plans.
- People in lower income brackets do not necessarily see tax benefits from savings placed into HSAs.
- People that need to spend their HSAs to cover the annual deductible will not be able to accrue savings toward retirement income.
According to proponents of the Health Savings Accounts, when consumers are responsible for medical spending they will shop around for the best possible care at the best prices [Government Accountability Office Study, 2006].
However, research has shown that this doesn’t happen for a number of reasons:
- There is limited information available for consumers to review about medical services.
- People tend to put off health care until necessary and then they will use services readily available rather than shopping for services.
Some analysts believe that HSAs will not have an impact on improving health care services or increasing access to health insurance to those that do not have access currently. Instead, HSAs may attract healthy, high-income people. This may increase premiums for traditional insurance by leaving those with health conditions to take traditional plans. With a larger amount of claims, premiums will rise.
Health Savings Accounts offer a number of attractive benefits for some people, especially those without current health conditions and those with enough disposable income to deposit into the savings accounts to cover their annual deductible. However, for those with families, chronic health conditions or who require maintenance medications, HSAs do not provide the tax benefits and actually will cost them more in annual out of pocket expenses [Government Accountability Office Study, 2006].
References:
All About HSAs, US Treasury Department, 2007
The Truth About Health Savings Accounts, Think Progress, 2006
Health Savings Account Answers, Lankford, Kimberly, Kiplinger.com, 2006
GAO Study Confirms Health Savings Accounts Primarily Benefit High-Income Individuals, Center on Budget and Policy Priorities, 2006
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