HSAs work well, but they need some improvements.
Problem 1: Linked to insurance.
Under current rules, you aren’t allowed to have an HSA if you don’t have health insurance. This requirement is unnecessary and increasingly unhelpful nowadays, when insurance premiums are soaring and access to good doctors is rapidly shrinking.
Problem 2: Overly restrictive insurance rules.
Only a limited class of insurance products are HSA-qualified. If your health plan is not HSA-qualified, you are not allowed to contribute to your HSA. Unfortunately, most health insurance products sold today are not HSA-qualified.
Specifically, current rules for HSA-qualified coverage are overly prescriptive when it comes to the deductible (the amount you pay before you insurance kicks in) and the out-of-pocket maximum (the highest amount you should expect to pay out of pocket, under the insurance plan, in a given year):
- The plan’s deductible must be higher than a certain dollar figure. In 2018, this figure is $1,350 for individuals or $2,700 for a household.
- The plan’s out-of-pocket maximum must be below a certain amount. In 2018, this figure is $6,650 for an individual or $13,300 for a household.
Failure to conform to these arbitrary limits renders your plan non-HSA-qualified, regardless of whether your plan actually meets your needs.
And Congress has imposed limitations on how you can spend your HSA money. For example:
- HSA money cannot be used to purchase over-the-counter items and medicines, which are often less expensive than brand-name versions.
- An HSA-qualified plan is not allowed to cover certain simple, cost-saving items like diabetic test strips, until after you’ve met your deductible.
Problem 2: Inadequate contribution limits.
The current annual HSA contribution limit is low.
- In 2018, it is only $3,450 for an individual or $6,900 for a household.
- For people over 55, the amount is slightly higher: $4,450 for an individual or $7,900 for a household.
While those dollar amounts may sound high, and in a single year they may be sufficient for people who are healthy or lucky, they are not sufficient for most of us.
Most people need hundreds of thousands of dollars for health care over the course of their lives, not just a few thousand dollars.
We all get sick. Health care can be very expensive. Our health insurance does not always cover all of our medical bills. Without ample savings, health care costs can bankrupt us.
And the less money we are allowed to contribute to our account, the less money we can accumulate over time through the power of compound interest.
Most of us need to save more for our health care, in order to protect ourselves when our health insurance fails us.
The current HSA contribution limit is too low.
Problem 3: Not available to everyone.
HSAs are severely discriminated against, compared to other health care options. Current law prohibits around 90 percent of the U.S. population—nine in ten Americans—from contributing to their HSA.
Here is a list of people who are not allowed to contribute to an HSA under current law:
- People who are uninsured.
- People who are listed as a dependent on another person’s tax return.
- People who are over 65 and receiving Social Security benefits. /1
- People who are on Medicare. /2
- People who are on Medicaid.
- People who receive Indian Health Service (IHS) benefits.
- People who receive Veterans Administration (VA) health benefits.
- People who receive U.S. military (TRICARE) health benefits.
- People who rely on health care sharing (HCS) instead of insurance.
- People who rely on direct-pay medicine (direct primary care, or DPC).
- People who rely on a short-term, limited duration insurance (STLDI) plan. /3
- People who rely on an individually purchased plan that is not HSA-qualified.
- People who rely on a workplace health plan that is not HSA-qualified.
- People who rely on a workplace health plan that is HSA-qualified but the individual is over 65 and receiving Social Security benefits.
- People who have a workplace health care flexible spending account (FSA). /4
- People whose spouse has a health care FSA, even if the spouse is not on their health plan. /4
- People whose health plan deductible is below the amount permitted for an HSA-qualified plan.
- People whose health plan out-of-pocket limit exceeds the amount permitted for an HSA-qualified plan.
- People whose health plan includes even one co-pay for non-wellness services prior to the deductible being met.
Clearly the above flaws keep HSAs from reaching their full potential.
1. Social Security: Seniors over 65 who enroll in Social Security are also enrolled in Medicare Part A on an automatic and compulsory basis.
2. Medicare: While there are some minor exceptions, as a practical matter virtually all Medicare enrollees are prohibited from contributing to an HSA.
3. STLDI: Some STLDI plans are HSA-qualified. Most are not.
4. FSA: If you have an HSA, you may keep it if you or your spouse are enrolled in a ‘limited’ FSA or a ‘post-deductible’ FSA. A limited FSA is one that only pays for services that are not part of your medical plan (for example, dental and vision benefits). A post-deductible FSA is one that kicks in after you’ve met your regular medical plan’s deductible.
The Solution: HSAs-for-All
HSAs work well, but they need some improvements.
To unleash their full potential—to liberate patients and their doctors from the dead-end of health insurance bureaucracy—Congress should turbocharge HSAs by enacting the HSAs-for-all Goals.