90% of Americans Are Barred From Accessing Health Savings Accounts

Healthcare is insanely expensive. But it doesn’t have to be. 

One way to make healthcare more affordable is through Health Savings Accounts, or HSAs. They open up a lot of opportunities for those fortunate enough to have access to them. Participants can move part of their income to these accounts before taxes, meaning they not only help people save on healthcare expenses, they also reduce their tax burdens. 

Here’s how they work. 

Imagine that your tax rate is 20%. If you have a $100 hospital bill and have to pay it out of pocket, you have to earn $125 to pay that bill. But if you have an HSA available, you only have to earn $100. That’s a big difference. 

Not only that, but HSAs also give consumers a lot more control over their healthcare choices. Instead of having to operate within the arbitrary confines of insurance plans, participants can use these funds to cover options often left out like orthodontics, massage therapy, and other more holistic approaches to wellness.

On top of that, these accounts allow people to save and plan for retirement. The funds never expire, earn tax-free interest, can be invested in mutual funds or stocks, and after age 65, the money can be taken out and used however you like.

But, as of right now, only about 10% of Americans have the ability to join an HSA.

Why? Dumb government laws, of course.

Currently, a person has to be a member of what’s called a “high deductible insurance plan” in order to have an option for an HSA… and that’s a pretty unpredictable qualification, at best.

These days, most of us have an insurance plan with an expensive deductible. Since Obamacare became the law of the land the cost of health insurance has doubled in this country, while the ability to access quality services has continued to decrease. This sucks for all of us. But it especially sucks for those living on the margins, many of whom were forced onto Obamacare plans. 

Currently, about 5 million low-income Americans on Obamacare receive a cost-sharing subsidy. 

Here’s how it works. The government sends a check to the insurance companies, a direct subsidy for major corporations, and the insurance company then in turn reduces the costs these Americans pay for services. If that sounds like a roundabout way of enriching the crony insurance companies, that’s because it is.

Democrats have often focused on coverage in healthcare vs care. In doing so, they’ve pushed a lot of people onto insurance plans that are basically unusable. This has enriched the insurance companies, but it’s done little to actually expand and improve healthcare outcomes, especially for the poor.

Instead, what if we let those same Americans invest in an HSA? 

Rather than cutting a check to the insurance companies, the subsidy could go directly to the people impacted. This would give these individuals the chance to buy services and see providers outside the confines of their (often crummy) insurance plans—which means they might actually receive quality access to healthcare vs just a symbolic insurance plan. 

But it would also allow them to invest these dollars and provide a better incentive for moving off the welfare system in the process. Because these funds can be taken with the individual no matter where they go employment-wise, this structure would prevent what’s often called “the welfare cliff.” 

The welfare cliff refers to the situation many low-income people find themselves in where they become stuck in the government’s welfare web. Our hope is, and should be, that low-income Americans progress and increase their income to a point where they no longer need assistance. 

But currently, many welfare programs are all or nothing, meaning a person might lose say, $1000 a month in benefits when they merely start making $100 more a month. That means our system often encourages people not to make more money or move up in life because they’re afraid of having the rug pulled out from underneath them.

Allowing low-income Americans on Obamacare to instead invest in an HSA would mean they would not have to fear that rug being pulled out from under them as they progress. Instead, they could reduce their tax burden, make smart investments, and take these plans with them when they hopefully progress out of poverty.

As a whole, expanding access to HSAs for all Americans should be a political priority. But we can start with those who need it most, cut out some cronyism in the process, and reform Obamacare to allow these individuals to take control of their healthcare back.

(You can read more about these ideas in this paper.)

Disclaimer: Hannah is a fellow with Americans for Prosperity, which advocates for the adoption of Health Savings Accounts. 

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