Tax Advantages Make HSAs More Popular

In a press release the University said the study “Health Savings Accounts: Early Estimates of National Take-Up” predicts that the 2003 Medicare Prescription Drug, Improvement, and Modernization Act’s (MMA’s) approval of tax-advantaged HSAs could result in approximately 3.2 million contracts. Those contracts would be among people ages 19-64 who are not students, enrolled in public health insurance plans, or eligible for group coverage as a dependent.

MMA gave consumer-directed health plans a boost by approving tax-advantaged HSAs for certain high-deductible health insurance plans. The study found, though, that HSAs won’t be popular among employees who are eligible for an employer’s health insurance, because the amount of the employer’s premium subsidy reduces the model’s attractiveness.

Study authors Stephen Parente and Roger Feldman and their colleagues conducted various simulations of how several potential tax subsidies for HSAs would affect consumer adoption. They estimated that the Bush administration’s refundable tax-credit proposals could double HSA adoption from 3.2 million to almost 7 million, and could also reduce the number of uninsured people by 2.9 million at an annual cost of $8.1 billion.

A second scenario of a low-income buy-in subsidy would reduce the number of uninsured people by 16.5% (4.5 million people) at a cost of $12.2 billion annually, or an average of $2,718 per person. A third scenario, which offers two types of free individual HSAs, could nearly eliminate the problem of the uninsured, but at a much higher per-capita cost. The problem would be that the free HSA could erode the market for employer-sponsored health insurance, meaning a tradeoff of almost 5.7 million covered employees for the less generous HSA and 31.6 million for the more generous design.

The study is published in the November/December 2005 issue of Health Affairs. The journal’s Web site is www.healthaffairs.org .