A GAO report released today said people with tax-free health savings accounts contribute twice as much as they withdraw, causing Democrats to question whether the accounts function more as a tax shelter for the wealthy than an alternate insurance option for individuals seeking lower premiums. The report found that HSA contributions totaled $754 million in 2005, while withdrawals were only $366 million. Of tax filers reporting HSA contributions in 2005, 41 percent made no withdrawals that year to pay for medical expenses, GAO said. Under the law, HSA-holders can retain their accounts indefinitely, withdrawing from them for medical expenses before the age of 65 and without restrictions after that. GAO was asked to probe income levels and uses of HSAs by House Oversight and Government Reform Chairman Henry Waxman and Ways and Means Health Subcommittee Chairman Fortney (Pete) Stark, D-Calif. The report also found that people with HSAs tend to have higher annual incomes -- averaging $139,000 in 2005 -- than the general population of tax-filers, at $59,000.
Republicans champion HSAs as an incentive for people to better manage their health care because they use their money to meet high deductibles, which can come from the tax-free accounts. HSAs are a long-standing component of the Bush administration's budget and a key provision in a health plan unveiled Tuesday by presumptive Republican presidential nominee Sen. John McCain of Arizona. A GOP aide said the tax-free element of HSAs are the key to ensuring savings. "The whole idea is people can actually save money for health expenses when they need them," the aide said. The aide also cited 2007 data from America's Health Insurance Plans noting that growth in HSA-eligible plans is concentrated among small businesses: one-third of small businesses who now offer such plans previously did not offer any insurance to their workers.
Democrats say HSAs do little to help low-income people obtain insurance and may encourage employers to cut costs by offering high-deductible, low-income plans instead of more robust coverage. "HSAs clearly are attractive to higher income people who are looking for tax shelters. But they aren't the answer for providing adequate health insurance coverage for the average American," Waxman said. Low-income workers with HSA-eligible plans could find themselves in a bind if they are unable to meet high deductibles. "If you can't spend up to that deductible, you're as good as uninsured," said a Democratic aide. Meanwhile, AHIP released today its annual "census" of HSA enrollment, showing 6.1 million enrollees in January; that's almost double the enrollment from two years ago.
This article appears in the May 3, 2008, edition of National Journal Daily PM Update.