Sherry Glied of NYU finds the two-decade-old HSA may have outlived its usefulness, in research article.

HSA health savings account
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Congress allowed the holders of high-deductible, low-premium health plans (HDHP) to open tax-favored Health Savings Accounts (HSA) beginning two decades ago. But has the HSA tax break met its intended goals? A newly published analysis from NYU Wagner dean Sherry Glied argues that it has not.

The creation of the HSA tax break in conjunction with a qualifying HDHP, according to the research article out today in the June issue of Health Affairs, has failed to meet its objective of promoting cost consciousness among consumers and durable efficiencies in the health care marketplace. It has become “difficult to justify.”

“HSA’s are a tax advantage for better-off people, masquerading as a health care efficiency increase that was never likely and is not occurring now. There is no remaining justification for a regressive tax break that failed to achieve its policy goal [of a more cost-efficient health system] and is used disproportionately by higher income people,” writes Glied, a health economist and professor of public service, with Baruch College public affairs professor Dahalia K. Remler of CUNY and NYU Wagner research scientist Mikaela Springsteen.

Their article, “Health Care Savings Accounts No Longer Promote Cost-Consciousness,” was supported by a grant from the Commonwealth Fund.

For their analysis, the authors began by looking back to when Congress approved the HSA in 2003. The legislation allowed employers to link the tax break to qualifying private health insurance plans with high deductibles and low premiums (known as HDHP’s).

Using a Health Savings Account, a salaried employee can accumulate a portion of their wages on pre-tax basis, using it to reimburse themselves for out-of-pocket health care expenditures Those who sign up for private HDHP’s tend to be younger and healthier, with less risk for medical conditions that would require extensive care.

Proponents of the HSA predicted that it would encourage people to hold HDHP’s and to become more cost-conscious, with more “skin in the game.” They also predicted that the health care marketplace would adapt to it over time, providing higher-value treatment and lower costs to attract consumers.

According to Glied, however, HSAs linked to HDHPs have not caused the U.S. health care system to provider higher-value care despite their growing use by adults, 22-64. with private health insurance.

Instead deductibles and other financial barriers to care have increased for non-HDHP plans that do not benefit from the HSA tax break.  Contrary to the goals of their proponents, people who hold HDHPs combined with HSAs today often face lower cost-sharing than do those who do not benefit from this extra tax-break.  Not only are HSAs regressive, they no longer even do what they were intended to do.

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