A report from a research group found that more individuals input money into health savings accounts, or HSAs, than they took out throughout the pandemic.
Devenir studied this popularized way employees are taking control of their health. As a result, the average total employee contribution hit $2,054, and the number of unfunded accounts decreased from 21% to 18%. HSAs are linked to high-deductible health plans, requiring out-of-pocket expenses, and are considered “consumer-driven.” These health insurance plans aim to empower individuals when seeking accessible, affordable care.
In 2003, Congress created the option of an HSA under President George W. Bush’s administration and became applicable to more individual insurances due to the Affordable Care Act in 2010.
Typically, the government exempts employer-sponsored healthcare from an income tax. Therefore, when an employer purchases and provides a health insurance plan, the money spent to provide coverage is not taxable. But if someone wanted to take the money within their paycheck to choose their preferred insurance, the money is no longer exempt and, instead, taxed. The employer tax preference means that employees receive fewer funds for their healthcare than they otherwise would if they remained part of an organization’s health plan that may not have been best suited for their needs.
The Kaiser Family Foundation reported that individuals might have their wages reduced by $6,227 to pay for individual coverage. However, for family plans, that number may reach as high as $15,754. If an employee chooses to take this money and assume responsibility to pay for their family insurance plan, roughly $4,000 of that would go to taxes.
Herein lies the problem for many: They are not receiving the coverage they hope to have and are not empowered to afford their preferred insurance independently. That is where the HSA comes in.
HSAs may not be for everyone, and some argue that they still do not provide enough independence. For example, under an HSA, employees cannot take all of the money employers previously dedicated to health coverage due to contribution limits ($3,650 for an individual or $7,300 for a family in 2022). Accordingly, employees do not see the total dollar amount they once had under employer-purchased healthcare. The Cato Institute argued that this contribution limit should be expanded and applied to more than just high-deductible plans to provide more options and make HSAs work for everyone. However, HSA contributions are permitted to roll over to succeeding years. Additionally, HSAs are still a compelling option for those who need better care. Healthy adults may find this option attractive to save for future costs.
Those facing an expensive medical procedure or care may also find HSAs a viable option if meeting a high deductible is difficult.
Eligibility requirements for an HSA are:
1. Simultaneous coverage by a high-deductible health plan with no other health insurance coverage.
2. Participants must be under the age of 65 or claimed as a dependent.
HSAs became more influential due to the pandemic as regulations allowed individuals to keep accounts throughout unemployment, affecting approximately 9.6 million.
In 2020, the CARES Act broadened HSA reimbursements, and 13% of participants reported they successfully used their accounts for COVID-19 expenses. Now, over-the-counter medications purchased without a prescription are reimbursable with an HSA.
Other changes to HSAs include:
1. Coverage for insurance premiums if you’re collecting unemployment.
2. Coverage for personal protective equipment.
3. Coverage for telemedicine.
The value of an option, as provided by HSAs, has been bolstered during the COVID-19 pandemic. Emphasizing the importance of preparing for future care, for many struggling during the pandemic, HSAs offered a practical alternative.
