HSAs Are Imperfect, but Can Be Improved

Study shows HSAs can do more for the chronically ill and low-income workers.

May 30, 2006

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WASHINGTON – President Bush’s proposal to expand Health Savings Accounts (HSAs) has become highly politicized. In light of criticisms that HSAs are ineffective or even harmful, a new Cato Institute study finds that HSAs should be expanded.

In the study, “Health Savings Accounts: Do the Critics Have a Point?,” Michael Cannon, Cato’s director of health policy studies, acknowledges the validity of some criticisms of HSAs, but finds that most shortcomings are due to the unnecessarily rigid HSA rules.

“Current HSA law restricts consumers’ health insurance choices, makes it difficult for the chronically ill to save for their future medical needs, and discourages cost sharing above the health insurance deductible,” Cannon argues.

To remedy these shortcomings, Cannon proposes expanding HSAs to give individuals full ownership of and control over their health care dollars. Such expansion would entail:

  • Raising contribution limits so individuals can take 100 percent of their health benefits as a tax-free cash deposit into their HSA
  • Eliminating the High Deductible Health Plan (HDHP) requirement to provide greater choice of insurance
  • Allowing individuals to use their “large HSA” funds to purchase any type of health insurance, tax-free, from any source

Expanding HSAs in this way, the study concludes, will reduce the government’s influence over consumers’ medical decisions, expand health insurance choices, and benefit the chronically ill and the poor.

Policy Analysis #569.