February 6, 2009 4:09PM

Urban Institute Study on HSAs

Last month, the Urban Institute published a study by Linda J. Blumberg and Lisa Clemans-Cope critical of health savings accounts. I was about to write a point-by-point rebuttal when I realized that I already had, nearly three years ago. So I'll just summarize.

  • HSAs do provide a larger tax break to wealthy people, but that's not the fault of HSAs themselves so much as the much larger tax exclusion for employer-sponsored insurance that HSAs were designed to emulate. Yet Blumberg and Clemans-Cope do not criticize the exclusion itself. Sooo . . . tax breaks for the wealthy are kosher, unless they let workers control their earnings?
  • The presence of that large tax break does not mean that HSAs are "most attractive to the high-income and the healthy." As the Congressional Research Service writes: Some less healthy people may find HSA plans attractive because they enable them to circumvent the restrictions of managed care plans. Conversely, some healthy people may find them unattractive because they are very risk-averse; they would prefer to pay more for comprehensive insurance with low deductibles. Older people may find HSA plans attractive because of the tax advantages: being in higher tax brackets (since average earnings increase with age until people are in their 50s), their tax savings from contributions would be greater. People who are 55 but not yet 65 years of age would also be attracted by the additional catch-up contributions they may make. By the same token, younger people with low incomes may consider the HSA tax advantages inconsequential."
  • As for the cost-containment potential of HSAs, in my 2006 paper I made a back-of-the-envelope calculation that, under current law, HSAs have the potential to "introduced price sensitivity into more than 60 percent of medical expenditures by all nonelderly fully insured individuals." That ain't small potatoes. HSAs could do even more to contain costs if we expand them into Large HSAs that let consumers control all of their health-care dollars — not just the first few thousand. 
  • There is zero evidence that HSAs will lead to worse health outcomes. In fact, all evidence suggests HSAs will deliver health outcomes comparable to other forms of insurance at a lower cost.

I address other criticisms in my paper, which Blumberg and Clemans-Cope do not cite. 

They do lodge one additional criticism against HSAs that has emerged since my paper was published: that HSAs encourage or enable tax evasion. I addressed that criticism last year and found it groundless: HSA critics have produced no evidence of unlawful withdrawals, nor have they offered any reason why HSAs should be subject to greater scrutiny than other methods of not reporting income. Again, Blumberg, Clemans-Cope, and other critics leave the impression that the identified attribute is not the offending attribute.

I'm critical of HSAs too, but this?