New GAO Report on Health Savings Accounts

May 7, 2008

According to a recent report from the Government Accountability Office (GAO), use of health savings accounts (HSAs) has increased significantly. The report, entitled “Health Savings Accounts: Participation Increased and Was More Common among Individuals with Higher Incomes,” showed that the increase has occurred predominantly among wealthier individuals. The GAO report cites an average income for people with HSAs of $139,000 in 2005, as compared with an overall average income of $57,000 for all others. GAO also found that HSA holders use only about half of the money they save on medical expenses and leave the remainder in their accounts.

In addition to GAO’s assertion of increased take-up of HSA’s, America’s Health Insurance Plans (AHIP) recently stated that 6.1 million people in early 2008 were participating in HSA’s, up from 1.1 million in March 2005. AHIP also cites that 45 percent of the HSA market is comprised of large employers’ workers.

HSAs, having only been in effect since 2004, are a relatively new option for individuals looking to increase their control over their health spending by allowing individuals to save money tax-free when coupled with a high deductible health plan (HDHP). These individuals typically pay a lower premium for the HDHP and use their HSA savings to pay for qualified medical expenses. For 2008, contributions are limited to $2,900 for individuals and $5,800 for families, and any remaining amount at the end of the year can be rolled-over, allowing individuals to save up for a significant health event.

GAO’s report was done at the behest of House Committee on Oversight and Government Reform Chair Henry A. Waxman, and House Ways and Means Subcommittee on Health Chair Pete Stark who have both been critical of HSA’s as merely a tool for wealthy individuals looking to escape taxes. However, given the relatively low contribution rates, HSA proponents suggest such a tax shelter wouldn’t make sense.

The fact that employer-provided health insurance isn’t taxed as income for workers, coupled with the fact that larger, more established businesses look to rich benefit packages as a key piece of overall compensation, creates a competitive disadvantage for the smallest of businesses. The inability of self-employed individuals to qualify for employer-provided tax breaks on health insurance make HSA’s a viable and affordable option for many of America’s smallest businesses.