Guest Post by Roy Ramthun, HSA Consulting Services, LLC on GAO’s HSA Report
On April 30, 2008 House Oversight and Government Reform Committee Chairman Henry Waxman (D-CA) and House Ways & Means Health Subcommittee Chairman Pete Stark (D-CA) released a report they requested from the General Accountability Office. Even though the report was delivered to the Chairmen on April 1, they chose to wait to release the report until the same day America’s Health Insurance Plans released the latest enrollment figures for HSAs. The Chairmen’s press release, seeking to throw cold water on the otherwise solid numbers from AHIP, says the report shows that HSAs are used more often as a tax shelter by wealthy individuals rather than as a mechanism to help working families obtain needed health care.The Chairmen base their conclusion on two findings from the report:• The average adjusted gross income was about $139,000 for Health Savings Accounts enrollees compared to $57,000 for all other filers – in 2005.• The total value of all Health Savings Accounts contributions reported to the IRS in 2005 was about twice that of withdrawals — $754 million compared to $366 million – suggesting an interest in it more as a shelter than vehicle to obtain needed health care or supplement inadequate coverage.According to Waxman and Stark, “GAO’s findings are bolstered by HSA advocates’ extreme opposition to legislation passed earlier this month in the House (H.R. 5719) that would require HSA enrollees to substantiate that HSA withdrawals were used for allowable medical expenses. Data from at least one company indicate that HSA funds appear to have been spent on escort services, at casinos and bowling facilities and in other non-health related areas. Flexible Spending Accounts, a different tax-preferred health account with fewer tax breaks than HSAs, require substantiation. In addition, the federal government requires far more onerous verification standards to qualify for Medicaid and for Part D low-income subsidy.”“How can anyone seriously oppose minimal verification standards for wealthier people who get tax breaks that are supposed to be for health care when we have far more burdensome requirements on people with incomes near the poverty level?,” asked Stark.Looking past all the demonizing quotes by Stark and Waxman the astute observer knows that 2005 was only the second year of the HSA program. According to the AHIP survey for that year, only 1 million Americans were even covered by HSAs, over half of which were covered by HSAs in the individual (non-group) market. And yes it is quite possible that the better educated people buying policies on their own, likely better-educated, self-employed people like lawyers and accountants, were the first ones to understand the opportunity HSAs present.
However, the main problem with GAO’s comparison is that “ALL filers” include people who are uninsured, on Medicare, on Medicaid, etc. Thus, it is a meaningless comparison unless they compare HSA holders only to others who are privately insured.
Still, GAO does not present a strong case for HSAs being “tax shelters for wealthy Americans.” For example, the average contribution to an HSA in 2005 was an average of $2,800 for taxpayers with income above $100,000 vs. $1,400 for those with income of under $30,000. But the average taxpayer with an HSA also made withdrawals — $1,300 for those with income above $100,000 vs. $600 for those with income below $30,000. So the net-net is that taxpayers with HSAs with income above $100,000 “sheltered” $1,500 vs. $800 for those with income below $30,000. Actually, it’s surprising that the Chairmen didn’t also say that HSAs are a tax shelter for the elderly. The GAO report says that average contributions for those age 55-64 was almost $3,000 vs. $1,400 for those age 19-34. Furthermore, withdrawals for those age 55-64 only averaged $1,200 vs. $550 for those age 19-34. But then again, advocates of “Medicare-for-all” (like Waxman and Stark) wouldn’t want anyone about to enroll in Medicare to know about that.