Should HSA Contribution Limits Rise to the Statutory MOOP?
By William G. Stuart | Originally posted on LinkedIn for Health Savings Academy
A bill before Congress proposes raising Health Savings Account contribution limits to the statutory out-of-pocket maximum. Is this good policy? If so, under what circumstances?
Members of Congress haven't forgotten about Health Savings Accounts, even if they've done little during the past three years other than to extend the time frame that insurers and employers can cover virtual care (telemedicine) below the deductible on an HSA-qualified plan. Each session of Congress sees the introduction of a grab-bag bill (which offers a dozen or more proposals that expand ore ease the transition to Health Savings Account eligibility or widen the range of expenses that are qualified for tax-free reimbursement.
These bills generate some interest among employers, benefits advisors, and industry insiders. But none has crossed the finish line in recent years. That record includes proposals to increase the contribution limit to match the contribution limit to the statutory out-of-pocket maximum (a combination of deductibles, coinsurance, and copays for covered services) of an HSA-qualified plan.
Will it happen this year? Should it? Let's look at the pros and cons, then examine some proposals that put Health Savings Accounts in the middle of approaches to change the way that we as a society deliver and fund medical care.
The Case for and against Higher Contribution Limits
The case for increasing the limits is that a growing number of Americans are experiencing medical debt and collections. Many patients respond by taking non-qualified distributions from a retirement account (paying taxes and penalties as they further deplete their long-term savings) or declaring bankruptcy. If they could save more in their Health Savings Accounts during good years, they could build medical equity to spend on future care.
Another argument in favor of higher contribution ceilings: The current limits ($4,150 for self-only coverage and $8,300 for a family plan in 2024, plus an annual $1,000 catch-up contribution for owners who are age 55 or older) fall far below the annual financial responsibility that most account owners' medical plans impose. Owners with sick family members may not be able to contribute enough to reimburse all that year's out-of-pocket expenses with pre-tax dollars.
The case against increasing the limit centers on the reality that only about 4% of accounts are funded to the statutory contribution limit. Thus, increasing the limits would seem to favor only high-income owners, which in turn may erode political support for an account that helps millions of hard-working families manage their increasing out-of-pocket financial responsibility for their medical, dental, and vision services
Another negative is scoring. All proposed legislation is examined, or scored, to determine the effect - increase in spending or decrease in revenue - on the federal treasury. Health Savings Account scorers assume that all owners will contribute to the statutory maximum each year, even though fewer than one in 20 do so today. This assumption creates an unrealistically high score that dooms this type of provision.
Reimagining Health Savings Accounts
Many Republicans in Congress who want to see fundamental changes in medical coverage have built their reform efforts around Health Savings Accounts. These efforts are a two-edged sword. On the one hand, if one of these initiatives becomes law, it may dramatically increase the amount of income that hard-working Americans can accumulate tax-free to pay for current or future qualified expenses. On the other hand, many Democrats reflexively resist any Health Savings Account reform or expansion because they sense a GOP effort to undermine the Patient Protection and Affordable Care Act of 2010 (often called the Affordable Care Act, the ACA, or ObamaCare), which was Democrat president Obama's signature legislation.
Here are some of the proposals that reimagine Health Savings Accounts: