Health savings accounts front and center amid Obamacare repeal efforts

With most versions of the plans aimed at replacing Obamacare including higher deductibles and out-of-pocket expenses, HSAs could represent a tradeoff in terms of costs

Jan 12, 2017 @ 3:24 pm

By Jeff Benjamin

With Republicans in Congress moving aggressively toward replacing all or major parts of Obamacare, health savings accounts are expected to become a centerpiece of managing health care-related expenses going forward.

As part of the campaign to increase the use of HSAs as a vehicle for reducing out-of-pocket health care costs, some financial advisers believe annual contribution limits could be raised, which could make them more attractive as financial planning vehicles.

Senate Republicans took a major step in the direction of reforming Obamacare on Thursday through a budget outline that would favor the use of HSAs as a means helping consumers adjust to changes in the health care law.

“I don't see how any type of repeal of Obamacare will not lead to more out-of-pocket costs,” said Thomas West, a partner at Signature Estate & Investment Advisors.

Based on the various proposals for replacing the 2010 Patient Protection and Affordable Care Act, Mr. West believes HSAs will be heavily leveraged to soften the blow and help sell any changes to the public.

“My clients are going to want to feel like they haven't had something taken away from them,” he added.

With most versions of the plans aimed at replacing Obamacare including higher deductibles and out-of-pocket expenses, HSAs are expected to represent the tradeoff in terms of costs to consumers.

Even without any changes to the current law, HSAs present a so-called triple-tax advantage in that money is not taxed when added to an account, it grows tax-free, and is not taxed when used for qualified medical expenses.

The current rules allow individuals to contribute up to $3,400 annually to an HSA, up $50 from 2016.

For families, the annual maximum is unchanged at $6,750. There is also a catch-up provision that enables those 55 and older to save an additional $1,000 annually.

'SHOP AROUND'

“Health savings accounts have been a part of the GOP plan all along, because they are under the impression that if people have high deductible plans and have more control over their medical expenses, they will shop around for better prices,” said Carolyn McClanahan, director of financial planning at Life Planning Partners.

While Ms. McClanahan is fan of HSAs and recommends that her clients contribute the maximum allowed on an annual basis, she doesn't believe HSAs will have an impact on driving down health care costs.

“It's a good idea in theory, but the idea of shopping around for better prices is only useful for elective care,” she said. “For most run-of-the-mill care you don't have the option of shopping around.”

But while she doesn't believe a greater emphasis on HSAs is the answer to all that ails health care reform — and re-reform — Ms. McClanahan does believe financial advisers should be well-versed and ready to help their clients take advantages of the renewed focus on HSAs.

“Health savings accounts work great for people with money and wherewithal, and we don't see them going away, which is why advisers who don't know about them already should learn about them,” Ms. McClanahan said.

While the accounts are designed to help individuals sock away money for medical expenses, Ms. McClanahan advises her clients to invest any money once the account grows beyond a few thousand dollars that might be needed for a medical emergency.

And in order to keep that money invested, she reminds clients that they can pay out-of-pocket now and save the receipt to reimburse themselves at some point in the future from their own HSA.

“There's no time limit on how long you can save a receipt,” she said. “The caveat is, financial planners are good at learning rules and helping clients exploit the rules, but the IRS is good at changing rules that are being taken advantage of.”

Mr. West believes the push by Republicans toward a more consumer-driven health care system will continue to raise the profile of HSAs, eventually leading to higher annual contribution limits.

“I think it will be hard to sell a repeal if it doesn't, at least on first blush, look like everyone is in the same place they were before," he said. "So with deductibles going up, and premiums going down, you have an opportunity to save money through a health savings account.”

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