House bill to double HSA limits slammed as perk for wealthy

Opponents say the legislation would do little to help most people.

A bill recently approved by the House Ways and Means Committee would nearly double the annual limits on contributions to health savings accounts — a measure that opponents said will only provide a bigger tax perk for the wealthy.

The HSA Modernization Act the committee passed last Thursday would bump up the current annual contribution limits of $3,850 for individuals and $7,750 for families to $7,500 and $15,000, respectively.

“With 78% of health savings accounts owned by taxpayers making less than $100,000, HSAs are clearly a tool middle- and low-income families find useful,” House Ways and Means Chair Jason Smith said in a statement. “However, we can help those same families better utilize HSAs, save more to cover more of their health care costs and make more of their fellow citizens — like working seniors, veterans, and Native Americans — eligible to partake in the tax savings and flexible care options provided by HSAs.”

But Democrats said the legislation would have little effect on the people who would benefit most from greater access to health care.

“Expanding HSAs won’t expand access to health care coverage, nor will it bring down health care costs for the vast majority of Americans. It won’t improve the quality of care, reduce the burdens of medical debt, or help close racial health disparities,” Rep. Richard Neal, D-Massachusetts, said in a statement. “Nearly half of American families do not have enough money in the bank to pay a $1,000 medical bill in the next 30 days, but this is the legislation we are marking up today.”

As Congress struggled to avoid a government shutdown that seemed inevitable last week, Neal called the HSA bills “a lesson in priorities.”

The Ways and Means Committee also passed the Bipartisan HSA Improvement Act last Thursday, which would allow money in flexible spending accounts and health reimbursement accounts to be rolled into health savings accounts and would undo a rule preventing HSAs from being opened by those whose spouses have active FSAs.

The progressive Center on Budget and Policy Priorities also called out the bills as a tax gift to the wealthy, estimating that the two measures would result in $70 billion in foregone tax revenue.

As of 2022, about 14% of U.S. households that reported having any investible assets had an HSA, according to data from Hearts & Wallets. Having such an account correlated with income and assets, however. Only 6% of those with incomes under $60,000 reported having an HSA, but that increased to 15% for people earning up to $96,000, 24% for the between $96,000 and $120,000, 21% for $120,000 to $160,000 and 25% for those with more than $160,000.

And while only 11% of households with less than $100,000 in investible assets had HSAs, the level was as high as 25% for those with $3 million or more, the consumer research firm found.

According to a recent report from Devenir, total assets in HSAs were about $116 billion as of June, with $40 billion of that being invested. Just over 7% of all HSAs have assets invested.

Advisors often recommend HSAs if they’re available, but the account type has a shortcoming for some because it’s paired with high-deductible health plans.

Many account holders treat the vehicles like checking accounts to pay for medical expenses, but HSAs are considered extremely valuable for their so-called triple-tax benefits — contributions, investment gains and withdrawals for eligible expenses are tax-free. For those who can afford to max out their contributions and invest the money their accounts, HSAs can be a highly efficient means of saving for health care costs that will occur during retirement.

Data that break down HSA use by ZIP code show that the accounts are indeed used much more widely by higher-income families, especially for investing.

Figures from the Employee Benefit Research Institute show that 52% of accounts are linked with ZIP codes that represent the upper-most income quartile in the country, based on classifications by the Census Bureau. For account holders living within those ZIPs, 12% use their HSAs as investment accounts, said Jake Spiegel, research associate of health and wealth at EBRI. In the third income quartile, use of accounts for investing is about half that rate, and it goes down for lower-income ZIP codes, he noted.

While most people don’t max out their contributions, rates are lowest in the low-income quartile ZIP codes, he said.

However, something that has made the accounts more successful for some owners is employer participation, he said.

“People who work for an employer who contributes to their HSAs tend to have higher contribution amounts,” Spiegel said. Workers who get employer contributions are more likely to income freed up to contribute to 401(k)s or emergency savings, he noted.

“The more able you are to accrue a larger and larger balance, the more likely you are to be able to weather something like a broken leg or acute medical condition,” he said.