Thought Leadership

Why High Deductible Health Plans and HSAs Are Doing More Harm Than Good

High deductible health plans (HDHPs) with health savings accounts (HSAs) have skyrocketed in popularity over the last several years, with more than half of Americans enrolled. Employers have bought into the idea that the key to cost savings with health insurance is through HDHPs – plans with lower premiums but higher deductibles. 

Yet this isn’t the exact case. As deductibles increase, less and less Americans are able to afford those upfront costs. And on the employer side, the premium savings that are achieved today result in higher costs down the road.

What led to the rise of HDHPs and HSAs? Are they even used as intended?

The rise (and rising costs) of HDHPs 

While HDHPs have been around since the beginning of the century, they started to get more popular during the Great Recession as an alternative to layoffs. In 2009, 8% of covered workers had employer-sponsored high-deductible plans compared to 52.9% today.

Since 2011, deductibles themselves have increased by 68.4%. Smaller employers actually pay more for deductibles; companies with less than 200 employees have 70% higher deductibles than larger firms.  

It’s no secret that Americans are struggling with everyday health costs. 45% of single-person households can’t pay $2000 for a medical bill – and the average single-person deductible today is $1669. Not only that, increased cost sharing (as seen with HDHPs) leads to less healthcare utilization. Why are plans that are supposed to be saving costs instead rendering Americans effectively uninsured and cared for?  

Why HSAs exist – and their intended use

HSAs were introduced to offset some of these health costs. As a triple-taxed advantage account (HSAs reduce your taxable income, grow tax-free, and aren’t taxed at qualified withdrawals), HSAs can be used for qualified health costs like prescription drugs and medical supplies. 

The creation of HSAs was a success – by the end of 2020, there were more than 30 million HSAs covering 63 million people. Despite this, more than half of those with an HSA haven’t contributed any money to it – not seeing a need for healthcare services or not having enough to contribute to it. 

Yet for all talk of being used to help pay for healthcare, the actual expert advice is to use your HSA as an investment tool rather than a spending account. However, 91% of people that have access to an HSA do not use it for investing. In one survey about HSA use in 2021, almost half of respondents said they used their accounts as a short-term savings tool.

Bottom line: HDHPs aren’t worth it for tax savings and high deductibles. While HSAs were created as a supplement to HDHPs, their intended use has shifted, with the only ones that can take advantage of HSAs being higher income earners who have enough wiggle room in their paychecks to save and invest that cash.

The Great Recession in 2008 sped up the popularity of HDHPs. Now in 2022 and in another recession, it’s time for health plans to get the upgrade they desperately need – one that actually helps people get the healthcare they need and can afford.

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