What’s In a Name? Are Health Savings Accounts Really Health Savings Accounts? Henry J. Aaron*

1. What’s In a Name? Are Health Savings Accounts Really Health Savings Accounts? Henry J. Aaron* Patrick Healy* Surachai Khitatrakun** *Brookings Institution **Urban Institute

2. Major points of the paper • HSAs are “IRAs on steroids” and should be preserved until funds in taxable and tax-sheltered (IRA, 401k) plans are exhausted • Workers may refuse enrollment in HDI, even when it dominates • other options • As incentives to buy high-deductible insurance (HDI), HSAs are deficient: can be arbitraged, are regressive, and incentive is back-loaded • Other incentives to promote HDI could correct these shortcomings:

3. ## For medical expenses below 7.5 percent of adjusted gross income. # The special situations are: if the account holder becomes totally disabled (an exception for HSAs as well); to comply with a court order to give the money to a divorced spouse, a child, or a dependent; when one is separated from service, through permanent layoff, termination, quitting or taking early retirement after age 54; and if one loses one’s job in the year one turns age 55, or later; and if one loses one’s job and sets up a payment schedule to withdraw money in substantially equal amounts over the course of one’s life expectancy.

6. Net Cost of Health Coverage for Various Levels of Health Care Use–In Network

8. Shortcomings of HSAs • No added saving necessary to establish one • Can produce negative tax rates • Regressive • Deferred benefits mean high-, αβ, or hyperbolic • discounters will undervalue incentive relative to cost

9. Possible replacement of HSAs • as carrots for HDI • Refundable credits for those adopting HDI • Grants • FSAs limited to enrollees in HDI • Replacement of HSAs with HRAs