On Obamacare's Second Birthday, Whither The HSA?

Reports of the death of Health Savings Accounts under Obamacare, Mark Twain might have said, have been greatly exaggerated. While there were real concerns last year about whether HSAs would survive Obamacare's heavy-handed, expensive regulations, we are pleased to report that they are, in fact, available on Obamacare exchanges for the vast majority of uninsured Americans.

Whether these plans thrive under Obamacare is another matter entirely. Exchanges will have to make it easier to identify HSA-eligible plans and compare them to traditional plans. Congress, or the IRS, will also need to streamline confusing regulations regarding HSA plan eligibility and, ideally, allow cost-sharing or premium subsidies to flow automatically into HSA accounts — allowing accumulated savings to offset future healthcare costs.

With Obamacare's second open enrollment period around the corner, the 13 million people expected to purchase coverage for 2015 face tough choices on premium costs, deductibles and physician networks. Last year's 7 million-plus enrollees will also have to carefully evaluate whether their old plans still represent the best value, given changes in income and premium pricing.

In a recent Manhattan Institute report, we found that HSAs, a tax-advantaged savings vehicle, can help consumers make smarter trade-offs by offering lower premiums — savings consumers can then pocket in interest-bearing accounts.

Beware the terrible twos

Convoluted federal regulations and opaque public exchanges continue to hamper consumers' ability to understand and make use of HSAs. Simple, common-sense reforms would go a long way toward making HSA plans even more affordable, empowering more consumers to become savvy healthcare shoppers.

HSAs allow consumers to set aside pretax money for future healthcare spending. HSA-eligible plans have higher deductibles — at least $1,250 in 2014 — and lower premiums than noneligible plans.

When Obamacare became law in 2010, its new regulations imposing minimum benefits and limiting deductibles threatened to eviscerate the ability of HSAs to hold down costs. Fortunately, HSAs have survived. In our study, we analyzed over 91,000 plan offerings on Obamacare's exchanges. HSA-eligible plans, it turns out, are alive and well, constituting around a quarter of all offerings, while costing about 14 percent less than traditional plans.

Still, failing to fail is not success.

A key failure of the American healthcare system is its opacity: Pricing and quality information is typically hidden from consumers. Public exchanges haven't changed much. For example, only 42 percent of HSA-eligible plans were clearly labeled as such on the exchanges. (A typical consumer would likely not recognize such a plan even if he signed up for one.)

Supporters of the healthcare law should worry, too. The burden of $2,000-plus deductibles becomes easier to manage with a portable savings account where savings from lower premiums can be carried over year to year.

Other useful information is missing. Cost calculators, for instance, could offer estimates of an applicant's true net annual cost. For many, especially the young and healthy “invincibles” the administration and insurers want to reach, calculators would make the financial benefit of HSA-eligible plans crystal clear.

Whether Obamacare friend or foe, reform-minded policymakers can use this as an opportunity to implement consumer-friendly fixes. A broad basket of reforms could include incremental ones, such as requiring HSA labeling or cost calculators to be available on the exchanges, or far-reaching reforms simplifying the tax-treatment of HSAs, allowing low-income enrollees to automatically bank federal cost-sharing or premium subsidies.

Such reforms should be at the top of smart policymakers' wish lists — and could be among the first healthcare reforms the next Congress sends to President Obama's desk after the midterm elections.

You don't have to love Obamacare to want a more affordable, easier-to-navigate healthcare system for consumers. Making HSAs easier to find and use does precisely that.

This piece originally appeared in Washington Examiner

This piece originally appeared in Washington Examiner