More Deficit-Increasing Tax Cuts from the Ways & Means Committee
Tomorrow, the House Ways and Means Committee is scheduled to mark up two bills to expand Health Savings Accounts (HSAs). The bills will reduce revenue by a combined $71 billion over the Fiscal Year (FY) 2024 to 2033 budget window, with $12 billion of revenue losses in 2033 alone. These unpaid for tax cuts make little sense in the current fiscal environment that will likely see a doubling of the annual deficit, rising interest rates, and debt approaching a record share of the economy. They should at minimum be fully offset, if not also meaningfully revised.
Summary of the HSA Modernization Act and the Bipartisan Health Savings Account Improvement Act
|Increase maximum contributions to HSAs||$44 billion|
|Allow Medicare Part A beneficiaries who are of eligible age to contribute to HSAs||$6 billion|
|Allow both spouses to make qualifying contributions to HSAs||$2 billion|
|Allow high deductible health plans to be eligible for HSAs even if deductible is less than $500 for mental health coverage||$2 billion|
|Other provisions and interactions||$4 billion|
|Subtotal, HSA Modernization Act of 2023||$58 billion|
|Allow HSA contributions if spouse has a Health Flexible Spending Account||$9 billion|
|Health services provided at an employer-owned site or a site specifically for the benefit of employees||$3 billion|
|Don't treat direct primary care services as a health plan||$2 billion|
|Other provisions and interactions||-$1 billion|
|Subtotal, Bipartisan Health Savings Account Improvement Act of 2023||$13 billion|
Sources: JCT score of HSA Modernization Act of 2023, JCT score of Bipartisan Health Savings Account Improvement Act, and Committee for a Responsible Federal Budget. Numbers may not sum due to rounding.
The HSA Modernization Act of 2023 would increase the HSA contribution limit from $3,850 per person in most cases today to an amount that could likely be double that by the time the policy comes into effect in 2026, at a cost of $44 billion over ten years. It would also let Medicare Part A beneficiaries contribute to HSAs for the first time, at a cost of $6 billion. An additional $4 billion of costs would come from allowing spousal contributions to HSAs and changing the treatment of mental health coverage.
Meanwhile, the Bipartisan Health Savings Account Improvement Act of 2023 would change regulations about the provision and the expense categorization of certain direct primary care services provided by employers or at on-site employee clinics. The bill would also expand HSA contributions in some situations for those with Flexible Spending Accounts. In total, the bill would cost $13 billion through 2033.
The total government tax expenditure for HSAs is substantial; the Joint Committee on Taxation (JCT) estimates a cost of $11 billion in 2023 and $62 billion in lost revenue over the 2022 to 2026 period. While, in general, HSAs tied to High Deductible Health Care Plans (HDHPs) have the potential to reduce health care costs by encouraging more consumer-driven health care, recent increases in traditional employer-sponsored deductibles mean there is no longer much difference in consumer cost exposure, reducing the justification for the large HSA tax break.
In addition, studies have shown that the presence of an HSA attached to an HDHP actually reduces the savings that HDHPs provide by 50 percent. According to this study, HSAs and other health-related tax benefits actually reduce incentives for consumers to limit their costs.
Finally, HSA benefits are highly regressive as those with annual incomes of over $100,000 account for 70 percent of HSA contributions.
In addition to the expansions proposed in these two bills, there have been concerning proposalsto permanently allow telehealth services to be covered without triggering the HDHP deductible. This would blunt any utilization-reduction incentives even further as many health care services are now delivered through telehealth (while providers get paid the same amount as in-person visits).
Any changes made to HSA benefits should at the very least be fully offset so as not to increase the debt. And they should be focused on changes that reduce rather than increase overall health care costs. Preferably, Congress would delay passage of any major tax cuts or spending increases until they have put the debt on a more sustainable trajectory. Such a package should include policies to lower rather than increase health care costs, like moving towards site-neutral payments in Medicare, reducing Medicare Advantage overpayments, or any of the other options from our Health Savers Initiative or the CRFB Fiscal Blueprint for Reducing Debt and Inflation.