Repeal of the Affordable Care Act could lead to a more prominent place for the health savings account.
CNBC reported that the tax-advantaged Roth HSA, which provides savers with a tax-sheltered means of investing funds meant to pay for health care expenses, is the brainchild of Senators Bill Cassidy, R-LA, and Susan Collins, R-ME.
The two propose the creation of Roth HSAs in a bill they drafted aimed at getting people to use such accounts in helping pay for health insurance premiums and out-of-pocket costs. It's part of the pair's strategy in repeal of the ACA.
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However, while the idea may sound good to some, others aren't so thrilled with the idea—particularly for the uninsured.
"It is being proposed as an Obamacare replacement," according to Edwin Park, vice president for health care policy at the Center on Budget and Policy Priorities, who was quoted in the report.
Park adds that instead, the Roth HSA is "really providing tax-sheltering opportunities rather than increasing health care coverage."
Regular HSAs offer a triple-tax advantage, in that contributions are tax deductible and can be invested and grow tax free. In addition, as long as withdrawals are used for qualified medical expenses, they're not taxable either.
While HSA funds can be used for nonqualified medical expenses, the account owner will be assessed a 20 percent penalty on the funds—unless the owner is 65 or older, in which case they can use the money for whatever they want but will have to pay regular income tax on the proceeds.
But HSAs are usually paired with a high-deductible health plan, which will cost account owners a minimum of $1,300 for individual coverage and $2,600 for families.
Annual out-of-pocket costs for such plans are capped at $6,550 for individuals and $13,100 for families—no small amount.
The Roth HSA, on the other hand, loses some appeal in that contributions are not tax deductible.
It does, however, allow the account owner to pay health insurance premiums with the money and it isn't tied to a high-deductible health plan.
And other Republicans have proposed additional tweaks that would make the accounts more attractive.
Still, that doesn't help much if there's not enough money in the account.
And, according to Eric Remjeske, president and founder of Devenir, an HSA consulting firm in Minneapolis, who was quoted in the report, there probably isn't: "Using a Roth HSA to pay premiums sounds good, but since the average HSA has a balance of $2,000 you would quickly exhaust the account," Remjeske says.
It could take some doing to get people to adjust to the notion of investing via their HSAs—particularly if the accounts lose a third of their triple tax advantage.
Devenir estimates in the report that only about 10 percent of the approximately 18.2 million HSA account holders have a balance of $5,000 or more, and that a paltry 4 percent of people actually use their HSAs as investment plans.
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