Equity in healthcare has been in the national spotlight for decades. Every few years, it seems, we test another approach for reducing systemic differences in health across populations — yet we always come up short. Despite spending more per person every year, the United States continues to rank last on measures of healthcare equity compared to other high-income countries.
Our latest experiment is pairing high-deductible health plans (HDHPs) with health savings accounts (HSAs). HDHP policyholders pay lower premiums to have their health insurance, but they face larger out-of-pocket costs when visiting the doctor. In exchange, they get access to HSAs to save for medical expenses by setting aside pretax money from their monthly paychecks.
HSA contributions are tax-deductible, any earnings on those contributions are tax-free, and withdrawals for qualified healthcare expenses are also untaxed — this is the much-vaunted triple tax advantage of health savings accounts. And because the money in these accounts rolls over from year to year, it makes a lot of sense to use an HSA as a retirement account.
Sounds great, right? Account holders can maximize their savings in a tax-advantaged way to grow their wealth and cover medical expenses while also enjoying lower monthly insurance premiums. Although HSAs are a great wealth-building tool for some Americans, this rising tide doesn’t lift all ships.
An HSA Reality Check
There’s a massive wealth gap in the U.S., with the top 1% holding 27% of the national wealth. HSAs don’t exist outside of this reality. Wealthier individuals with more disposable income are more likely to contribute significant funds to an HSA. That’s part of the reason why 35% of HSA wealth is owned by only 7% of account holders.
Those account holders can then turn around and invest that money in mutual funds, for instance, to continue growing their wealth — and many have to great effect. At the end of 2021, HSA investments totaled about $34.4 billion, representing a 45% year-over-year increase. While wealthier HSA account holders might use some of that balance to pay for medical costs, they mostly use HSAs as a tax strategy.
Meanwhile, people in lower-income brackets — a historically marginalized population — likely are not able to contribute as much to their HSAs. While HSAs are a worthwhile idea for these folks, they simply can’t afford to contribute when they’re struggling to make ends meet. And because anyone with an HSA must also opt for an HDHP, they end up shouldering a greater percentage of medical costs themselves. Without the HSA funds to cover out-of-pocket medical expenses, they face the unenviable choice between forgoing care and going into serious debt.
And even if someone lands somewhere in the middle, they probably aren’t able to take full advantage of their HSA. Case in point: 80% of HDHP enrollees say their balance wouldn’t be able to cover a year’s worth of out-of-pocket healthcare costs. What’s more, a whopping 91% of HSA account holders held their entire balance in cash in 2020, meaning their wealth wasn’t invested and couldn’t grow as intended.
Are Employer Contributions to HSAs the Answer?
HSAs are an incredibly versatile tool, but they do not address the systemic problems that perpetuate health inequities. One could argue that HSAs are unintentionally widening existing equity gaps in healthcare.
To make healthcare more equitable, we need to think beyond short-term solutions. Take HSA employer contributions, for example. On an individual level, 2022 HSA contributions are limited to $3,650; families cannot contribute more than $7,300. Thanks to soaring medical costs, one hefty bill could wipe out someone’s balance — even if they were contributing the maximum amount.
To boost balances across the board and level the playing field, some companies match qualifying employees’ HSA contributions. It’s a welcome approach, but it’s also not financially feasible for many businesses — especially those hit hard by the pandemic. And once again, these programs have an outsize impact on folks who already manage to maximize their HSA benefits.
Instead, employers can find a more equitable solution by offering a benefit like Paytient. At minimal cost to the employer, all employees gain immediate access to funds for medical, dental, vision, mental, and veterinary care. Paytient covers any upfront care costs, and employees effortlessly select payment plans that fit their finances — always without fees or interest. In short, employees no longer have to choose between their financial and physical health.
Many Americans would agree that the pros of HDHPs and HSAs outweigh the cons. It’s no coincidence that HDHP enrollment has skyrocketed over the past few years. But it’s also fairly clear that HSAs have fallen short of their promise of making healthcare more equitable. Instead of relying solely on HSAs alone to promote health equity at their companies, employers need to put solutions in place that create a true level playing field.