HSAs and the Affordable Care Act: A Brief History

by Bill West, MD

Health Savings Accounts (HSA) were enacted in 2004 and remained relatively untouched until passage of the Affordable Care Act (ACA) in 2010. When the ACA passed Congress and was signed into law there were only 2 items that directly impacted HSA’s. Over the counter medications could no longer be paid for out of the HSA without a prescription and the penalty for non-qualified withdrawals from the HSA was increased to 20%.

There was one other factor that aligned HSA’s and the ACA. HSAs were the first health insurance product that capped the out of pocket (OOP) healthcare expenses by federal law. The ACA initially set the maximum OOP to the HSA limits. HSA deductibles, contributions and OOP maximums are indexed every year by the consumer price index (CPI) now known as “chained CPI”. The ACA used cost of living to index the maximum OOP limits for ACA qualified plans.

The result: The ACA OOP maximums have increased at a faster rate than the HSA OOP maximums.

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The Unintended Consequences:

The ACA now allows significantly higher OOP healthcare expenses than the HSA. This places individuals and families at a much higher financial burden if they choose an ACA qualified plan that is not HSA qualified. It also disqualifies them from the advantages of an HSA, paying for healthcare expenses now in a tax advantaged manner and saving for future healthcare expenses in retirement.

It is time for Congress to realign the ACA OOP maximums to the HSA OOP maximums and change the indexing of the ACA to “chained CPI”. This will protect individuals and families from higher out of pocket healthcare expenses.