Obamacare Repeal: What May Replace It
Health Savings Accounts continued...
Pros: HSAs offer real tax advantages. The money you deposit goes in tax-free, which lowers your taxable income. Your HSA money also accumulates tax-free and can be withdrawn tax-free as long as it is spent on qualified health care costs.
“They’re a great tax shelter,” Corlette says.
Another argument for expanding the use of HSAs: Because they’re paired with high-deductible health care plans that require people to spend thousands of dollars before insurance kicks in, they become smarter health care shoppers by comparing prices and more carefully using health care services.
Cons: The same argument for expanding HSAs -- that more people will face higher deductibles -- is also a common argument against them.
According to Blumberg, this is another way of shifting the burden of high medical costs onto individuals.
Critics argue that HSAs primarily benefit young and healthy people who don't use a lot of medical services. They also help those with high incomes who have the extra money to set aside and are more likely to benefit from the investment tax breaks. People with low incomes are unlikely to have the extra money to invest in these accounts, opponents say.
And, a recent study found that nearly 3 in 10 people with low incomes enrolled in high-deductible health care plans paired with HSAs routinely spent more than 20% of their after-tax income on medical costs -- even when their employer contributed money to the account to help cover their expenses.
In addition, people in lower-income brackets or who earn too little to pay federal income taxes (about $10,000 for an individual) receive no tax benefit from these policies.
Tax Credits for Health Insurance Premiums
Both House Speaker Paul Ryan (R-WI) and Rep. Tom Price (R-GA) -- Trump’s pick to lead the U.S. Department of Health and Human Services -- have developed Obamacare replacement plans that help people better afford health insurance with the use of tax credits.
These tax credits adjust with age rather than income, as current law requires. Under Obamacare, people with lower incomes receive more financial assistance to buy insurance. The Price plan does away with that. Instead, it offers tax credits ranging between $900 for kids under age 18 and as much as $3,000 per year for people age 51 and older. The amounts would be tied to the average cost of insurance in the private market.