Research & Commentary: Health Care Reform May Kill HSAs

Published June 28, 2010

The question keeps coming up from concerned citizens: “Under President Barack Obama’s new health care regime, what’s going to happen to my health savings account (HSA)?” The answer is that the popular accounts will still exist, but in what could be a very different form.

Under Obama’s law, HSAs will be dramatically regulated by the secretary of Health and Human Services, and there are new limits on how much money can be used and what it can be used for.

This regulatory climate is already driving businesses that had been offering these plans out of the marketplace. Reports suggest HSAs may be killed by the increasing skein of regulations.

The documents cited below provide more information about how the federal health care overhaul will affect HSAs.

CA HealthLine: What Will Happen to HSAs Under Reform?
This article observes, “According to John C. Goodman, the president, CEO and Kellye Wright Fellow with the National Center for Policy Analysis, ‘although ObamaCare contains relatively few HSA specific provisions—most notably, the accounts will no longer cover over-the-counter medications as of 2011—the law “opens the door to the death of HSAs by regulation”.’ Goodman notes that the overhaul requires the HHS secretary to review and determine required benefits under all health plans each year, which could lead to changes that essentially prevent individuals from adding new money to their HSAs.”

Health Reform’s Impact on Consumer Driven Health Plans
This paper from HSA Consulting argues the explicit legislative requirements for HSAs are nothing compared to the regulatory power given to the secretary of HHS, who could decide to regulate HSAs more stringently: “Including the contributions in the calculation of a plan’s actuarial value would make it easier for more High Deductible Health Plans (HDHPs) to meet the minimum actuarial value requirement. If contributions are not included, HDHPs, many of which have actuarial values below 60 percent (or whatever the final standard becomes) based on the insurance coverage alone, could no longer be sold. Including contributions in the actuarial value calculation can increase a plan’s value by 10-20 percentage points (or more), depending on the size of contributions.”

HSAs —First Victim of Health Reform?
This Politico article reports on a Virginia-based insurance company that is shutting down at the end of the year because of what it calls “considerable uncertainties” about the nature of its HSA offerings: “The firm, nHealth, appears to be the first to claim that the new law has driven it out of business. ‘We don’t know what the rules are going to be and, as a start-up, our investors need certainty,’ nHealth CEO and president, Paul Kitchen, told POLITICO. ‘The law created so much uncertainty that is beyond our control.'” Citing a letter from nHealth executive vice president James Slabaugh (full text here:, the article continues: “‘The uncertainties in the regulatory climate coupled with new demands imposed by national healthcare reforms have made it challenging to sustain the level of sales required to remain viable over the long run,’ Slabaugh wrote.”

Foundry: HSAs an Endangered Species Under Obamacare
Health policy analyst Kathryn Nix of The Heritage Foundation outlines why HSAs could be driven out of the marketplace under the new regulatory climate, and why this is bad for the public: “Most Americans get health insurance through their employers. They neither witness nor control the flow of their dollars from employer to insurer to health care provider. Yes, those health care dollars are their compensation, just like wages. But with no visible ‘skin in the game,’ they have little incentive to limit spending. Engaging patients in the cost of their own care is one way to motivate them to seek better value for the health-care dollar—good quality health care at a reasonable price. And consumer-driven health plans, such as health savings account (HSA) plans, do just that.”

AHIP: Annual Census of Health Plans Shows HSA Popularity
This annual report from America’s Health Insurance Plans (AHIP) notes 10 million Americans were covered by HSA-eligible plans last year, an increase of 25 percent over the year before. The top states for HSA/HDHP enrollment were California (1,018,000), Ohio (651,000), Florida (639,000), Texas (637,000), Illinois (575,000), and Minnesota (361,000). Other key findings of the story include: “Between January 2009 and January 2010, the fastest growing market for HSA/HDHP products was large-group coverage, which rose by 33 percent, followed by small-group coverage, which grew by 22 percent. In the individual market, 2.1 million covered lives are enrolled in HSA plans, while nearly 3 million lives were enrolled in HSA/HDHP coverage in the small-group market and almost 5 million lives were covered in the large-group market.”

Over the Counter Goes Under
John Berlau of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute writes on one of the first regulatory steps Americans will see from the new health care regime: Patients will not be allowed to use HSAs or flex spending accounts to purchase over-the-counter medications, but a “medicine or drug only if such medicine or drug is a prescribed.” Found on page 1997 of the bill (Section 9003), the new requirement effectively represents a 40 percent tax hike on over-the-counter medicines formerly eligible for HSA/FSA purchases.
“From an antihistamine such as Claritin for allergies, pain relief medicine such as Tylenol or Excedrin, Pedialyte to prevent their kids from becoming dehydrated when they are sick, and even prenatal vitamins if they are expecting another one … if you pay for any of these items with money in your flexible spending account (FSA) or health savings account (HSA), you will face an effective tax increase of up to 40 percent on these items in the health care bill that President Obama recently signed.”

Obamacare Threatens Indiana’s Successful HSA Program
This Health Care News article notes one of the most successful state-based HSA programs is in Indiana, where Gov. Mitch Daniels says the popular program may have to be shut down under the new regulations. Those who bought into the low-income-sector program would be shifted to Medicaid. The article observes:
“According to a spokesperson, Daniels’ office is still analyzing the impact the new legislation will have on state employee HSAs, specifically whether the program meets new federal ‘qualified coverage’ standards, because HSAs require patient cost-sharing in every transaction. … Daniels’ office is attempting to find a way to maintain the popular program, but John R. Graham, director of health care studies at the Pacific Research Institute in San Francisco, believes the state will most likely have to end it. ‘It is very unfortunate,’ Graham said. ‘For Gov. Daniels in particular, it is very unfortunate. And for those in their low-income-sector program—they are probably going to have to close up the HSAs on that—I hope those people will be okay on the new Medicaid.'”

For further information on the subject, visit the Health Care News Web site at or The Heartland Institute’s Web site at

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Health Care News Web site, contact Managing Editor Ben Domenech at 312/377-4000 or [email protected].