Washington, D.C. — A provision in the Better Care Reconciliation Act (BCRA) would give a much bigger tax break to upper-income households in higher tax brackets while doing little or nothing for low- and moderate-income families, a fact outlined in a new column from the Center for American Progress. The analysis underscores the numerous shortcomings of the proposed expansion of health savings accounts (HSAs) currently being championed by Sen. Ted Cruz (R-TX).
Although conservatives generally frame HSAs as a pro-consumer measure to improve affordability, in reality these accounts primarily benefit the wealthy rather than families who have difficulty affording health care costs. In addition, since HSAs currently must be paired with high-deductible health plans, they come at the cost of greater financial risk. The BCRA would push individual market enrollees toward less generous plans with high deductibles; this tradeoff would be particularly extreme for enrollees who currently benefit from the ACA’s cost-sharing reduction subsidies (CSRs), which significantly lower cost-sharing for low-income enrollees and would be eliminated after 2019 under the BCRA.
Sen. Cruz’s proposal to let HSA funds be used to pay premiums would fail to offset this reduction in financial assistance compared to the ACA. As a result, millions of Americans would still find health insurance much harder to afford under the BCRA.
“Sen. Cruz’s HSA proposals will do next to nothing to help low and middle income families afford health care. Like every iteration of this health care repeal bill, these proposals serve to benefit the wealthiest Americans while continuing to slash resources for everyone else—especially the sickest and lowest-income among us,” said Thomas Huelskoetter, policy analyst at CAP and coauthor of the column.
In order to qualify for an HSA, low-income enrollees would be required to take on a high-deductible health care plan with increased cost-sharing, with the HSAs providing less of a tax benefit for them than for higher-income enrollees. Currently, for low-income enrollees who receive the highest level of cost-sharing assistance, the CSRs reduce their deductibles to an average of $255. This means that these CSR enrollees would see their deductibles increase by more than $5,700 on average under the BCRA, a more than 2,200 percent increase.
Medicaid beneficiaries who would lose eligibility due to the BCRA’s rollback of Medicaid expansion funding would also find coverage with these types of deductibles very difficult to afford. For someone currently covered by Medicaid expansion and earning 101 percent of the federal poverty level—or $12,180—a $6,000 deductible would be about one-half of their income.
Upper-income households not only use HSAs more frequently and put more money in them, but they also get a bigger tax break for using them. Since higher-income earners are in higher tax brackets than middle- and lower-income earners, they save more money for each pre-tax dollar they shelter in an HSA. For example, a couple in the highest 39.6 percent tax bracket, with taxable income of more than $470,700, saves 39.6 cents in federal income tax for each dollar they contribute to an HSA. Meanwhile, the vast majority of low- and middle-class families are in the 0 percent, 10 percent, or 15 percent bracket, which means they save either nothing, 10 cents, or 15 cents, respectively, on each dollar they contribute to an HSA.