Analysis of HSA grants versus ACA subsidies: Given the problematic GOP idea to create HSA grants instead of subsidies

[andym]

What would the pros and cons of replacing ACA subsidies with grants to personal HSA accounts?
[generated by Google AI Mode--apologies in advance to AI critics ]

Replacing ACA subsidies (premium tax credits and cost-sharing reductions) with grants to personal Health Savings Accounts (HSAs) would fundamentally shift the healthcare system's structure, with different outcomes for individuals based on income and health status.

Pros of HSA Grants (Compared to ACA Subsidies)
Consumer Control and Engagement: HSA grants would give individuals more direct control over their healthcare spending decisions, potentially encouraging them to be more cost-conscious consumers of routine medical services.
Flexibility and Savings: HSAs are tax-advantaged savings accounts that can be used for qualified medical expenses and, after age 65, for non-medical expenses (subject to income tax, like a traditional IRA). This triple tax advantage (tax-deductible contributions, tax-free growth, tax-free withdrawals for medical use) could benefit individuals who are healthy and can afford to save for future healthcare costs or retirement.
Encourages High-Deductible Plans: The proposal would likely push more people into high-deductible health plans (HDHPs), which generally have lower monthly premiums.
Portability: HSAs are tied to the individual, not their employer or specific plan, allowing funds to be carried over year to year and used even in retirement, which the current ACA subsidies do not allow.

Cons of HSA Grants (Compared to ACA Subsidies)
Reduced Overall Coverage and Higher Uninsurance Rates: The ACA premium tax credits directly lower monthly premiums, making coverage affordable for millions. Eliminating them and shifting to an HSA grant model would likely lead to millions becoming uninsured, as many, especially lower- and middle-income individuals, would struggle to afford the upfront premium costs and high deductibles associated with HSA-eligible plans.
Disproportionate Impact on Low-Income Individuals: ACA subsidies are income-adjusted, providing more help to those with lower incomes, who may pay very little or no premium for a plan. HSA tax benefits disproportionately favor higher-income households who are in higher tax brackets and can afford to contribute more to their accounts.
Higher Out-of-Pocket Costs and Financial Risk: HSA-eligible plans require high deductibles, meaning enrollees face significant out-of-pocket costs before insurance kicks in. This poses a greater financial risk, especially for individuals with chronic conditions or unexpected, expensive medical needs.
Inadequate for High-Need Individuals: People with significant medical needs often find traditional health plans with lower deductibles and fixed copays to be more cost-effective than HDHPs.
Administrative Hurdles and Potential for Misuse: ACA premium tax credits are generally paid directly to insurers to lower monthly bills, a relatively seamless process for the consumer. A grant and HSA system could introduce new administrative complexities, and some proposals could make it easier to use the funds for non-medical expenses (acting as a general tax shelter).
Market Instability: If healthier individuals drop their insurance (due to subsidies being insufficient) while sicker people remain in the marketplace, premiums could further increase for the remaining enrollees, leading to an unstable insurance market.
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The high deductible nature of HSAs is a critical problem for any such plan for those with low incomes or needing intensive medical care. The market instability is probably the biggest problem as it could raise costs significantly due to only the sickest indviduals particpating and making the plan unworkable.

[Ms. Toad]

1. Odd analysis regarding high need individuals.

Their definition must not match mine.

My daughter's billed medical costs are $200,000 every single year. A higher deductible cost is often much cheaper for her than a "traditional health plan() with a lower deductible"

She will run through whatever out-of-pocket max her plan has. Typically a lower deductible plan costs more in premiums, whereas a higher deductible plan is cheaper. We choose her plan by adding the out of pocket max to the cost of premiums - because she will spend that every single year. That typically means a higher deductible plan is cheaper. It does pose timing changes - since she often hits her out of pocket max in January or February. But whoever wrote this has not truly experienced high medical costs.

(Note: I am NOT saying his idea is a good one. It will be disastrous for those with higher than average, but not extraordinary, costs. Just commenting that whoever wrote this has not experienced truly high medical costs on an ongoing basis.)

[andym]

2. The grants might not provide sufficient funds to pay the higher deductibles for those in great financial need

If a person can cover the high deductible as can your daughter then there would be no problem. But many living on the edge, but not qualifying for Medicaid may not.

[Ms. Toad]

7. It isn't an issue of whether she can cover it or not.

The costs are the costs - whether she "can" pay them or not. And the overall medical cost for the year is lower on a high deductible plan for people who actually have high medical costs.

Example:

Monthly premiums for $10,000 deductible plan, with a $10,000 out of pocket max: $150/month.

Monthly premiums for $250 deductible plan with a $10,000 out of pocket max, and a 20% copay. (simplified for purposes of illustration): $500/month

Assume her $200,000 are spread evenly over the year (again, for illustration purposes) - $16,667/month

High deductible plan: $10,000 +$150 for January; $150/month the rest of the year. Total cost for the year = $11,800.
Low deductible plan: $500 + $250 + $3283.4 for January; $500 + $3333.40 for February, $500 + $3133.20 for March then $500 for April-December. Total cost for the year - $16,000

I never said she could afford it. Simply that she has no choice - it is what it costs to keep her alive. Given that (most of the time) she wants to live, a high deductible plan saves her $4,200 a year, in this simplified analysis based on numbers close to the options she has had over the years.

Yes, the pain is greater for a single month versus being spread over 3 months. but then her health care is essentially free for the remainder of a year.

My point is that whoever did this analysis does not understand the economic impact of high medical costs - or has never done the calculations to compare the overall costs of the two types of plans.

[andym]

11. Here is a followup article stating the inadequacies of HSAs as an ACA substitute that appears to make the same argument

re: inadequate coverage for high need individuals. What are your critiques of it?

https://www.yahoo.com/news/articles/why-health-savings-accounts-aren-192637529.html
Paige Winfield Cunningham, (c) 2025 , The Washington Post
Tue, November 25, 2025 at 11:26 AM PST
"Why health savings accounts aren’t the fix Republicans hope for"

I can't present the whole article, but for example here:
"...The GOP is toying with the idea of taking federal subsidies that currently help people buy Affordable Care Act insurance and diverting some of the money into individuals’ HSAs, although passing legislation without help from Democrats is a tall order with Republicans’ slim Senate and House majorities.

But health economists say the vast majority of these individual accounts - already used by tens of millions of Americans - do not contain sufficient money to pay for serious health expenses. Even boosting them with new federal contributions would not build enough reserves to pay for expensive care for an emergency or major illness if needed, they say.

“There’s a place for health savings accounts to augment insurance and fill things out around the edges, but it can’t be the core insurance product,” said Douglas Holtz-Eakin, a health economist who directs the American Action Forum, a conservative think tank."

The article continues and is worth reading through if only for the political implicattions.

[Ms. Toad]

12. I'd need to read the actual proposal, or at least an article written by someone who understands it.

The article mixes concepts, so it isn't clear what is being proposed (HSA account - which is an annual pot of money tied to an insurance plan v. an alternative to insurance). The author doesn't seem to understand the distinction between deductibles and out-of-pocket maximums.

The amount of money matters.
Whether annual expenses are always exorbitant or just occasionally high.

My daughter always hits her maximum out-of-pocket spend by February - at the latest. So whatever the maximum is, she pays it ever year. I think it's around $3500 this year. Her premiums are relatively low because they are through work in a national company with a relatively young work force. A contribution to her HSA would be worth more to her than premium subsidies because it would lower the $3500 she is guaranteed to spend.

I don't always spend $3500 (or didn't when I had insurance through work). So I would rather have a premium subsidy.

I haven't heard any proposal in the recent talks to replace insurance with a savings account (a disaster for anyone with significant medical issues)

[haele]

3. Simply put - HSAs are only effective if you make enough money

To be able to get the quality of Health insurance you actually need.
I need an HSA on top of an employer provided health insurance policy, where they also pick up at least 1/3 - 1/2 the cost of the policy because there's chronic health issues in my family.
If I were to pay for my own policy, I would be out $30k a year on premiums.
I'm lucky, I've worked my way into management and almost make 6 figures, and have secondary household income.
My neighbors, with lower service industry incomes subsidized on the ACA, have health issues in which they'd have to decide if the higher income working spouse with a heart condition continues to get treatment or they get a roof over their heads and at least two meals a day.
An HSA that gives them even as much as $5k per person won't cover half a year of the that person's health care, nor would it help them purchase any of the high risk plans they need to keep that spouse treated.

But...thinking about it, if Single Payer or Nationalized Healthcare is off the table, a HSA on top of their current subsidized ACA plan would really take the stress off them.
Just saying.

[andym]

5. Perhaps then that is the compromise the Democrats in the Senate should offer: ACA subsidies plus HSA grants

not a bad idea, if the Republicans are willing to spend money.

[Hugin]

4. Typically these ridiculous so-called savings accounts are pre-tax dollars...

Starving already stressed parts of the social security net such as Social Security. Ultimately robbing mandated participants of their meager high three upon retirement. I suppose the fascists see this as a win-win.

Also typically the amounts participants have been able to scrape together and put away are exhausted before they even arrive at a hospital in a true health crisis.

Medicare for all! Now!

[EdmondDantes_]

6. Neither addresses the root cause but short term the ACA subsidies are better

The HSA solution works for those who have enough money to pay their deductible and still be able to pad the HSA or low healthcare costs. But one surgery or major illness and the math flips.

[Freddie]

8. Whatever (stupid) idea trump is proposing

Pre-existing conditions? Will people still get free preventive care? Cover your kids til age 26? How will it affect employer based insurance, if you’re lucky enough to have that?
Just extended the subsidies and be done with it, FFS. I think some of these new hare-brained ideas come from trump and his party absolutely refusing to compromise. After all this is the party that once declared “bipartisanship is date rape.”

[valleyrogue]

9. HSAs can't be set up if you are on Medicare, and FSAs

don't allow you to carry over the money from year to year. It has to be spent.

[lostnfound]

10. HSA's can also be money poured into stock market

if their scheme is a flat amount per person regardless of age, the people who need medical treatment are screwed while other money could be stuck in unused accounts for a while.