Daily News Updates - Health Insurance News

HSA’s Intended Purpose Backfiring, Pt.3 -- The Abusers

Another looming problem is that when people are sick, stressed and not thinking clearly, they make poor decisions.  Professor of Health Care Policy at Harvard Medical School, Michael Chernew Explains: "It's hard to expect people in those situations to respond appropriately to price signals." He noticed that patients balked at high prices and declined required treatments about the same as they did for "inappropriate treatments”.  There is also a real concern that if too many of the more healthy people steer away from HSAs with their High Deductible health insurance plans and gravitate toward more comprehensive coverage, the cost of comprehensive coverage will go up, making it even less affordable to those who need it most.  A Principal Research Associate at the Urban Institute, Linda J. Blumberg, Ph.D explains it this way:  "The higher-cost insured population remaining in comprehensive [health insurance] coverage will tend to see their premiums rise as the healthy peel off into high-deductible/HSA plans." She concurred that if something isn’t done to prevent this: "This dynamic will make coverage less affordable for those with the greatest medical needs.”

As the focus of this article was mainly the abuse of it’s intended purpose, it’s important to divulge another loophole. The intended use for HSAs coupled with HD health insurance is to provide pre-taxed funds to be used for medical purposes. If a younger people with HD health insurance were to spend these funds on non-qualifying medical expenses, they would not only have to pay back the IRS the tax that was waived but would also incur a 10% penalty on top of that. But participants over the age of 65 can fatten up these HSAs, only to turn around withdraw the funds for non-medical purposes, pay the tax as ordinary income, perhaps in a different tax year, but with no penalties from the IRS. More bad news…even those who deliberately break the law and abuse this privilege have fewer than a 1% chance of being caught.  It would require an IRS audit.  No wonder Rep. Becerra is so livid.  He laments in frustration: "This is sounding more and more like a really good tax shelter if you happen to have a lot of money if you've maxed out on your [401(k) or IRA]. It sounds to me like a Ponzi scheme here."