Tax-favored accounts aiming to reduce healthcare costs for Americans are not as helpful as they’re touted to be and in many cases are increasing the amount of money that families spend on healthcare, according to research published in late September on the JAMA Health Forum.
The researchers, affiliated with New York University’s Robert F. Wagner Graduate School of Public Service, analyzed how holding tax-favored accounts is associated with families’ healthcare spending and tax expenditures.
Families with flexible savings accounts (FSAs) are spending a mean of 20% more (or an extra $2,033) annually on healthcare than those without these accounts. Meanwhile, families with health savings accounts (HSAs) spend a mean of 44% or $697 more on out-of-pocket expenditures and had insignificantly higher health expenditures paid by their insurers. HSAs must be used with high-deductible health plans (HDHPs).
The cross-sectional study, conducted between December 2023 and April 2024, analyzed the data of 17,038 families collected through the Medical Expenditure Panel Survey from Jan. 1, 2011, through Dec. 31, 2019. The researchers conducted regression models to control for demographic and socioeconomic characteristics, chronic conditions, prior healthcare expenditure and marginal tax rates.
Only 30% of Families Benefit
“These findings suggest that tax-favored health spending accounts, which increase (FSA) or fail to reduce (HSA) spending and primarily benefit high-income families, reduce the equity of the health care system and do not improve its efficiency,” the report noted.
Only about 30% of U.S. families with employer-sponsored health insurance benefit from FSAs of HSAs, and these are “disproportionately drawn from high-income groups,” the researchers wrote. In their analysis, the majority of families with FSAs (75%) or HSAs (68%) had household incomes exceeding 400% of the federal poverty level.
“The combined association through both out-of-pocket spending and premiums of these tax-favored accounts with health care expenditures and tax expenditures remain uncertain,” the researchers wrote.
“Tax policy could be better targeted to enhance insurance coverage and healthcare accessibility,” they added.
