Policy Priority: Expanding Health Savings Accounts

By SBE Council at 13 March, 2025, 3:31 pm

by Raymond J. Keating –

If you’re concerned about health care spending, innovation in medical treatments, and overall quality of care, then you shouldn’t be arguing for more government involvement in health care, such as via expanded government spending or government-imposed price controls on medicines. Instead, constructive and imperative policy reforms need to be focused on expanding consumer control and choice, and competition. That means, for example, expanding access to tax-free health savings accounts (HSAs).

Price Sensitivity Missing in Healthcare

Consider that, based on 2023 data from the Center for Medicare and Medicaid Services, only 11 percent of national health consumption expenditures were paid for out of pocket. That means third-party payments covered the other 89 percent of these expenditures. That included 32 percent from private health insurance, and another 5.5 percent from other private sources. That leaves approximately 52 percent covered by government, such as via Medicare, Medicaid, CHIP, and other programs.

Third-party payments mean that someone else other than the consumer is picking up the tab. And of course, medical insurance is supposed to do that, in particular, protecting individuals and families against large, unforeseen medical expenses. But third-party payments go far beyond that today in terms of covering regular, foreseeable, smaller costs.

For good measure, when government is the third-party payer, the ills of government spending come into the equation. So, while costs and utilization rise with third-party payments in general, they expand more rapidly with government funding, as those in government have few incentives to control costs as they are spending other people’s – i.e., taxpayers’ – money.

In effect, with third-party payments, again, especially with government as the third-party payer, the market relationship between buyer and seller, or consumer and supplier, breaks down. Costs mount as a result.

So, we are left to disentangle the “good” and the “bad” in increased health care spending. That is, how much is from improved care and investments in life-saving and life-enhancing treatments, and how much is from poor or absent incentives regarding costs?

While government is bound to play some part in the funding of health care – such as for low-income earners – the policy emphasis should be on limiting governmental incentives and opportunities for waste, while expanding consumer sovereignty and bolstering the market transaction between consumer and supplier.

The Role of Health Savings Accounts and Strengthening their Impact

HSAs are vital for consumer sovereignty in health care. An HSA is a tax-free savings accounts tied to enrollment in a high-deductible health plan (HDHP). HSAs offer a triple tax advantage in that HSA contributions are fully tax deductible, returns (e.g., interest earned) on HSA deposits aren’t taxed, and withdrawals made for qualified medical expenses are tax free.

Over the past two decades, HSAs have become a vital part of the health care marketplace. This is made clear in the following two charts from the latest KFF Annual Employer Health Benefits Survey, with HSA-qualified HDHPs rising from seven percent of businesses offering health coverage in 2007, for example, to 22 percent in 2024, and the percentage of covered workers with HSA-qualified HDHPs going from 3 percent to 21 percent.

Also, in its third annual Devenir & HSA Council Demographic Survey, Devenir and the American Bankers Association’s Health Savings Account Council found that the 35.5 million health savings accounts existed at the end of 2022, and they helped cover almost 72 million Americans.

In laying out SBE Council’s policy agenda for the new Congress and Trump administration, President and CEO Karen Kerrigan included the following point:

“Expensive health coverage costs and limited options continue to frustrate small business owners and weigh down the competitiveness and growth of their firms. SBE Council will push forward with efforts to strengthen and improve health savings accounts (HSAs), encourage and expand telehealth, reform and improve the small business health tax credit, and revive progress during the first Trump administration that reduced barriers to small business pooling and transition coverage options for new entrepreneurs and the self-employed.”

Legislative Solutions and Proposals

Regarding HSAs, Kerrigan highlighted the HSA Modernization Act. The legislation was introduced by Congresswoman Beth Van Duyne (TX) and Congressmen Dan Meuser (PA) and Dan Crenshaw (TX) in 2025.  Rep. Van Duyne noted that the act “will cut unnecessary regulations, modernize health savings accounts, and expand HSA eligibility for disabled veterans, working seniors, and Native Americans while offering Americans more control over their care.” The act would allow spouses to provide “catch up” payments in the same HSA, and increase contribution limits.

Among other proposed legislation to improve HSAs, the Personalized Care Act, introduced by Senator Ted Cruz (TX) and Rep. Chip Roy (TX) would, among other measures, decouple HSAs from high-deductible health plans, expand access to HSAs, and increase annual contributions.  A broad coalition exists for expanding HSAs via decoupling – from business associations, to taxpayer groups, health care organizations and more. A February 26 Open Letter to Congress, for example (signed by SBE Council), focuses on the importance of this approach and using the reconciliation package to advance the reform.

For good measure, price transparency in health care is vital so that consumers can make informed choices. As Kerrigan noted in a recent statement supporting President Trump’s “Making America Healthy Again by Empowering Patients With Clear, Accurate, and Actionable Healthcare Pricing Information” Executive Order:

“Small businesses and their employees stand to benefit from universal transparency through lower costs and more choices. Entrepreneurs and innovative startups will have clearer information and data that can help them launch new enterprises to positively disrupt this sector.”

On the legislative front, for example, the Health Care Prices Revealed and Information to Consumers Explained Transparency Act, or the Health Care PRICE Transparency Act, introduced in the previous Congress by Rep. Warren Davidson (OH), would provide “statutory authority for requirements for hospitals and health insurance plans to disclose certain information about the costs for items and services,” including publishing “in their list of standard charges certain rates negotiated with insurers, discounts for cash payments, and billing codes,” as well as publishing “the standard charges for the services provided by the hospital that may be scheduled in advance.” As for insurance plans, they would need to “publish the in-network and out-of-network charges for covered items and services and the negotiated prices for covered prescription drugs.”

In the end, price controls on medicines undermine the incentives for developing new and improved medicines.

Price controls, for example, attack the “good” part of increased health care spending, if you will. More government funding of health care expands the “bad” part of spending, as incentives are lacking to control costs and waste. Meanwhile, HSAs address the problem of third-party payments, by re-establishing the market buyer-seller relationship and boosting consumer sovereignty.

Turning away from more government controls and programs, and instead, boosting access to HSAs – including for entrepreneurs, small businesses and their employees – would be good news in terms of health care policymaking.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of “The Weekly Economist” book series, and 10 Points from Walt Disney on Entrepreneurship.