HSAs Don’t Solve for Higher Marketplace Premiums
The emerging alternative to enhanced premium tax credits — encouraging greater use of health savings accounts — doesn’t add up.
Authors: Ellen Montz and Tara Straw
Editors: Patti Boozang and Amanda Eisenberg
tl;dr
Senate Democrats are poised to propose a three-year extension of the enhanced premium tax credits (ePTCs), which are set to expire Dec. 31. The emerging alternative Republican plan takes a different approach by injecting funds into health savings accounts (HSAs) for people who enroll in plans with higher deductibles.
HSAs can be useful tax-saving tools for some, but they don’t solve the affordability crisis millions of Americans face in paying upfront premiums.
Neither proposal is likely to garner the 60 votes necessary to proceed, leaving the 22 million people who receive premium tax credits (PTCs) for 2025 Marketplace coverage with an average 114% premium increase if they choose to re-enroll for plan year 2026.
People in “Medicaid gap” states who lose ePTCs – those with incomes under 138% of the federal poverty level (FPL) in states that didn’t expand Medicaid – will be especially hard hit.
The 80 Million Impact
Upcoming ePTC Votes
The extension of the ePTCs was hotly debated in the six-week government stand-off over funding this fall. In exchange for Democratic votes to temporarily fund the government and end the shutdown, Senate Republicans agreed to give Democrats a floor vote on ePTCs. A vote on a three-year ePTC extension is likely to occur this week.
Senate Republicans are expected to offer their own proposal, whether alongside the Democratic proposal or in a future legislative vehicle. According to reports, Senate Health, Education, Labor, and Pensions (HELP) Committee Chair Bill Cassidy (R-La.) and Finance Committee Chair Mike Crapo (R-Id.) are seeking to coalesce the caucus around a bill that would replace ePTCs with direct payments to incentivize Marketplace enrollees to purchase coverage in high-deductible bronze and catastrophic plans with the promise of a federally funded HSA.
Background
In 2021, Congress passed legislation, later extended through 2025, to increase PTCs across the board. For the lowest-income enrollees, it means no upfront premiums for their “benchmark” silver plan, and people with income over 400% of the federal poverty level (FPL), or nearly $63,000 for a single person, became eligible for financial assistance for the first time. The resulting doubling of Marketplace enrollment is proof positive that lower premiums mean more eligible working Americans can afford and enroll in health coverage. People in Medicaid non-expansion states with income below 138% of the FPL have experienced a particularly high enrollment growth rate with the option of zero-dollar, low deductible silver plans. The landscape is about to shift drastically when ePTCs expire on Dec. 31, which will result in an average 114% increase in out-of-pocket premiums (from $888 to $1,904) in 2026, according to KFF. The Congressional Budget Office projects the subsidy cliff will reduce Marketplace enrollment by 3.8 million people.
Expanding HSAs for Marketplace Enrollees
Whether or not the final ePTC alternative proposal matches the scuttlebutt, the emphasis on HSAs is not new. HSAs are tax-advantaged arrangements that allow an individual with a high-deductible health plan (HDHP) to contribute pre-tax funds to an account, capitalize on tax-free growth on investment earnings on those contributions, and withdraw funds tax-free for the payment of health expenses (except premiums). Most recently, H.R.1 required that every bronze and catastrophic plan be considered an HDHP that is eligible to be paired with an HSA.
The rub is that HSAs don’t solve a key problem of the expiring ePTCs: helping a family afford the premium to enroll in coverage in the first place. If a family cannot pay premiums to enroll and stay enrolled in a HDHP, they won’t see any benefit from a policy that funds HSAs — which is the reality for many of the nearly 4 million people slated to lose Marketplace coverage if ePTCs go away. Given the importance of upfront premium assistance, partially funding an HSA is unlikely to make any real dent in projected coverage losses. After all, open enrollment is well underway, and a solution to upfront premium issues needs to happen immediately to make the most impact.
Enticing people to move from a silver plan to a bronze plan also has serious consequences, particularly for the lowest-income people – including people who live in states that have not expanded Medicaid and are enrolled today in low cost, low deductible plans – who may not realize the magnitude of the income-based cost-sharing reduction (CSR) they already receive. For example, consider a 38-year-old earning $21,000 in Amarillo, Texas. With an ePTC, he pays a $0 premium for his lowest-cost silver plan and also qualifies for a CSR that leaves a minimal deductible (the national average deductible at his income is $80). If he instead switches to the lowest-cost bronze plan to get a lower premium and an HSA — without ePTC, as proposed in the alternative plan, or the CSR, which is only available for enrollment in a silver plan — his premium would be $0, but his deductible would be $5,300. The current alternative proposal would put $1,000 in an HSA; if he takes the steps necessary to set up an HSA, that would leave him with a $4,300 deductible before most care is covered. This is a tall order: 61% of Marketplace enrollees say it’s very or somewhat difficult to afford deductibles and out-of-pocket costs. A similar share of enrollees say they can’t afford even a $300 annual increase in health care expenses.
About 1.6 million people will lose subsidies altogether because their income is above 400% of the FPL. Older adults in this group will be hit especially hard. For example, a typical 60-year-old who earns about $63,000 (403% of the FPL) would be eligible for monthly assistance of $880 per month with the ePTC. Without ePTC, she would be eligible for no subsidy and owe $969 per month in premiums for even the lowest-premium, high-deductible bronze plan — more than 18% her income. Paying this premium is just the threshold for coverage: she’s still at high financial risk with a deductible averaging about $7,500. (While these figures represent the national average, it’s noteworthy that in higher-cost states, the premium cost can be double this amount.)
While 70% of Marketplace enrollees say they’ll seek out lower-premium plans with higher-deductibles this year, 61% of enrollees already struggle with out-of-pocket costs and pursue strategies like cutting down on daily expenses, skipping payment of other bills, taking out loans or accruing credit card debt. As they do, higher deductibles are likely to increase medical debt.
The Bottom Line
This week’s votes aren’t likely to achieve the 60-vote threshold needed to provide a way forward on ePTCs. However, the discussion may evolve into a larger debate over whether HSAs should be further utilized. For the Marketplace population, especially the lower-income people who make up a majority of the enrollees, incentivizing HSAs could exacerbate, rather than mitigate, affordability challenges. The “Medicaid gap” in states that didn’t expand Medicaid will be once again felt most acutely by people residing in those states with income under 138% of the FPL who will not be able to afford premiums at all — or will revert to enrolling in lower-premium plans (with high cost-sharing) because of the loss of ePTC.