Why does federal law only allow HSA contributions if you have a HDHP?

Question

According to the IRS, you are only allowed to contribute to a Health Savings Account if your current health insurance is a high-deductible plan. Currently, the minimum requirement for the deductible is $1,350 for self-only and $2,700 for family coverage.

Why does the law have this requirement? I know a lot of employers will contribute a certain amount to the HSA, to try and incentivize their employees to choose the higher deductible (and therefore lower cost) plans. Why does the Federal Government care which insurance plan I choose? If the point of HSA plans (like a 401k) is to encourage people to save their money, then why limit HSA contributions to only HDHP plans?

Answer 1

I think the answer to this question is two-fold.

Why does the Federal Government care which insurance plan I choose?

The federal government doesn't care that much which plan, it just wants more people to have health insurance in general. With more people on health insurance, premiums go down for everyone, and people are generally healthier since they are more likely to get the medical care they need. But, not everyone wants the (usually expensive) PPO plans. To keep people from opting for no insurance at all, the Fed offers a tax break for lower-cost, high-deductible plans.

why limit HSA contributions to only HDHP plans?

The Fed could allow HSAs for everyone, but they don't because of the potential for lost tax revenue. Why give a tax break if you don't have to? People on low-deductible plans don't really need an HSA, since their premiums are (usually) paid pre-tax anyway and they (usually) have very little out of pocket expenses.

See also Ben Miller's great answer on the linked question.

Answer 2

The point of an HSA is not to encourage you to save; it's a perk designed to get you to choose a high-deductible plan, which benefits insurance companies. The fact that you can set aside pre-tax dollars in one year to use in a later, less healthy year is part of that perk. The fact that you can effectively treat any money not used for medical expenses as an IRA once you reach age 59 (or whatever the limit is) is an additional benefit, as HSA contributions do not count against your other retirement contributions.

Answer 3

When I worked for a company that had this plan as an option a employee looked at the three choices and produced a spreadsheet: Low deductible but high employee premium; Higher deductible with lower employee premium; a HDHP with HSA.

For many people the HDHP with HSA would save money unless you had a year that would be very expensive medically. The HDHP with HSA plan was riskier because the out-of-pocket maximum was higher with than the other options. If you could get through a year or two without hitting the deductible ceiling the rolled over money in the HSA could cushion an expensive year. But that assumes you put the maximum into the HSA each year.

I also worked at one place where the lower premium with the HDHP was only a small savings and if a single person went to the doctor twice they would have picked the wrong option.

One reason behind the high deductible plan is that if you have to pay for a visit, then you will decide a minor visit isn't necessary. Or you will pick a practitioner that charges a lower rate. Of course for most people the in-network doctor is always cheaper, so there is no need to search for a cheaper provider because all in-network doctors charge the same amount.

Congress was trying to get people to participate in the money aspect of their medical care even when they had a plan from their employer, and this was one way to do it.