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Republicans Are Trying to Change the Way You Pay for Health Care. That's a Big Problem, a New Study Shows

Republicans Are Trying to Change the Way You Pay for Health Care. That's a Big Problem, a New Study Shows
From TIME - July 10, 2017

As Republicans in Washington work to overhaul America's healthcare system, they have given an outsize role to a fast-growing financial product known as the health savings account.

Both House and Senate versions of Republicans' Obamacare overhaul include provisions to greatly expand the use of HSAs, which deliver big tax breaks tied to health care spending. The idea is that these accounts encourage Americans to take more personal responsibility for their own health care costs, while also allowing them to put away money in the short term that can grow to offset medical costs later on.

The problem? Many of these accounts, typically offered by banks and credit unions, are riddled with high fees and mediocre investment options that blunt benefits to consumers, according to a new study from research firm Morningstar.

Often billed as health care's answer to the IRA, HSAs offer big tax savings -- designed to take some of the sting out of employees' out-of-pocket costs -- to Americans with qualifying high-deductible healthcare plans. Account holders get a triple benefit: They can contribute untaxed income, avoid capital gains and dividend taxes as contributions grow, and then spend money tax-free on qualified medical expenses.

Yet while HSA assets have swelled -- rising to $37 billion by the end of 2016 from less than $12 billion five years ago, according to Devenir, an HSA research and investment firm -- many of the large investment firms that dominate the consumer-facing retirement space (such as Fidelity, Schwab, and Vanguard) have remained on the sidelines. And among the 10 institutions that do offer popular, commercially available HSAs direct to consumers, Morningstar found only a single one that passed muster on both saving and investing fronts.

That raises questions about whether HSAs genuinely deserve an expanded role in Americans' financial lives. "You run the risk of nudging people into accounts that still have a lot of room for improvement," says Morningstar analyst Jake Spiegel.

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