HSAs Are 'Tax Shelters For The Rich' GAO Report Finds

by Leroy Baker, Tax-News.com, New York

02 May 2008

Two senior Democrat Representatives have released the findings of a report by the Government Accountability Office which has concluded that Health Savings Accounts (HSAs) are being increasingly used by the wealthy to avoid tax, than as a mechanism to help working families obtain needed health care.

The report, released on 30th April by Oversight and Government Reform Committee Chairman Henry A. Waxman (D-CA) and Ways and Means Health Subcommittee Chairman Pete Stark (D-CA), finds that instead of being used by low and middle-income Americans most likely to be without health insurance, HSAs are increasingly a popular tax shelter option for wealthy taxpayers.

“The GAO confirms that HSAs are not the way to meet the health care needs of most Americans. Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers,” commented Stark.

“HSAs clearly are attractive to higher income people who are looking for tax shelters," noted Waxman. "But they aren’t the answer for providing adequate health insurance coverage for the average American. This report provides further evidence that we need to reexamine whether this is the right way to use the Government’s resources to address our health care needs.”

According to the two lawmakers, the GAO’s findings are bolstered by HSA advocates’ "extreme" opposition to legislation passed last month in the House, which would require HSA enrollees to substantiate that HSA withdrawals were used for allowable medical expenses.

Data from at least one company indicates that HSA funds appear to have been spent on escort services, at casinos and bowling facilities, and in other non-health related areas.

Flexible Spending Accounts, a different tax-preferred health account with fewer tax breaks than HSAs, require substantiation. In addition, the federal government requires far more onerous verification standards to qualify for Medicaid and for Part D low-income subsidy.

“How can anyone seriously oppose minimal verification standards for wealthier people who get tax breaks that are supposed to be for health care when we have far more burdensome requirements on people with incomes near the poverty level?" asked Stark.

Among its other findings, the GAO report also stated that:

• The average adjusted gross income was about USD139,000 for Health Savings Accounts enrollees compared to USD57,000 for all other filers;
• The total value of all Health Savings Accounts contributions reported to IRS in 2005 was about twice that of withdrawals - USD754 million compared to USD366 million - suggesting an interest in it more as a shelter than vehicle to obtain needed health care or supplement inadequate coverage; and
• There was substantial growth in enrolment in HSA plans between 2004 and 2007, from 438,000 to approximately 4.5 million.

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