[vel0city]

But for a ton of people that amount is extremely variable. Do you plan on getting into a car accident? Do you plan on getting an appendectomy in June when making your elections the November before? Sorry doctor, getting cancer wasn't in the plans for 2026, can we reschedule that to 2027 after my open enrollment?

I hate FSAs. Anyone have a good argument on why we should have them instead of just making HSAs open to everyone regardless of healthcare plan?

[topgrain2]

Requiring certain healthcare plans to access HSAs is the only thing that keeps HSAs from primarily being (in terms of amount of tax income lost to the program) a benefit for the upper-middle-class and higher, i.e. a regressive redistribution scheme.

Optimal (maximizing your benefit... and also cost in lost tax receipts) use of HSAs requires not touching the money until retirement. You pay medical bills with non-HSA money and keep the HSA money invested and growing tax-advantaged, like an extra retirement account. Spending the money you put in every year offers relatively tiny gains compared to keeping it in those accounts for decades.

Your options to mitigate this are to limit access, or to make it undesirable to keep money in them long-term, approaches to which look kinda FSA-like.

[vel0city]

> to make it undesirable to keep money in them long-term

We could just continue to enforce the 20% penalty indefinitely to get rid of the concept of these accounts turning into retirement accounts.

FSAs benefit the upper-middle-class and wealthy more than poor people as well. You'll see quite a bit more savings when your top end tax rate is 35% than 12%. They're also far more likely to be able to plan on setting aside some portion of their incomes into a FSA at enrollment time rather than the bigger effects of the gamble with lower income earners; the outcomes of the risk of overfunding is way more impactful for someone making little money.

The tax benefit helping the wealthy more seems to me to move more towards eliminating the tax advantages of healthcare spending entirely.

[SoftTalker]

Even if you spend the money you put in to an HSA every year, you still saved the marginal income tax on that money, which is a lot better return than most other short-term "safe" ways you might save for unexpected expenses.

[topgrain2]

Yes, it provides some benefits to fund one's HSA even if one spends all that money in the same year, but the cost of the program (in terms of tax income lost, including the time-cost of it) is far higher for accounts that don't do that, and instead spend none of the money on healthcare.

Like, remove the eligibility restrictions and just about 100% of people with a financial planner would soon have an HSA they intend not to touch until retirement, and those accounts would represent a large proportion of the cost of the program (most of it, in fact, I'd wager). At that point much of the program's cost isn't going toward helping people pay for healthcare, which is the nominal point, but toward helping people who (evidently, as they don't need to dip into their HSA before retirement) don't need help with medical bills have an even-more-advantaged retirement, meaning program efficiency for its stated purpose would suffer significantly, with much of it being diverted to improving the retirements of the already-well-off.

That's why it's gotta be restricted in some way. Not because it isn't beneficial to have even for same-year spending for people using such programs, but because the cost of the program going toward things that are not alleviating healthcare costs would go way up, which is to say, the program's efficiency (at achieving its intended goals) per dollar it costs would drop.

[SoftTalker]

Interesting. My financial planner has never suggested using my HSA as an auxilliary IRA. Maybe because he wouldn't earn any management fees from that....?

[topgrain2]

You’d have to also have a qualifying healthcare plan so you could have an HSA in the first place, and enough income to easily cover any medical bills without having to touch your HSA balance, after maxing out other tax-advantaged retirement options. Take away the first restriction and it remains a niche option, but does become realistic to aim for as extra tax-advantaged retirement savings on top of what’s already available.