What Is a Health Equity Account & How Do They Work?

While a specific “Health Equity Account” does not exist like a Health Savings Account or Flexible Spending Account, this article clarifies the concept of health equity within the healthcare system. It then explores established financial tools that help individuals manage healthcare costs. These existing accounts, though not explicitly named “Health Equity Accounts,” contribute to health equity by making healthcare more accessible and affordable.

Understanding Health Equity

Health equity refers to a state where everyone has a fair and just opportunity to attain their highest level of health. This concept goes beyond simply providing equal access to healthcare services; it addresses the underlying social, economic, and environmental factors that can create disparities in health outcomes. Health equity aims to eliminate avoidable and unfair differences in health status, ensuring that no one is disadvantaged from achieving good health because of their social position or other socially determined circumstances.

Achieving health equity involves reducing and ultimately eliminating disparities in health that are systemic, avoidable, and unjust. These disparities can manifest in unequal access to quality medical care, differences in health insurance coverage, and varying financial burdens associated with healthcare services. The principles supporting health equity include fairness in distribution of resources, addressing historical and contemporary injustices, and ensuring all individuals have the support needed to thrive healthily.

Common Healthcare Savings and Spending Accounts

Health Savings Accounts (HSAs) are tax-advantaged savings accounts available to individuals enrolled in a high-deductible health plan (HDHP). Contributions to an HSA are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. For 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300, with an additional catch-up contribution of $1,000 for those aged 55 and over. Funds in an HSA are owned by the individual, are portable if they change employers or health plans, and can be invested, potentially growing over time.

Flexible Spending Accounts (FSAs) are employer-sponsored benefit plans that allow employees to contribute pre-tax dollars to pay for qualified medical expenses. The primary advantage of an FSA is the tax savings on contributions, which reduces an employee’s taxable income. For 2024, the annual contribution limit for a healthcare FSA is $3,200. Funds in an FSA are typically subject to a “use-it-or-lose-it” rule, meaning any unused money at the end of the plan year may be forfeited, though some plans allow a grace period or a limited rollover amount.

Health Reimbursement Arrangements (HRAs) are employer-funded plans that reimburse employees for qualified medical expenses and, in some cases, health insurance premiums. Unlike HSAs or FSAs, HRAs are solely funded by the employer, and employees cannot contribute to them. The employer sets the maximum reimbursement amount for the plan year. Funds in an HRA are generally not portable if an employee leaves the company, as the account is owned by the employer.

Distinguishing Between Healthcare Accounts

The primary distinctions among Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs) lie in their eligibility, funding, ownership, and portability. An HSA requires enrollment in a high-deductible health plan, while FSAs are typically offered by employers regardless of the health plan type. HRAs are exclusively employer-funded, setting them apart from HSAs and FSAs which allow employee contributions.

Tax treatment and fund ownership also vary significantly. HSAs are triple-tax advantaged: contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are tax-free. HSA funds are owned by the individual and are portable, rolling over year to year without limit. Conversely, FSA contributions are made with pre-tax dollars, but the funds are generally subject to a “use-it-or-lose-it” rule at year-end, with limited exceptions for rollovers or grace periods. HRAs offer tax-free reimbursements to employees for qualified medical expenses. However, HRA funds are not owned by the employee and are generally not portable if employment ends, unlike HSAs which remain with the account holder.

Contributing to Health Equity Through Financial Accounts

While no specific “Health Equity Account” exists, the established financial tools like Health Savings Accounts, Flexible Spending Accounts, and Health Reimbursement Arrangements can collectively advance the goals of health equity. These accounts help individuals manage healthcare costs, thereby making medical care more financially accessible. By providing tax advantages and structured savings mechanisms, they reduce the out-of-pocket burden of healthcare expenses.

These accounts empower individuals to proactively save and plan for anticipated and unexpected medical needs. For instance, HSAs, with their investment potential and long-term savings capabilities, can build significant reserves that lessen the financial impact of chronic conditions or major medical events. This financial preparedness can reduce instances where individuals forgo necessary medical care due to cost concerns, a common barrier to health equity.

Ultimately, by making healthcare more affordable and predictable, these financial accounts contribute to a system where financial status is less of a barrier to receiving quality care. They serve as practical mechanisms that can alleviate some of the financial disparities in healthcare access and utilization, supporting individuals’ financial health within the complex healthcare landscape.