Skip to comments.Code Red On Health Savings Accounts
Posted on 02/28/2006 6:36:48 AM PST by kiryandil
Heads up, Americans. The Bush administration is now greasing the skids for employers to drop your health coverage. This is a biggie.
Radical change was not the headline when the president unfurled his latest proposals for health savings accounts. It was presented mainly as a sensible-sounding way for people without medical insurance to buy it with pre-tax dollars, the same way companies do.
George Bush's new HSA is actually a rocket-powered tax shelter dressed up as a sweet little program to help the uninsured. It would also undermine the traditional health coverage now offered by employers. (More on that in a minute.) And in case anyone still cares about deficits, it would cost the Treasury $156 billion in lost tax revenues over 10 years more than wiping out any savings Bush hopes to achieve with his cuts in projected Medicare spending.
An HSA lets people put pre-tax earnings into a tax-advantaged account to be tapped for medical expenses. They must also buy a high-deductible health insurance policy to pay for big-ticket medical needs.
Bush's HSA proposal is a wedding cake of tax credits piled on top of tax deductions. And unprecedented in the annals of tax breaks, this one would tax neither the earnings going into the accounts nor the withdrawals coming out. This is unlike 401(k) plans, where people contribute pre-tax dollars into accounts but pay taxes on the money they withdraw.
If you thought that the people most in need of help buying health coverage were the working poor, you haven't been hanging around administration circles. The Bush plan would raise the amount that could be contributed into an HSA to $10,000 a year, a sum even most middle-class families don't have lying around.
"This is not about health care anymore," notes Jason Furman, senior fellow at the Center on Budget and Policy Priorities. "It's an excuse for allowing people to put $10,000 away tax-free."
The center figures that for a family making $180,000, a $1,000 contribution into an HSA would reap a $433 tax subsidy. If that family makes $15,000, the subsidy would total only $153.
Demonically, the Bush proposal gives employers new reasons not to offer traditional health coverage, or any medical benefits at all. Indeed, the new health savings accounts could do to the traditional health plan what the 401(k) plan did to the traditional pension: Kill it off.
Like 401(k)s, the proposed HSAs could save money for employers while transferring the cost and risk of providing what was once an expected benefit onto the workers. The move from traditional pensions to 401(k) plans has already amounted to a major hidden pay cut for millions of American workers.
Under the Bush plan, small businesses would have new reasons not to offer employees coverage. Big companies can still get good deals by buying insurance in bulk. But because the Bush plan would end the tax advantages of purchasing employer-based coverage over buying insurance in the individual market, small businesses might just opt out of the whole health-benefit thing. The boss and other top-earning people, meanwhile, could retreat to their own HSA tax shelters.
Health savings accounts would be most attractive to the healthy and wealthy, drawing this group out of traditional coverage. That would leave the sick and poor in the higher-cost insurance plans, which would then sink.
So the Bush proposal would actually cause more Americans to lose coverage than to gain it. In 2004, MIT economist Jonathan Gruber computed the numbers on the basis of a health-savings-account proposal that was far more modest than Bush's. He figured that adding a tax deduction for buying high-deductible health insurance to the tax-advantaged HSA would result in 1.1 million currently uninsured people obtaining coverage. These would be mostly the richer folks who are uninsured for some reason and who make enough money to fully enjoy the tax breaks. But the changes would lead to 1.4 million people losing their employer coverage. Guess who they would be.
Just what the American people need: fewer safety nets and bigger federal deficits. Americans would do well to go Code Red on this new potential threat to their economic security, or what's left of it.
Providence Journal columnist Froma Harrop's column appears regularly on editorial pages of The Times. Her e-mail address is firstname.lastname@example.org
2006, The Providence Journal Co.
I do know of Froma Harrop, though, and know that this is prolly the latest "Let them eat dog food!" FAX from DNC headquarters.
On a related note, I got to watch the world turned upside down on FOXNews yesterday, when Harold Ford, Jr. (D-TN), who is running for the Senate, told us how the middle class is being overtaxed and that the Democrats are for "fiscal responsibility".
This from the party that in 1993 (when they had the House, the Senate, and the Presidency) raised taxes, spent more, and refused to address the AMT glacier.
Well, at least Froma doesn't EXPLICITLY invoke "dog food". ;-)
I checked the excerpt list, and couldn't find projo.com or seattletimes.com on it anywhere. Good to go?
Froma under a rock
(Denny Crane: "I Don't Want To Socialize With A Pinko Liberal Democrat Commie. Say What You Like About Republicans. We Stick To Our Convictions. Even When We Know We're Dead Wrong.")
The only solution to the healthcare problem is more supply. You don't get more supply by manipulating demand. You get more supply by encouraging and allowing young people to go into the healthcare profession.
Yeah, I know. ;-)
Nope, no bias there.
One of the FR healthcare people was citing statistics about the dropping number of physician enrollees in the US the other day.
I would love to put $10K away, tax free.
I own a few small businesses. And we can buy health insurance in "bulk" anytime we want. All we have to do is join the Chamber of Commerce or a trade association. We can get our choice of plans... PPO, HMO, traditional insurance etc.
Medical Savings Accounts are a sham. Unless you have an astronomically high deductible you are forced into a flex account. In a flex account you estimate your expenses for the year and, if you should fail to spend all of it, guess who it goes to -- THE INSURANCE COMPANY!!! So, under a flex savings account, you end up paying all the same out of pocket expenses anyway plus you have the additional advantage of being able to risk losing even more if you do not spend it all. What a great system!!!!
I wonder whose stupid idea that was.
Current healthcare, meaning full coverage tax free insurance, puts a huge burden on the health care system. People bring kids to the doctor for a sniffle, or a sneeze because it's free and they are encouraged to go. It is a huge burden to the system to have tax fee insurance offered by most employers that encourages this kind of behavior.
If HSA's can help people to choose more responsibly in using the health care system, this is not "manipulating demand". Rather it is taking a burden off Doctors to treat more important things.
Indeed, the new health savings accounts could do to the traditional health plan what the 401(k) plan did to the traditional pension: Kill it off.
And that is a good thing, being truthful here, not sarcastic.
That $10,000 figure has more to do with how much it costs an employer to provide health insurance.
HSA's are not the property of the insurance company. They are the property of each of us who sign up for them. If we don't use them for doctor's visits or medical care, they are still ours. HSA's are a great idea.
This column is so full of crap that it's hard to know where to start.
For one thing, $156 billion over ten years is NOTHING. If this atually works, it will facilitate economic growth that will more than make up for it.
For another, the "pay cut" caused by 401(k) plans occurred because unsustainable defined-benefit pension systems have gone the way of the dodo. Why? Because they are UNSUSTAINABLE, and many of them have gone or are now going bankrupt, at taxpayer expense.
Despite the author's unbacked, unwarranted assumption, it is NOT a good thing to make employers shoulder the health care burden when health costs are beoming so great. It will result in LESS EMPLOYMENT for everyone as businesses shrink or go under. In many cases, the expenses for employers are simply getting out of hand. This system allows you to get medical coverage without putting your own job at risk.
The author asks "who do you think" will lose their health care coverage if HSA's are instituted, implying that it will be the poor who have health insurance. Wrong. I'll tell you who will lose their coverage -- I will, because I'll ask for it. I make enough at my job that the tax savings from this would be substantial, and I'd be willing to stay on the job without the health plan if I got a medium-sized raise and started up an HSA (my boss's costs would go down by much more than the raise he'd give me). I'm young, and I'll save money now, and it will grow a great deal in the market until I need that double bypass in thirty years.
The working poor who have a good enough job now to have employer-based insurance are far less likely to lose their coverage because it would represent such a huge pay cut for them. Unless accompanied by a substantial raise, the dropping of coverage would bring wage levels too far down for employers to hire the same quality of workers. Wage levels aren't going to fall just because this health savings mechanism is available -- on the whole, they will stay the same based on the supply of labor and the need for reliable workers in each field.
What we need to bring down medical costs are first HSAs, and second John Shadegg's bill to let you buy insurance from any state you want. The former will bring down costs as more and more people pay their doctor out of pocket instead of through a faceless insurance company. The latter effectively overrides the stupid state laws that inflate costs by requiring coverage for all kinds of things you probably will never need -- mental health, etc. -- making it illegal for you to buy an affordable plan.
HSAs can only be used for health expenses so it's not a tax shelter. I have something similar where I work and it can be used to pay for drugs, co-pay expenses, and anything else that insurance doesn't cover. Because the money is managed by the patient, it provides an incentive to control costs intelligently- something that the author doesn't want because he wants to replace the current system with a government-run one.
I am talking about the alternative flex accounts being offered to those of us who have some health insurance already.
Health Savings Accounts are the wave of the future - they're the way to go. Follow the money if you want to know why the RATS and their dupes oppose them.
Probably someone who was trying to strangle the concept in the crib- like the author of this article.
Your comments are not applicable to all types of Medical Savings Accounts. You should do some research - there is already more flexibility than what you have described, if you choose the appropriate plan. This article describes an even newer proposal. Some people will find certain plans to be advantageous, while others will not. That is little different from having the option to elect a conventional insurance plan that has good pregnancy benefits, when you are male and do not have a wife - just because such a plan may offer no benefits to you does not mean that it is "a sham". Instead, you merely find a more suitable plan for your individual circumstances. What's not to like about that?
The problem with traditional medical and retirement plans is that very people spend their entire career anymore with the same company. These 401k and health savings plans are an attempt to give people some portability.
But HSAs are something different entirely. Unused balances roll over each year.
The real heart of the matter is when it comes to health care, everyone wants to try and figure out a way to go back to the good ol' days when health care was "free". But that ain't gonna happen. Instead, health insurance covers less and less and people without health insurance get screwed by tax laws.
I get my health insurance tax-free. I pay for my wife pre-tax.
My cousin who is self-employed has to rack up 7 percent of his income in medical bills before he can deduct it. So the current system is becoming inherently unfair.
The solution? IMO it is HSAs and catastrophic insurance. And tax breaks for employers who match donations to HSAs for their employees.
This is great! Not perfect, but going in the right direction.
I am talking about the alternative flex accounts. Health Savings Accounts are a great idea. Unfortunately, unless you have a very high deductable (I believe it is around $3,000 per year), you are ineligible for an HSA. Everything below that trigger amount is pushed into a flex spending account which is, as I said, the dumbest thing I have ever heard of.
Demonically?? So now they're out in the open with the Bush is Satan stuff, huh?
The idea of suppressing demand in order to keep the price down is a counterproductive one. If people think that they need a doctor, what right does some bureaucrat have to tell them no?
In competitive markets, when the demand goes up, suppliers enter the industry to meet the demand, and the price levels off. You don't need the government to come in and tell consumers "you're buying too many cars" or "you're buying too many new homes." The market adjusts by itself. It's the "unseen hand" that Adam Smith mentioned.
That doesn't happen in the healthcare industry because the government's overbearing regulation prevents the supply from adjusting to changes in demand. And because they don't want to change their regulations to allow supply to adjust, they just manipulate demand to keep the price down.
They aren't just telling people that they can't have a doctor to see their kid when he's got the sniffles. Virtually every healthcare problem has got to be certified not only by the doctor but also by some bureaucrat before you can have the service because they realize that there is not enough supply to meet all the demand.
And it's going to get a lot worse as time goes on because the aging of the baby boom generation is going to increase the demand for healthcare exponentially, while our government continues to clamp down on the supply of healthcare in the mistaken belief that too much supply is the problem.
That would be AWESOME!!!!!
My employer does not provide my auto insurance, and I have thousands of companies and policies to choose from, my employer does not provide my homeowner's insurance, and I have thousands of companies and policies to choose from, my employer does not provide my life insurance, and I have thousands of companies and policies to choose from, but my company DOES provide my health insurance and I have ONE policy to choose from!
In other words, a miracle that could save our business competiveness.
Allow me to summarize:
Medical Savings Accounts (MSA's) are BAD!
Health Savings Accounts (HSA's) are GOOD!
Thanks. I will.
I was beginning to despair of generating an informative discussion, but you guys jump-started this thread. Thanks!
Free Republic comes through again!
Meanwhile, on DU: "Bush sucks!" "Cheney is conspiring with Halliburton to steal your health care and give it to his rich friends! Repugs are f*****g s*****s! Delay kills babies and steals their health care!"
No, flex accounts are bad. HSA's are good.
Excellent point, and so true.
And what does insurance do today? Employers get a tax deduction and when you go to the doc the insurance company pays. You are not charged taxes on the amount paid to the doctor.
HSA are a wonderful idea in that they exert pricing discipline on the undisciplined medical market. The only problem I have with them is accessibility to insurance that is required is frequently unobtainable for those that have chronic illness.
How is a program that takes the burden off of the government and puts it on the individual going to cost the government?
That statement alone tells you it's a commie, left-wing hit piece designed to scare people by telling them that Uncle Sugar isn't taking care of them by keeping them pinned down under Big Brother's thumb.
Is it because "the money" would be leaving the hands of big government?
Great post! Thanks, mek!
Well, that is where the law needs to change.
"Is an HSA Right for You?" Wall Street Journal Sarah Rubenstein February 02, 2006
Isn't that remarkable spin? I have never seen that word used as an adverb before.
Yeah, but he's one of the stupid demons... ;-)
Anyone who's had a catastrophic illness knows that something needs to be done about healthcare costs. You can't blame the insurance companies for not wanting to pay for everything they're charged for and by the same token you can't blame the pharmaceutical companies for expecting a profit after spending 10's of millions to get a new drug to market. But fer crying out loud, some of these charges are outrageous. I was diagnosed with cancer last April and since then I've racked up about $80,000 in medical expenses. I'm able to get the treatment I need because I've got adequate insurance. Thank God and my bosses. I really feel for the small business owner just barely making it who's not adequately insured. If he were in my shoes his life expectancy could be measured in weeks or months. But at the same time I don't want the government subsidizing the industry anymore than they already do.