Code Red On Health Savings Accounts

The Seattle Times ^ | February 12, 2006 | Froma Harrop

[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 fharrop@projo.com

2006, The Providence Journal Co.

[trebb]

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.

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.

[mek1959]

As a small employer, we're offering an HSA option to our employees beginning May 1. HSA's are a great idea.

First, they provide incentive to manage your healthcare spending throughout the year. One of the great flaws of managed care since it's inception has been failing to realize that when you offer something that is extremely cheap (i.e. low copays), many will not pay any attention to the true cost which then equates into over-utilization. So, in a real world sense, you have people going to the emergency room for a cold on a Saturday instead of waiting to go to the doctor on Monday. Why? Because they only had a $10, $15, or $25 copay. But, guess what the real cost was; far far more than the $95 physician charge had you waited till Monday. With an HSA, because they come with high deductibles (i.e. $2500 - $10,000), someone might make a different choice. Instead of going to the emergency room on Saturday and paying $450 for care, you might decide to wait til Monday and pay $95 to your doctor. Or you may chose to go to an Urgent Care center and pay $120. These high deductibles, which is the employees money, and can be carried over year-to-year, will provide incentive to make a choices to the individuals advantage.

Second, HSA's provide another way to put aside money for retirement. These hugely tax advantaged accounts are NOT uses it or lose it. They roll over year-to-year. So, if you have a $10,000 deductible and only spend $2000 in a given year, you get to keep the difference $8000. It is the employees money and is even eligible for a small interest rate. Now, take a 25 year-old who manages his/her healthcare spending so that they save $5000 annually for 40 years, they will have $200,000 (not counting interest) in their account. What a deal.

Third, lest anyone panic about not having heatlh coverage under this plan, that's completely bogus. In the event the entire deductible is spent in a year, traditional PPO/HMO coverage begins. Here's a real world example. My son has a serious rare bone disease. Every year or so, he has to have surgery - some big, some small. This year, we just returned after a small one. Had we been in an HSA, I would have had to pay up to $10,000 (my deductible) and had the surgery cost more, my Blue Cross PPO would have paid the remaining costs.

I hope this helps at least give an employers perspective on why this is critical.

[kiryandil]

Follow the money if you want to know why the RATS and their dupes oppose them.

Is it because "the money" would be leaving the hands of big government?

[kiryandil]

Great post! Thanks, mek!

[dirtboy]

But for those of us who have employer provided health insurance, our deductables are too low to qualify for HSA's.

Well, that is where the law needs to change.

[Antoninus]

If the socialists are raising the red-flag over HSAs, you can bet it's because they'll be effective at lowering health costs.

The socialist Democrats have us on a trajectory to destroy the healthcare system and make socialized medicine appear to be the only solution. Just look at what they've done to the healthcare systems in the states they rule (NJ for example, where you can't buy private health insurance for a family of 4 for under $1,000 per month).

It's all about causing a crisis--for which they will present themselves as the "solution."

[kiryandil]

bump for Lecie's post:

"Is an HSA Right for You?" Wall Street Journal Sarah Rubenstein February 02, 2006
http://www.healthdecisions.org/HSA/News/default.aspx?doc_id=50054

[Flavius Josephus]

Demonically, the Bush proposal gives employers

Isn't that remarkable spin? I have never seen that word used as an adverb before.

[kiryandil]

Yeah, but he's one of the stupid demons... ;-)

[pgkdan]

We have the kind of account you're talking about where I work and it's as you describe, if you don't spend it you forfeit it. For that reason I never bothered to join, if I were able to carry over unused balances I would join in a minute.

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.

[Flavius Josephus]

Yeah, they have to get rid of the "Use It or Lose It" clause. Unfortunately, this issue is just to hard for most people to grok. I have trouble getting my arms around it myself.

[kiryandil]

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.

I see, said the blind man.

[mek1959]

I am amazed at some of the uninformed comments on this. Just goes to show how entrenched managed care is in our society and it will take a lot to rip it out. It hasn't been good and will eventually collapse the healthcare system.

[Flavius Josephus]

Kill it off.

And that is a good thing, being truthful here, not sarcastic.

I agree with you, but the costs are artificially pumped up partially because of Managed Care, but, IMO, mostly because of Medicare. I cannot fathom how ordinary people can save enough to pay for $350 prescriptions or indefinite care like PT. I'll say this, the costs of drugs and copayments are starting to make me self-ration my healthcare. I just can't afford it all, so I have some things that insurance would help pay for but I'm just going to have to live with, at least for now.

[Wolfie]

Anyone who's had a catastrophic illness knows that something needs to be done about healthcare costs.

Don't ya know, its your fault for getting sick!

The author of this piece got one thing right: the Federal Gov't, at the behest of its master Big Business, will be dumping health insurance onto the taxpayers.

[TheOracleAtLilac]

IMHO, HSA's aren't worth the bother.

Max pre-tax contribution = yer deductible - So, not like a IRA/401k i.e. not every year

Crappy return rate & lots of fees for the HSA admins. here

[kiryandil]

In other words, a miracle that could save our business competiveness.

I was wondering just now how many high schools offer courses on health care options? How many colleges mandate that you take at least one term of health care planning?

[Lakeshark]

All they are doing is telling the person who goes to the doctor is that they would need to pay for it and decide, no one, no "bureaucrat" is telling them not to. That is a jump on your part about this program.

[ModelBreaker]

I wonder whose stupid idea that was.

The use it or lose it aspect of the Flex Plan was inserted by Mr Chappaquidick himself. The purpose was to kill the Flex Plan because dems hate it when people get to spend their own money.

I find they are still pretty useful. It's not too hard to make a conservative estimate of expected medical expenses that won't be covered by insurance. It's a nice tax deduction.

[kiryandil]

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.

Right. I was reading a Leftie's piece on the AMT that said that indexing it for inflation would "cost" the government X billions of dollars. Hunh?

Guess Teddy, John Effing and Hillary! have already got THAT money in the government bank...