Monday, April 10, 2006

The Myth of Health Savings Accounts

Having failed to get the country to adopt his idea of privatizing Social Security, Bush is now pushing health savings accounts (HAS) as the answer to the Nation’s lack of a comprehensive health care system. He would like to expand this system he claims as a way of encouraging people to save and become more cost conscious consumers of medical care. I would like to believe his rational for promoting HAS if it were not for his previous assault on the Social Security System which even his own party refused to adopt.

HSAs are open only to individuals who have a health insurance policy with a yearly deductible of at least $1050 or $2,100 for families and who have no other health coverage, including Medicaid or Medicare. Premiums can be less because of the higher deductible and some employers offer HSAs to employees and may make contributions to the accounts. The contributions to HSAs are rolled over from year to year to build up the account, but money used for non-medical expenses are charge a 10 percent penalty and are taxed. After age 65 the funds can be used for anything with no penalty.

For healthy and wealth families HSAs are a good deal. It provides another tax shelter for the wealthy and gives them at retirement another nest egg they can tap. It is also claimed by proponents of HSAs that it provides an incentive to shop for the less expensive health care since the consumers are paying for it with their own money. Another plus is that HSAs are portable and can be held on to should an employee change jobs.

For the average person, HSAs are not very attractive. People in poor health have trouble buying health insurance period, and those with little income are not going to have the funds to buy HSAs irrespective of any tax advantage. Moreover, it would provide an incentive for healthy people to move out of traditional health insurance plans pushing up premiums on the very people who could least afford them: the poor and the sick. This is another example of social Darwinism that this administration would like to adopt.

Another down side to HSAs is the cost. It is estimated that the tax breaks for the wealthy could cost over $156 billion over 10 years, increasing the pressure to cut spending for Medicare and Medicaid. As employers drop health benefits more employees would be forced into the individual market where sicker people would find it increasingly difficult to obtain coverage.

The solution to our health car crisis is not HSAs but a universal health care system. My next blog will discuss the rational for such a system.

David Goldberg