As noted in prior post, the Bush White House plans to push increased tax incentives for health care through the "health savings accounts" (HSAs) purchased in connection with lower-premium, higher-deductible health insurance. For a concise description of the features of HSAs, see this Treasury Department release. In general, HSAs allow individuals to make expenditures out of funds they have reserved for medical expense that can be funded out of pre-tax dollars (both employer and employee contributions) and used without paying tax on the accumulated earnings (unless used for non-medical purposes). Id. Account holders over the age of 65 who use the accounts for nonmedical purposes do not have to pay the 10% penalty tax on such uses applicable to younger accountholders. Qualified medical expenses even include over-the-counter drugs. Id. There are no income limits on persons eligible to participate, and the participant does not have to have wage income to participate. Id. As a result, wealthy individuals with all their income from investments can use these accounts as another way to enjoy tax-free investment income.
The Wall Street Journal today reported further on the ways that "Health Accounts Have Benefits For Employers." See Theo Francis & Ellen E. Schultz, Wall St. J. at B1. While there are currently three million people who have taken out the high-deductible health care policies making them eligible for a HSA, only about one-third of those have actually opened HSA accounts. Id. This may be because of lack of information or simple lack of follow-through or lack of sufficient funds to establish accounts among lower-income purchasers of high-deductible insurance.
The following are a few excerpts from the Journal article (formatting changed but omissions noted with ***) that highlight the benefits employers and financial service institutions (banks and insurance companies) enjoy from increased usage of HSAs.
"[HSAs represent] a transition inhealth-care benefits, from employers providing a safety net to employees taking on more risk. *** HSAs may be poised to become the 401(k)s of health care: a low-cost substitute for a once-standard workplace-provided benefit which can offer employees greater flexibility but also can increase their financial burdens and risk. [According to a health care analyst, employers are] moving the risk from their balance sheet to the employees *** without the consumer really realizing it.' "
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"[C]ompanies with HSAs are enjoying savings on paroll taxes that mirror gains they made in the shift to 401(k)s."
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"Business groups generally hailed Mr. Bush's proposals, including the Nastional Association of Manufacturers, the insurance industry, and the financial-services industry, which is poised to reap billions of dollars in fees from managing money squirreled away in HSAs."
***
"Employers decide whether to contribute money to the accounts. Even if they do contribute, the employer's total cost for each employee in an HSA is generally lower than for a worker in a traditional health plan. *** Even if they don't contribute a cent, employers still get tax benefits. And the more of their own pay employees set aside each year, the bigger their employers' tax breaks. That's because employers ordinarily have to pay a variety of payroll taxes on cash income their employees earn. *** But under at least some HSA arrangements, employers can skip most of those taxeds on employee contributions to the account, bringing the employer savings of as much as 7% to 10%, according to some estimates. *** Those savings are in addition to the income-tax deduction the employer gets for contributions it makes to the accounts."
In other words, these accounts pass much more of the risk of health care onto the employees, and will be most beneficial for employers, financial institutions, and of course the wealthiest Americans in the top quintile of the income distribution. They won't do much of anything to help reduce the excessive costs endemic to America's health care delivery system, but they will reduce even further the taxes paid into the Social Security and Medicare funds that provide a much needed safety net for Americans. All in all, this represents both poor health care policy and poor tax policy--a lose-lose approach.
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