January
30, 2006
Obscure Health Savings Accounts Might
Yet Make Medical History
By Sally
C. Pipes
Health care reform
is said to figure prominently in President Bush's upcoming State
of the Union address. And those calling for a nationalized health
care system have already begun to re-energize their efforts. Bush
should build his health care reform agenda on the same free-market
principles that gave birth to health savings accounts (HSAs) two
years ago.
Most Americans
don't know much about HSAs -- how they work or what makes them
so innovative. But I predict that this is about to change -- because
HSAs are one of the most important innovations in the history
of American health care.
Indeed, they
have the potential to eliminate the uninsured crisis while drastically
cutting medical costs and improving service.
HSAs were
passed into law under the 2003 Medicare Modernization Act. These
special interest-bearing, tax-free accounts can be opened by anyone
who purchases a low-premium, high-deductible insurance policy.
The insurance
policy itself covers unseen medical catastrophes. Meanwhile, the
money put into the HSA account can be used for routine health
expenses -- from contact lenses to office visits -- with unused
savings accruing from year to year.
HSAs put
health care choices back into the hands of consumers for the first
time in years. What's more, they're designed to lower the cost
of insurance for many Americans who otherwise could not afford
medical coverage. How?
By giving
the unemployed and self-employed an alternative to our current
system of health management organizations (HMOs), which offered
them a stark choice:
Pay an exorbitant
monthly premium of more than $150 a month for an individual and
upward of $500 for a family, for insurance you might never use
-- or go without and risk financial disaster. No low-cost middle
ground was available.
Big companies
have long covered their employees' health insurance in exchange
for a federal tax break. But health care costs have been climbing
so high, they're making labor increasingly expensive, thus putting
downward pressure on hiring and wages.
Employer-sponsored
health insurance may have worked in an era of lifetime job security,
but it makes less sense as our labor force grows more flexible.
Few people
spend their entire working lives at the same company anymore.
It's not even a reliable system for those who do have steady jobs.
In good economic times companies compete for employees with supplemental
benefits, but in leaner years they will inevitably cut back.
The solution
is to give individuals the tax break while deregulating the market
for health insurance. That's just what HSAs do. It's no wonder
that more than 1 million Americans have already opened HSAs, with
more and more signing up every day.
The best
news? About 40% of plans are being purchased by individuals who
were previously uninsured.
And while
early critics worried that HSAs would be used only by the young,
healthy or well-to-do, the numbers don't bear out these fears.
About half of HSA buyers are over 40; a fifth are over 50.
Twenty-nine
percent of account holders earn less than $50,000 a year. Evidence
suggests many new HSA buyers have chronic health troubles.
Early HSA
adopters were often self-employed or worked for small businesses.
But more and more large companies are offering the accounts to
employees. The businesses save on health care costs and frequently
sweeten the deal for workers by contributing matching funds. Next
year, a third of employers will offer HSA plans.
Health savings
accounts were part of the Medicare Modernization Act, which is
best known for creating the new Medicare drug benefit.
Unfortunately,
all of the best market-oriented aspects of MMA are under attack.
A bipartisan move
is afoot in Congress to reverse the MMA's "noninterference
clause," which bars the government from setting drug prices
for seniors. If successful, the move would usher in nationwide
price controls and eventually put a big damper on drug development
and availability.
HSAs are
also being attacked by those who favor socialist health care.
Union leaders claim HSAs are unfair because they will shift more
responsibility for health care onto the individual. More troublingly,
the President's Advisory Panel on Tax Reform recommended abolishing
HSAs as a way to simplify the tax code.
Meanwhile,
in some highly regulated states such as New York and Massachusetts,
the accounts remain unavailable to individual insurance buyers.
And while HSA contributions are not subject to federal taxes,
California makes its citizens pay taxes on them.
One policy
proposal that could smooth some of these bumps is the Health Care
Choice Act, a bill sponsored by Rep. John Shadegg of Arizona.
Currently, you may only buy a health insurance policy licensed
in the state where you live.
Shadegg's
bill would do away with the local monopolies that account for
huge disparities in the cost of insurance. Consumers could shop
for HSAs nationwide.
Health care
reforms introduced under the MMA still require a few fixes. But
HSAs are already delivering tangible benefits at lower cost.
In fact, they're increasing
the number of insured Americans so dramatically that I wouldn't
be surprise if they catch on like wildfire. And they're only two
years old. By this time next year, HSAs could be a household name.
Pipes
is president and CEO of the Pacific Research Institute and author
of "Miracle Cure: How to Solve America's Health Care Crisis
and Why Canada Isn't the Answer." E-mail: spipes@pacificresearch.org.
