were allowed to contribute tax-free income to individual retirement
accounts, and employers could match their contributions. At the
time, most private pensions were defined-benefit plans -- the
employer promised to pay certain amounts on retirement. Section
401(k), when implemented by regulations in the early 1980s, led
to the proliferation of defined-contribution pensions.
plans tied employees to their employers for long periods and left
the value of their pensions subject to risk if the employer defaulted
-- just ask retired steel company and airline workers. Defined-contribution
plans allow employees to take their pension money with them when
they change jobs and to manage their funds themselves.
a more flexible, agile labor force and a citizenry less dependent
on large institutions over which they had little control and more
able to fend for themselves.
officials and some conservative thinkers hope that health savings
accounts can change health care finance in a way similar to the
way Section 401(k) changed pensions. Health savings accounts allow
holders of health insurance policies to retain monies they do
not spend. Typically, such policies have high deductibles. Policyholders
pay for routine and predictable medical expenses out of their
own pockets, but they are insured against catastrophic expenses.
drug law of 2003 contained provisions allowing health savings
accounts -- one reason the Bush administration and most congressional
Republicans supported it. Now the administration wants to strengthen
HSAs by making premiums on these policies tax-deductible.
an attempt to reverse the effect of the World War II decision
to make health insurance policies deductible to employers and
tax-free to employees. This tended to tie health insurance to
employment and has made individuals dependent on large organizations.
Since third parties pick up the tab for most health care spending,
consumers tend not to be cost-conscious, and the result has been
above-inflation cost increases for health care.
administration, like all before it, shies away from urging that
health insurance premiums be taxable -- voters would hate that
-- and instead is trying to level the field by making all premiums
deductible. There's an argument that this is regressive, because
the tax deduction is worth more to high-income taxpayers. But
that's true of all tax deductions, and can be compensated for
by giving lower-income people deductible tax credits.
savings accounts be an entering wedge to produce a more market-oriented
health care sector? Democrats fear that, and Republicans hope
so. I confess that I am not sure. What is clear is that health
savings account-type policies have been rapidly growing since
passage of the 2003 act. There are now 3 million people with health
savings accounts, and big employers in increasing numbers are
offering high-deductible policies. The employee gets to choose
whether to pay more for more coverage or to pay less and be able
to keep what he doesn't spend.
the health care sector will never be entirely market-oriented.
Emergency patients on gurneys can't make cost-conscious decisions,
and the poor will receive care that will in some way be subsidized
by others. But health savings accounts have been spreading more
rapidly since the 2003 Medicare act than defined-contribution
pensions did after the 1978 tax act.
Deal and the World War II years produced policies that left people
dependent on large organizations -- organizations that, we now
learn when we contemplate the problems of steel pensioners or
Social Security recipients, don't always deliver. Public policies
like Section 401(k) and, perhaps, health savings accounts give
more control to individuals and more flexibility to society.
health care plan failed in part because we do not have one health
care finance system, but many -- and it is impossible for even
very smart people to design a one-size-fits-all model that will
be politically acceptable. The Bush administration's push for
health savings accounts is an attempt to change things not by
government mandate, but by opening the way for private actors
-- employers, employees, insurers, individuals -- to make decisions
that will increase the power of market forces. Not a headline
issue, but an important one.