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New Analysis Says Health Savings Accounts are No Cure

by Michelle Chen

June 14, 2006 – As the Bush administration seeks to expand tax shelters called "health savings accounts," the program’s critics – armed with a new analysis highlighting their drawbacks – call the the move just another attempt to coddle the wealthy under the guise of healthcare reform.

Part of a set of health-coverage mechanisms known as "Consumer-Directed Health Plans," health savings accounts (HSAs) are designed to provide incentives for people to join high-deductible health plans in exchange for tax breaks on private savings for healthcare.

Enrollees in these plans, according to proponents, would pay less from month to month, and when they do need medical care, would be able to bank on tax-free funds in their HSAs. This year, untaxed contributions to the private healthcare accounts are capped at $2,700 per year for individual coverage and $5,450 for a family. During "Health Week" in the House of Representatives this month, as lawmakers zero in on various healthcare policy proposals in the shadow of soaring medical costs, the Bush administration is seeking to enhance tax benefits tied to HSAs and raise yearly contribution allowances.

While the HSA system purportedly encourages individuals to spend more prudently on medical care, many advocates for healthcare access say that HSAs widen inequalities and will do little to make healthcare more affordable.

While the system purportedly encourages individuals to spend more prudently on medical care, many advocates for healthcare access say that health savings accounts actually widen inequalities.

A policy analysis released Monday by the Center on Budget and Policy Priorities (CBPP) warned that the health and tax benefits of HSAs would primarily go to those who need them the least. The Center argued that HSAs would miss their supposed target – swelling healthcare costs.

Analysts point out that the healthcare spending is heavily concentrated, and the vast majority of households already spend relatively little, often on primary and preventative care that falls outside of high-deductible coverage.

HSA insurance plans currently do not begin paying for care until a family has spent $2,100 on healthcare or an individual has spent $1,050. Many basic treatments – for chronic illnesses like diabetes, or for acute infections, for example – would not cost enough for the high-deductible insurance to pick up the tab At the same time, the costliest treatments would be covered by the healthcare insurance itself, minus a steep deductible,, not by HSA funds.

Healthcare advocacy groups challenge the administration’s rationale that HSAs would compel households to scale back excessive healthcare spending, arguing that people generally access medical treatment only when they need it.

The health-policy research institute Kaiser Family Foundation reported that: 10 percent of the population consumes over 60 percent of healthcare spending, and half of the population accounts for less than 4 percent of total expenditures. Roughly one-fifth of total spending is paid directly out-of-pocket.

The Bush administration’s proposal would actually increase the number of uninsured, by encouraging employers to drop insurance plans to cut costs.

At the same time, HSAs would boost the wealth of higher-income individuals with fewer healthcare liabilities. The data available on HSAs suggests that tax benefits are skewed toward high-income households. According to US Treasury data for 2005, at the $40,000 annual-income level, a family with two children contributing $2,000 to an HSA would receive a tax break of less than $300, while a similar family making $120,000 per year would save over $600 on taxes.

Jason Furman, a senior fellow with CBPP, called the proposed HSA expansion, which is projected to exceed $150 billion over ten years, "a tax windfall for the most fortunate."

Critics of HSAs see them as an assault on traditional and employer-based health insurance. CBPP predicts that health savings accounts would erode the health of working families by pushing people toward the margins of the insurance system: people with fewer medical needs will gravitate toward high-deductible, HSA-backed plans, while sicker people who need more comprehensive coverage would stay with conventional insurance. The widening income and health gap would in turn raise premiums for people left reliant on hefty insurance plans – a greater share of them being high-risk patients.

A recent analysis by health policy analyst Jonathan Gruber with the Massachusetts Institute of Technology projected that the Bush administration’s proposal for HSA expansion would actually increase the number of uninsured, by encouraging employers to drop insurance plans to cut costs. Employers can contribute to their employees’ HSA accounts, but are under no obligation to do so.

Those seeking a more progressive healthcare policy say the main costs that HSA’s have the potential to cut are those that people can ill-afford to sacrifice. The CBPP’s analysis concluded that if HSAs do cut costs as the administration claims, such an accomplishment is "likely to result in no small part from individuals – particularly those with lower incomes – forgoing cost-effective medical services, including primary care, prescription drugs and preventive services."

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The NewStandard ceased publishing on April 27, 2007.

This News Report originally appeared in the June 14, 2006 edition of The NewStandard.
Michelle Chen is a staff journalist.

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