John Goodman is riding high these days. He is considered the founding father of health savings accounts, a concept that President Bush and conservatives have embraced as a way to deal with spiraling health care costs. During a recent interview with National Journal, Goodman boldly predicted that the proposal he has so long championed is about to finally "revolutionize the health care system."

Goodman, the president of the National Center for Policy Analysis, a conservative Dallas-based think tank, 20 years ago published the first study proposing health savings accounts, then called medical IRAs. He admits he wasn't the first person to think of it, but he established the foothold.

The idea was to allow individuals to set up a tax-sheltered savings account from which they would purchase medical services on their own. If they spent all the money in their account, an accompanying high-deductible catastrophic health insurance plan would kick in. Proponents believed that health care spending would decline if people were in charge of paying for medical expenses from their own accounts, because they would demand lower prices.

In the late 1980s, Goodman brought the idea to Capitol Hill, where he says only a handful of skeptical officials were willing to meet with him. He was able to gain the interest of Steve Forbes, president of Forbes magazine, and insurance executive Pat Rooney, both of whom tried out savings accounts at their companies and declared success.

In 1996, then-House Speaker Newt Gingrich, R-Ga., and Rep. Bill Archer, R-Texas, pushed through legislation allowing 750,000 small businesses and self-employed individuals to participate in a pilot project of medical savings accounts. But the effort failed -- fewer than 100,000 people signed up -- as many found MSAs too confusing, too restrictive, Aand lacking in tax relief.

Goodman kept pressing forward, and in 2002, the IRS issued regulations encouraging certain types of health savings accounts. Then, as part of last year's Medicare reform legislation, Congress offered significant tax advantages for HSAs. Under the new law, individuals and their employers can put a total of $2,600 ($5,150 for a family) in pre-tax dollars into HSAs; contributions to and withdrawals from the accounts are to be untaxed.

In his recent State of the Union address, Bush proposed even more tax breaks for HSAs. Goodman, who advised Bush during his 2000 presidential campaign and still works informally with the administration and congressional Republicans, has pushed for the broader tax advantages that the president is now proposing. The following are edited excerpts from the interview with Goodman.

NJ: What effect would President Bush's health savings account proposal have on health care in America? How significant would the impact be on the current health care system, where employers and health insurers often act as an intermediary between patient and doctor?

Goodman: I believe it will revolutionize the health care system. We're going to see a massive transfer of power and money from employers and insurers to individual patients. This will have a dramatic impact on the way medicine is practiced.

For example, insurance hasn't been paying for cosmetic surgery, so patients always know what things are going to cost in advance. Despite technological improvements, the costs have actually gone down. For all other kinds of surgery, it's almost impossible to get a price in advance, and costs keep rising.

NJ: The experiment that began seven years ago with medical savings accounts didn't catch on. Why should people believe that such savings accounts will work now?

Goodman: MSAs did work, and most people who have it love it. We have had MSAs for our own employees [at the National Center for Policy Analysis] for six or seven years, and they're popular.

The accounts that Congress allowed in the pilot project were severely restricted, and for that reason they were not attractive to most people. Of course, they were not even available to most large employers. The law limited the amount [of money] that could go into the account. It restricted accounts to the self-employed and small businesses. And it was a pilot program, so insurers were never sure it would be there from year to year.

NJ: Would HSAs reduce the ranks of the uninsured?

Goodman: I expect a lot of uninsured will take advantage of this. The IRS estimate is that more than 70 percent of people who obtained MSAs were previously uninsured.

NJ: How interested will employers be? How has the response been since 2002, when the IRS gave tax advantages to an HSA-type account called health reimbursement arrangements between employers and employees?

Goodman: Already, there are insurers in the small-group market who are saying that 25 percent of their business in the fall was health reimbursement arrangements. Estimates from about a year ago were that there are about 1.5 million HRAs. That's less than a year after the Treasury ruling.

Employers tried managed care. I don't know if we can say managed care failed, but we can say it was unacceptable. Employees didn't like it. Voters told politicians they didn't like it. And if it did not hold down costs, then we need something else.

The employer is going to say to employees, "Choose a high deductible, say $1,000, and I'll deposit $500 into a savings account." The employee will have some exposure there, but less than under his current plan, which has deductibles and co-payments. Plus, the employee will be in control of those dollars and can profit from economizing in the medical marketplace.

NJ: Will insurance companies create new types of health plans? What can we expect and when?

Goodman: Some insurance carriers were ready on January 1. Those were companies paying a lot of attention to the legislative process. During the fall, as the Medicare bill was debated, they designed plans. I think all large insurance companies will get into this market; Aetna already has. They'll probably offer different products, but they will all want an HAS product. What I hear is that the interest is very high.

NJ: If the new HSA plans are successful, won't they only draw healthier people and leave the sicker folks in more traditional insurance and managed care plans, which would therefore experience an increase in costs?

Goodman: Whenever people have choices, there's always the possibility of adverse selection. You get it when you don't price the choices correctly. Every employer who offers insurance is aware of this potential. But history shows that employers are able to deal with those problems.

But HSAs can attract the sick as well as the healthy. At NCPA, we didn't give people choices. And employees that had the highest health care costs still gained from MSAs, even though they spent all of their MSA money. Their out-of-pocket exposure was lower than in a traditional plan.

NJ: What is the tax advantage of HSAs in dollars and cents?

Goodman: Until recently, there was virtually no tax relief for individuals buying insurance on their own, so people had to pay with after-tax dollars. That means that, for the average-income person, the federal income tax on contributions to insurance is 25 percent, the state income tax is about another 5 percent, and the payroll tax is 15 percent. That adds up to 45 percent. That's what the government takes. For a middle-income family, those are the taxes. They wouldn't pay the taxes for contributions to HSAs.

NJ: How big is the tax advantage for employers?

Goodman: Last year, every dollar an employer paid for more traditional insurance avoided all those taxes, but if the employer tried to put a dollar in an HSA, the government would have taken 45 cents. Only 55 cents would end up in the savings account. The tax system strongly encourages managed care and other third-party insurance.

NJ: In the presidential campaign, Bush and the Democratic candidates already have health care plans on the table. Until now, Bush has mostly backed tax credits to help people buy insurance on their own. Some political experts have said he'll have to do more to keep pace with the Democrats' proposals. Will his new HSA proposal be enough to keep him politically competitive?

Goodman: This is it. With the Medicare prescription drug bill, and with proposals from Bush's State of the Union address, the president is reshaping the entire health care system.

Apparently, solving the problems of the uninsured hasn't been a politically popular thing to do. Apparently, the politicians are not feeling a lot of pressure from uninsured people. But we hear a lot from people who have insurance, and who don't like the way things are working.

That's why in the last couple of months, [health savings accounts have become] very important politically. With the Medicare bill, now accounts are available to people who buy their own insurance. It affects all the self-employed. Now that [Bush] proposes to make premiums deductible, that affects millions of people.

NJ: Do you have any complaints about Bush's proposal?

Goodman: It's remarkable that the president is proposing an idea that I proposed 10 years ago -- catastrophic insurance plus a savings account. The president is saying that if you buy that kind of plan, you can deduct it all, deposit and premium. But if you buy any other plan in the individual market, you can't deduct that.

[The Bush administration] didn't go far enough. It's a step in the right direction, but we still have the government saying, We like one plan better than another -- and that's what we shouldn't be doing.