NCPA - National Center for Policy Analysis

ARE HSAs THE NEW 401(k)s?

February 20, 2006

There are now 3 million people with health savings accounts (HSAs), notes Michael Barone of U.S. News & World Report, and HSAs have been spreading more rapidly since the 2003 Medicare act that allowed their creation than defined-contribution pensions did after the 1978 tax act.

Section 401(k) of the 1978 tax law allowed employees 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. The Medicare/prescription drug law of 2003 contained provisions allowing health savings accounts. Now the administration wants to make premiums on these policies tax-deductible. There's an argument that this is regressive, like all tax deductions, because the deduction is worth more to high-income taxpayers. But that can be compensated for by giving lower-income people deductible tax credits, says Barone. Bush administration 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.

The New Deal and the World War II years produced policies that left people dependent on large organizations for health care and retirement. Public policies like Section 401(k) and, perhaps, health savings accounts, give more control to individuals and more flexibility to society, says Barone.

Source: Michael Barone, "It's Time for a Health Care 401(k),", February 20, 2006.


Browse more articles on Health Issues