NCPA - National Center for Policy Analysis

Health Savings Accounts Called "MSAs On Steroids"

May 10, 2004

Health Savings Accounts (HSAs), included in the Medicare Act of 2003, are the latest method for controlling health care costs and represent a kind of 401(k) or IRA for medical expenses.

They are likely to become widespread in a few years, reports the Christian Science Monitor:

  • Nearly three-quarters (73 percent) of employers asked by Mercer Human Resource Consulting said they were likely to offer the new accounts to their workers by 2006.
  • The government will offer HSAs as a health insurance option to federal employees and retirees next year.
  • Anecdotally, doctors report an increasing number of patients with HSAs.

Since January 2004, the accounts have been available to people under age 65 who have a qualifying health-insurance plan with a deductible of at least $1,000 for individual coverage and $2,000 for family coverage. Individuals can dip into their plans to cover out-of-pocket health care costs up to $5,000 a year ($10,000 a year for families).

Money in the accounts can be spent tax-free on health care, and the funding can be provided by companies, their employees, or both. Unspent HSA money can be rolled over to future years and can grow tax-free.

An HSA is similar to a medical savings account or a flexible savings account, but is far more flexible. "HSAs are like an IRA on steroids," says John Goodman, the president of the National Center for Policy Analysis, who has been called "the father of medical savings accounts" by former House Ways & Means Chairman Bill Archer. "They are also another way to sock money away, especially when we don't know what will happen with the Social Security and Medicare systems in the future."

Source: Jonathan P. Decker, "A better way to pay for health care," Christian Science Monitor, May 10, 2004.

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