NCPA - National Center for Policy Analysis

Health Savings Accounts Arrive

January 5, 2004

Beginning Jan. 1, 2004, 250 million nonelderly Americans have the right to have a tax-free Health Savings Account. HSAs allow individuals and their employers to make deposits each year equal to their health insurance deductible. The funds will grow tax free and people may use them for expenses not covered by insurance, insurance premiums between jobs and health expenses during retirement.

  • The new law gives deposits to HSAs the same tax advantages now granted only to health-insurance premiums.
  • It will allow individual self-insurance and third-party insurance to compete against each other on a level playing field by allowing individuals to control some of their own health-care dollars without a tax penalty.
  • And, for the first time, it will allow a rational approach to the difficult social problem of how to allocate scarce dollars between health care and other goods and services.

Since 1996, a pilot program has made Medical Savings Accounts available to small businesses and the self-employed. But because there have been so many restrictions, only about 70,000 people have these accounts. A Treasury ruling a year and a half ago allowed large companies to establish Health Reimbursement Arrangements, and at last count, 1.5 million employees had enrolled. But these accounts are also unreasonably restricted.

The new law is not perfect, but the new age of consumer-driven health care will be a vast improvement over what we have had.

Source: John C. Goodman (NCPA), "To Your Health," Wall Street Journal, December 26, 2003.


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