NCPA - National Center for Policy Analysis

The Two Faces of Medicare Reform

December 12, 2003

New Medicare legislation creates a senior drug spending program that is projected to cost at least $400 billion within a decade and possibly more. Many analysts fear that the new entitlement could result in tax increases swamping future generations with a tidal wave of unfunded liabilities.

However, critics of the bill concede the price for the new drug entitlement might be at least partially offset by the other major item in the legislation -- creation of universal medical-savings accounts (MSAs), or as they now are to be called, health-savings accounts (HSAs), for those younger than 65.

The accounts would allow:

  • An individual, regardless of income, who gets an insurance policy with a deductible of at least $1,000 to contribute or let his or her employer contribute as much as $2,600 a year for a single person.
  • Families to deposit as much as $5,150 in pretax dollars; the accumulated interest or capital gains would not be taxed.

Unlike the current pretax "flexible-spending accounts" that expire at the end of the year, health-savings accounts can be rolled over from year to year. This means someone could come into retirement with $20,000 in such an account.

Despite the creeping "socialization" of yet another area of medicine (that is, seniors' drugs), proponents hope the HSA provisions will prevent the socialization of the entire free-market health-care system. Many feared that failure to slow the run-away growth in medical expenditure would result in more employers dropping coverage due to exploding costs. Consequently, pressure would build for some type of national health-care system such as the single-payer model from Canada. They see MSAs as the antithesis of socialized medicine.

Source: John Berlau, "The Two Faces of Medicare Reform," Insight, December 11, 2003.


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