NCPA - National Center for Policy Analysis

Medical Savings Accounts

December 9, 2003

Surprisingly, Congress has added tax breaks for health savings accounts (HSAs) to the new Medicare law. Consumers will now be able to obtain relatively inexpensive health insurance policies with high deductibles combined with savings accounts. The contributions to the accounts will be tax deductible, the money will accumulate year after year tax free, and it can be withdrawn to pay for a variety of medical expenses.

According to John Goodman, president of the National Center for Policy Analysis, employees could replace vanishing retiree health benefits with "401h plans" financed by savings accounts that they can take with them when they retire.

Currently, over a million people are covered by a variety of consumer-driven health plans, most of which involve a spending or savings account, says Tom Beauregard, a health care consultant with the Hewitt Associates consulting firm. As employers shift an increasing share of health costs to workers, a growing number need to put aside money to pay those bills, he says.

  • Only days before the bill passed, UnitedHealth Group, the largest insurer, bought the Golden Rule Insurance Company, a pioneer in selling medical savings accounts, a less-favored version of HSAs, for $500 million.
  • Aetna, which already had 45,000 members in high-deductible health plans that include savings accounts, jumped in yesterday with a plan to add 100,000 more under the new law.

HSAs have long been a goal of conservative lawmakers and academics who want to add cost-cutting competition to the health insurance marketplace and offer a way for workers to save money for medical expenses in their retirement. President Bush says that under the new law, people with health savings accounts would "save between 10 to 35 percent on any costs covered by money in your account," depending on their tax bracket.

Source: Milt Freudenheim, "Insurers Ready to Sell Medical Savings Accounts," New York Times, December 9, 2003.


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