NCPA - National Center for Policy Analysis

Health Care Reform: Health Savings Accounts

November 13, 2003

Some conservative members of Congress are demanding that market-oriented health care reforms be included in the Medicare bill being negotiated in Congress. If they succeed, it could improve health care for all Americans, says analyst Stephen Moore.

The problem with health care today is that markets are hardly permitted to operate at all. The government's dominating role has caused hyper-inflation in costs.

  • In the last three years, according to the Labor Department, employer-covered health costs have risen by 14 percent, 12.5 percent and 13.9 percent.
  • In just five years, health costs have doubled for families to an average annual cost of $9,068 for a family of four.
  • Meanwhile, overall inflation has not grown at all, and costs and prices have been declining in most consumer-driven industries.

Health care is unaffordable to a growing number of families. Soaring health-care costs are also a major reason why so many states are broke today (Medicaid expenses) and why the federal government is running huge deficits (Medicare).

The most important reform conservatives want is universally available Health Savings Accounts (HSAs). HSAs are like tax-free IRAs where the money is stored in the account to pay for health expenses. If the family incurs a medical cost, it pays out of the account. If the family does not incur expenses of $3,000 or more a year, it can roll over unspent money into a regular individual retirement account (IRA).

HSAs already exist on a limited basis and are cutting health-care costs dramatically. For example, one study by the Reason Foundation recently found that Medical Savings Accounts (a type of HSA) combined with a catastrophic coverage plan could save the typical family about $2,000 a year -- more than 20 percent -- on health costs compared to conventional insurance, while providing more comprehensive coverage.

Source: Stephen Moore (Club for Growth), "Hidden Snares in Health Care," Washington Times, November 13, 2003.


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