NCPA - National Center for Policy Analysis


September 1, 2004

Tax-shielded "health savings accounts" (HSAs) put the consumer in charge of most routine and everyday spending decisions. As a consequence, insurance returns to its proper role as protection against unpredictable, "catastrophic" expenses.

The aim here, says Holman W. Jenkins Jr., writing in the Wall Street Journal, is to tackle the perverse tax incentive at the heart of our health-care woes -- the massive tax handout to employer-provided health insurance.

Critics said only the young, healthy and wealthy would opt for HSAs as just another way to shelter their incomes from taxation. Yet two early promoters of the accounts, eHealthInsurance and Assurant, found this year that more than one-third of their applicants were previously uninsured, two-thirds were over 40, and many were at the lower end of the income scale.

This is surprising only to those who never understood why the tax code was the problem in the first place, says Jenkins.

  • The typical family policy doled out by companies to their employees represents a total price-tag of about $9,086 a year.
  • If you're in the top tax bracket, the effective after-tax cost to you is about $5,500.
  • If you're in the working-poor bracket (that is, you pay no federal income tax), it is $9,086.

In fact, it is doubtful that such an insurance product would even exist in the marketplace in the absence of a massive tax subsidy. Employer health plans have built-in incentives -- such as first dollar coverage of medical services -- that drive costs out of sight. Certainly you wouldn't buy gold-plated health insurance if you faced the full tab alone, explains Jenkins.

Benefits managers are interested in new insurance products incorporating HSAs, and J.P. Morgan and Cigna have teamed up to offer employers HSA-style insurance coupled with a debit card so workers can access their balances for out-of-pocket spending.

Source: Holman W. Jenkins Jr., "On Health Care, 'Ownership' Is More Than a Talking Point," Wall Street Journal, September 1, 2004.

For WSJ text (subscription required),,SB109399299814206295,00.html


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