Health savings accounts proposed

The U.S. House of Representatives attached a bill to create tax-preferred savings accounts for medical expenses to its Medicare expansion legislation. The bill would make major reform in Medicare and private health insurance, says NCPA Government Affairs Director Michael F. Cannon.

H.R. 2596 would create tax-preferred Health Savings Accounts (HSAs) and Health Savings Security Accounts (HSSAs) that would be much less restrictive than Medical Savings Accounts (MSAs) and Flexible Spending Accounts (FSAs) under current law. HSAs are essentially expanded MSAs:

However, unlike MSAs, HSAs would face no caps on participation and no expiration date, and would be available to anyone under age 65.

HSA holders would have to obtain a health insurance policy, but the policy could have first dollar coverage for preventive care and lower deductibles than an MSA – for individuals, $1,000 vs. $1,700, and for families, $2,000 vs. $3,350.

Also unlike MSAs, HSAs would allow contributions equal to the deductible and would permit joint employer-employee contributions.

The bill would also remove some of the wasteful incentives built into FSAs by allowing workers to transfer up to $500 of unused FSA funds into an HSA at the end of each year.

Health Savings Security Accounts (HSSAs) promise even more options, says Cannon.

HSSA holders would not have to purchase health coverage, and those who do could select deductibles as low as $500 for individuals and $1,000 for families.

Annual tax-preferred HSSA contributions of up to $2,000 for individuals and $4,000 for families are allowed, and 55-to-64-year-old workers could make additional contributions, starting at $500 per year and rising to $1,000 in five years.

The bill could be improved, says Cannon, but it would substantially benefit both retirees and non-seniors.

Source: Michael F. Cannon, Health Savings Accounts Are Crucial to Medicare Reform, Brief Analysis No. 447, July 11, 2003, National Center for Policy Analysis.

For text http://www.ncpa.org/pub/ba/ba447/

For more on MSAs and other Health Accounts http://www.ncpa.org/iss/hea/

FMF Policy Bulletin\15 July 2003