Monday, February 20, 2006

Will HSAs become the 401K of health care?

Bush administration officials and some conservative thinkers hope that health savings accounts can change health care finance in a way similar to the way Section 401(k) changed pensions. Health savings accounts allow holders of health insurance policies to retain monies they do not spend. Typically, such policies have high deductibles. Policyholders pay for routine and predictable medical expenses out of their own pockets, but they are insured against catastrophic expenses.

The Medicare/prescription drug law of 2003 contained provisions allowing health savings accounts -- one reason the Bush administration and most congressional Republicans supported it. Now the administration wants to strengthen HSAs by making premiums on these policies tax-deductible.

This is an attempt to reverse the effect of the World War II decision to make health insurance policies deductible to employers and tax-free to employees. This tended to tie health insurance to employment and has made individuals dependent on large organizations. Since third parties pick up the tab for most health care spending, consumers tend not to be cost-conscious, and the result has been above-inflation cost increases for health care.

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