New health savings account perk pushed

Washington --A legislative effort is under way to build on the momentum of health savings accounts by allowing a tax deduction for health insurance purchased in conjunction with these products.

"Health savings accounts have real promise as a tool to transform the way America relates to health care," Sen. Larry Craig (R, Idaho) said at a recent hearing of the Senate Special Committee on Aging. "Much work lies ahead, but ... we are off to a good start."

Created as part of last year's Medicare reform law, HSAs became available as of Jan. 1. An expanded rollout of HSA products is expected this summer, but widespread availability might not begin until 2005 when the next cycle of insurance enrollment starts for many companies.

A March survey of nearly 1,000 employers found that two-fifths were likely to offer an HSA option next year, and nearly three-quarters said they were likely to do so in 2006, testified Kate Sullivan, director of health care policy at the U.S. Chamber of Commerce. About one-fifth of respondents said they already offer a high-deductible health plan to workers.

Encouraged by the savings accounts' current popularity, Craig and other lawmakers suggest the next step might be to create an added tax incentive to encourage HSAs' spread.

While the Senate has yet to see such legislation, a House bill was introduced in March to amend the tax code so individuals could write off the premiums for high-deductible health insurance purchased in conjunction with the savings accounts.

"One of the most important steps Congress can take to make health insurance more affordable is to make health savings accounts more accessible," said the bill's lead sponsor, Rep. Phil Crane (R, Ill.).

At the Senate hearing, several experts argued that empowering patients to become conscientious consumers would help curb the spending driving up insurance premiums.

"We are hopeful that HSAs will assist with restraining health care utilization, exerting competitive pressure on prices and forcing transparency of pricing," testified AMA Trustee Edward Langston, MD. "We are encouraged that HSAs possibly will cut the ranks of the uninsured, boost innovation in benefit design and spur demand for cost-containing medical technology."

A different opinion

Opponents, however, charge that HSAs will do little more than add another tax shelter for the wealthy and might even cause adverse risk selection in health insurance.

"When this occurs, the people who remain in the initial type of [low-deductible] insurance constitute a group that becomes less healthy, on average, and hence more expensive to insure, which pushes up premiums for that type of coverage," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities. "The rise in premiums then induces still more of the healthier individuals to abandon that form of insurance."

A new analysis from the center suggests that plans to expand on the accounts actually could increase the number of Americans without health insurance if the availability of HSAs encourages some employers to drop health care coverage for workers.

The added incentive of a tax deduction for health insurance policies bought in conjunction with HSAs would cause enough individuals to lose employer-sponsored coverage to wipe out the gains from people buying HSAs, according to the center's report, which cites work by Jonathan Gruber, an economist with the Massachusetts Institute of Technology.

Experts on the other side of the issue are quick to point out that the results depend on certain basic assumptions about employers' behavior.

"I would disagree with the Gruber analysis about what the effects would be if you put more tax deductions in the tax code for individuals," Sullivan said. "Employers are not going to drop their coverage unless they know their employees have a place to go."

Some lawmakers are also questioning the fiscal wisdom of the HSAs. Because many people who take advantage of them already have health insurance, they are not a very cost-effective way to help the uninsured, they say.

"If it's such a good idea, why won't people just go out and buy it? Why do we have to subsidize it to the tune of $16 billion?" asked Sen. John Breaux (D, La.). The government has estimated that the expansion proposal would cost that much in lost tax revenue.