Savings Accounts for Health Costs Attract Wall Street
By Eric Dash
The New York Times
January 27, 2006
Even after the Bush administration began pushing for the creation of health savings accounts with the Medicare Modernization Act of 2003, the banking industry mainly stayed on the sidelines.
“Put it this way, the impact of this law did not really become clear to them until after it passed,” said Mr. Perrin, the H.S.A. Coalition director. Once they understood how the accounts worked, however, the big banks realized the next I.R.A. had landed at their feet.
Now, some financial institutions are urging the Bush administration and Congress to raise the tax-deductible contribution limit to encourage consumers to put more money in their accounts – a proposal that President Bush is expected to endorse in his State of the Union speech.
Banks are already champing at the bit. “We happen to be in the camp that the H.S.A. is a second retirement account to be used for medical expenses,” said Nancy Todor, an executive who will oversee health savings accounts when Citigroup introduces them this year.
Comment: By Don McCanne, M.D.
Health savings accounts (HSAs) represent a hybrid of tax policy, health policy and pension policy. To understand them better, they should be viewed as individual retirement accounts (IRAs) with a special penalty-free exemption for early withdrawals that are used for authorized health care expenses.
They represent regressive tax policy. As with an IRA, contributions are made with before-tax income, effectively providing higher-income individuals with a taxpayer subsidy that lower-income individuals do not receive. The poor pay the full amount of the contribution while the rich receive a significant discount at taxpayer expense. Demonstrating how this really is an IRA, higher-income individuals who have maxed-out their 401k contributions are turning to HSAs to expand their pension contributions.
In his attempts to reform Social Security, President Bush stressed the importance of personal retirement accounts as an important component of the “ownership society.” HSAs, as specialized IRAs, provide individuals with another similar opportunity to save for their retirements. By increasing personal accounts, the dependency on Social Security would diminish. But who benefits? Cumulative pensions will be reinforced for healthy individuals who accumulate significant funds in these accounts. Individuals who have the misfortune of having significant health problems will have to deplete their specialized IRAs (HSAs). Their health care miseries will be compounded further by the fact that they also will lose these pension funds. They are then left with only a high-deductible health plan that leaves them even more vulnerable to health care costs.
Thus HSAs represent highly flawed health policy, flawed tax policy and flawed pension policy. What is of even greater concern is the Bush administration’s intent to accelerate this shift towards consumer-directed health care. We should heed the following comments excerpted from a new report in The Economist.
America’s health-care crisis
Desperate measures
The Economist
January 26, 2006
The world’s biggest and most expensive health-care system is beginning to fall apart. Can George Bush mend it?
Mr Bush wants to accelerate the trend towards consumer-driven health care.
The truth is that the shift to consumer-directed health care and greater cost-sharing involves a culture change that may take decades. It will also come at the price of greater inequality. The burden of health spending will be shifted on to those who are sick, and not just because people will pay a greater share of their health costs themselves. High-deductible insurance policies are attractive to the young and healthy. But as these workers leave traditional insurance, the risk pool in other insurance plans will worsen and premiums will rise even faster. The real losers will be poorer workers with chronic illnesses.
American health care has already become more unequal as employers have cut back, and this will continue. The Bush team argue that “fairer” tax treatment will slow cost rises and enable more people to get basic insurance. The opposite is more likely. Bigger tax subsidies for health care are, if anything, likely to raise overall spending. Worse, since most tax breaks benefit richer people most, more tax incentives are likely to bring more inequality. They will also reduce tax revenue and worsen the budget mess.
Mr Bush’s health-care philosophy has a certain political appeal. It suggests incremental change rather than a comprehensive solution. It reinforces existing industry trends. And it promises to be pain-free. Unfortunately, it will not work. The Bush agenda may speed the reform of American health care, but only by hastening the day the current system falls apart.
http://www.economist.com/world/displaystory.cfm?story_id=5436968