Congress considers new version of expanded MSAs

Tax-free accounts would cost the government $174 billion in lost tax revenue over 10 years.

By Joel B. Finkelstein, amednews staff. July 21, 2003.

Washington -- Proposed health savings account options aim to give patients more control over their health care, but critics charge that the cost may be prohibitive.

Legislation added to the recently passed House Medicare reform bill would let more companies offer medical savings accounts and create two new products called health savings accounts and health savings security accounts. At press time, House and Senate lawmakers were debating whether these provisions would be in the final Medicare package.

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The health savings accounts could be used to pay for medical services in conjunction with high-deductible health insurance plans, while health savings security accounts could be used with or without other insurance. The main difference between these accounts and MSAs is that they can be used with lower-deductible insurance, both employers and individuals could contribute in the same year, and unused funds from flexible spending accounts could be rolled into them.

The health savings security accounts would let individuals sock away an amount equal to as much as 400% of their deductible in tax-deferred savings and receive contributions from family members. They would allow individuals to use untaxed money to pay for health insurance premiums.

The Joint Taxation Committee has estimated that this legislation would cost nearly $174 billion in tax revenue over 10 years. Nearly three-quarters of that would be incurred in the second half of the 10 years as the accounts spread, said the Center for Budget and Policy Priorities, Washington, D.C.

Opponents question how attractive these plans would be to the working poor.

The majority of U.S. employers would move to higher-deductible, employer-based plans to use the health savings accounts, explained Bob Greenstein, director of CBPP. "Despite spending this amount of money, it will probably make health care coverage worse, not better," he said.

These accounts would split the market for employer-sponsored coverage, not only by separating the sick from the healthy, but low-income from high-income workers, he said.

The accounts' opponents question how attractive they would be to the working poor, who have little money to put toward savings and who already pay little or no taxes. The accounts would offer an attractive tax shelter for high-income workers, Greenstein said. They would allow individuals who have reached age 65 to withdraw funds without penalty.

Senate Democrats say that the legislation would be just another ill-timed blow to tax revenues. "There are better ways of spending $174 billion than new tax cuts," said Elizabeth Fowler, Senate Finance Committee chief Democratic health counsel.

Consumer control

Proponents of the accounts say they would offer equity by extending tax advantages of employer-sponsored coverage to other forms of health insurance. This would put consumers in the health-spending driver's seat, said Michael Cannon, director of government affairs for the National Center for Policy Analysis, based in Dallas.

Employer-sponsored coverage's tax advantage makes it less expensive, so consumers gravitate toward this type of insurance, Cannon said. "They are spending someone else's money, so they don't spend it as wisely." This has led to managed care organizations trying to ration care and, in turn, patients becoming dissatisfied with health coverage, he added.

Only about 100,000 MSAs have been sold.

The concept of consumer-driven care is one reason some physician groups, such as the AMA, have supported the push to expand medical savings accounts in the past. AMA policy states that MSAs offer a health insurance option that relies on market-based strategies versus regulatory approaches to gaps in coverage.

Cannon said the relatively restrictive MSAs that are now available have not exactly taken off, with only about 100,000 policies sold. But 73% of the people who have bought them were previously uninsured.

Considering the state Medicare may be in a few decades from now, it makes sense to let people start saving for the potential gaps in their future medical coverage, Cannon said.

ADDITIONAL INFORMATION:

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Thomas, the federal legislative information service, for bill summary, status and full text of the Health Savings and Affordability Act of 2003 (HR 2596) (thomas.loc.gov)