July 19, 2006

Health Savings Accounts: a wolf in sheep’s clothing
Source: The Hill

With the midterm elections around the corner, Republicans are desperate to prove they have done something to address one of the top priorities for voters: healthcare. But instead of providing relief from rising health costs and stabilizing coverage, they are peddling health savings accounts (HSAs), which will shift costs to working families and accelerate the loss of traditional employer-provided coverage.

HSAs are designed to make Republicans appear to be doing something on healthcare when in fact they are merely pushing their No. 1 priority: tax cuts for the wealthy.

An HSA is a tax-exempt account that can be used to pay for certain medical expenses. To be eligible for an HSA, individuals must be enrolled in a high-deductible health plan. Minimum deductibles in these plans are defined in statute and increase year after year. Currently, HSA deductibles are more than three times the deductibles of typical health plans.

Although the word “health” appears in the name, HSAs have little to do with health and a lot to do with tax. Unlike other tax-preferred accounts such as IRAs, HSAs are entirely tax-free: contributions to an HSA are made with pre-tax dollars, account balances can be rolled over from year to year, earnings on contributions to these accounts accrue tax-free and withdrawals are not taxed if used to pay for qualified medical expenses.

HSAs, like IRAs, offer greater tax advantages to high-income people who are more likely to have the disposable income to deposit into the account. According to a 2004 study, tax-preferred savings such as IRAs and 401(k)s provide the largest tax benefits to households with income between $75,000 and $500,000.

The study found that more than half of the tax benefit for defined-contribution plans accrue to taxpayers earning more than $125,000 per year and almost 60 percent of IRA tax benefits accrue to households earning more than $74,000 per year.

Similarly, HSAs are more likely to attract high-income people. A recent Government Accountability Office study showed that 43 percent of federal employees in HSA-type high-deductible health plans had income in excess of $75,000, compared with 23 percent in all federal health plans.

To sweeten the deal, Republicans are proposing additional tax benefits for people who open an HSA, such as increasing the annual contribution limits, allowing balances in IRAs and flexible-spending accounts to be rolled into HSAs and allowing HSA funds to pay for high-deductible health-plan premiums. These proposals will drain billions of much needed revenue from the federal treasury but do nothing to bring down the rising cost of medical care.

Worse yet, these proposals create a tax incentive to drive people into high-deductible insurance policies, expanding the class of people who are underinsured. While technically insured, the underinsured are forced to spend thousands of dollars out of pocket before their insurance benefits kick in. As a result, they are at greater financial risk.

Average American families simply don’t have the resources to fund HSAs. It is more likely they will go without needed care and risk bankruptcy when something goes wrong.

HSAs are the latest installment in the broader effort to dismantle the health and retirement security of job-based benefits — part of the Republican “ownership society.” Their philosophy moves us from a “we” America to a “me” America, where you’re on your own if you can afford it and out of luck if you can’t.

HSAs are poised to play the same destructive role for health benefits that 401(k) plans have played in the pension system, replacing comprehensive coverage with an empty account. From healthcare and pensions to other benefits, including Social Security and Medicare, Republican proposals undermine the income and retirement security that millions of working families depend on.

In the six years since President Bush took office, health-insurance premiums have risen 70 percent and nearly 6 million people have lost job-based health insurance. Expanding HSAs will accelerate these trends. HSAs will unravel the social compact of health insurance as we know it and put individuals at greater risk.

A person’s health is at the core of their success, their happiness and their well-being. The health of our people is also central to the success of our nation; without health, our children cannot learn, our communities cannot thrive and our workers cannot be productive.

Affordable, reliable health insurance should be a top priority for our country. Instead of focusing our time and limited resources on these niche tax policies that benefit the wealthy, Congress should advance proposals that control healthcare costs and meet the needs of working families.

Rangel is the ranking member of the House Ways and Means Committee.