Health Savings Accounts
The word has been out for sometime that, in his upcoming State of the Union speech, Bush is planning to tout health care savings accounts as his next major program. I feel compelled to make a few comments about this.
First, the idea is that each person sets aside some savings, say $2,000, into a health care savings account and gets a tax deduction for doing so. Then, the first $2,000 of health care expenses are paid out of the savings account. As long as the withdrawals from the account are for IRS-approved health care expenses, there is no tax on the withdrawal. Meanwhile, you purchase a low-priced high-deductible ($2,000 deductible) health insurance policy (or, your employer buys it) instead of a high-priced standard low-deductible (e.g., $250 deductible) plan.
The question is, who does this help?
Let's first take the 50 million or so people who earn so little money that they pay no federal income taxes. None of them will benefit one iota from the tax deductibility of the plan. Many of these people are now uninsured. The uninsured will remain uninsured, since the combined cost of the savings program and a high-deductible medical plan is likely to be just about the same as the current cost of a low-deductible plan, which they already can't affort.
Those of the 50 million who are insured now are largely covered under low-deductible plans provided by their employers. The employer's cost of these plans is tax deductible to the employer. With government sponsored health care savings accounts available, these employers are likely to switch the coverage they offer employees to high-deductible plans. Some, but certainly not all, will decided to pass the savings through to their employees in wages. Some, but not all, of those receiving the higher wages may decide to buy into the savings accounts, but, since they won't get any tax benefit from doing so, there is no great incentive for them to do so. Most will end up with poorer insurance than they had before and none will benefit from the plan at all.
Now, turn to the moderate income tax payers. While they do get a small tax benefit from the deductibility of the monies invested in the savings accounts, the benefits are small when you are in a low tax bracket, as these people are. In all probability, few would opt for the savings plan and would simply become uninsured for the first $2,000. Just look at how few moderate income people contribute to their companies' 401K plans, even when the companies provide matching funds. Once again, most end up with poorer health insurance than they had before. Moreover, many companies will probably not pass the savings in premium expense they achieved by buying high-deductible plans through to their employees, so there would be no partially compensating benefit for these people. Corporate profits, however, would be higher.
Finally, there are the wealthy. They, of course, will find a distinct benefit here due to their relatively high tax brackets. But, they are the least in need of assistance to purchase health insurance. And, if they are lucky enough to turn out to be healthy, they get to keep the savings in the end. So, those who least need the benefits of health insurance get the largest benefits.
One more plan to play Robin Hood in reverse.
First, the idea is that each person sets aside some savings, say $2,000, into a health care savings account and gets a tax deduction for doing so. Then, the first $2,000 of health care expenses are paid out of the savings account. As long as the withdrawals from the account are for IRS-approved health care expenses, there is no tax on the withdrawal. Meanwhile, you purchase a low-priced high-deductible ($2,000 deductible) health insurance policy (or, your employer buys it) instead of a high-priced standard low-deductible (e.g., $250 deductible) plan.
The question is, who does this help?
Let's first take the 50 million or so people who earn so little money that they pay no federal income taxes. None of them will benefit one iota from the tax deductibility of the plan. Many of these people are now uninsured. The uninsured will remain uninsured, since the combined cost of the savings program and a high-deductible medical plan is likely to be just about the same as the current cost of a low-deductible plan, which they already can't affort.
Those of the 50 million who are insured now are largely covered under low-deductible plans provided by their employers. The employer's cost of these plans is tax deductible to the employer. With government sponsored health care savings accounts available, these employers are likely to switch the coverage they offer employees to high-deductible plans. Some, but certainly not all, will decided to pass the savings through to their employees in wages. Some, but not all, of those receiving the higher wages may decide to buy into the savings accounts, but, since they won't get any tax benefit from doing so, there is no great incentive for them to do so. Most will end up with poorer insurance than they had before and none will benefit from the plan at all.
Now, turn to the moderate income tax payers. While they do get a small tax benefit from the deductibility of the monies invested in the savings accounts, the benefits are small when you are in a low tax bracket, as these people are. In all probability, few would opt for the savings plan and would simply become uninsured for the first $2,000. Just look at how few moderate income people contribute to their companies' 401K plans, even when the companies provide matching funds. Once again, most end up with poorer health insurance than they had before. Moreover, many companies will probably not pass the savings in premium expense they achieved by buying high-deductible plans through to their employees, so there would be no partially compensating benefit for these people. Corporate profits, however, would be higher.
Finally, there are the wealthy. They, of course, will find a distinct benefit here due to their relatively high tax brackets. But, they are the least in need of assistance to purchase health insurance. And, if they are lucky enough to turn out to be healthy, they get to keep the savings in the end. So, those who least need the benefits of health insurance get the largest benefits.
One more plan to play Robin Hood in reverse.
posted by walldon | 2:02 PM
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