The A-B-C's Of H-S-A's

Author: hosted by Paul Kangas and Susie Gharib

Published: November 25, 2003

STEPHANIE WOODS: One other key component of the bill is health savings accounts that let all Americans put aside money, tax free, to pay for medical expenses. Darren Gersh has that part of the story.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: To the alphabet soup of IRAs and 401(k)s, Congress has now added HSAs -- health savings accounts.

MICHAEL TANNER, DIR., HEALTH STUDIES, CATO INSTITUTE: They`re a way that individuals can save on a tax-free basis for routine health care expenditures.

GERSH: Here`s how the new accounts work. HSAs are available to anyone in a health insurance plan with a high deductible: at least $1000 for an individual and $2000 for a family. Contributions to health savings accounts are tax deductible, up to $2250 for an individual and $4500 for a family. The money can be used for health care expenses. What`s not spent grows tax free and can be taken out tax free at retirement. Conservatives hope the new accounts will make patients into better consumers of health services.

TANNER: Health savings accounts are designed to do that by creating an incentive for health care consumers to shop around, to get the best cost,

GERSH: That may work for the healthy, critics say, but those who are sick have a tougher time shopping around. And some analysts worry if patients with low medical bills opt for HSAs, those who are seriously ill may not be able to afford traditional insurance.

LINDA BLUMBERG, HEALTH ECONOMIST, THE URBAN INSTITUTE: These kinds of splits in the risk pool have actually lead to what`s known as a "death spiral," where you see the more comprehensive policy actually being taking out of existence because the premiums continue to escalate as more and more of the healthy people leave.

GERSH: Another criticism: The tax-favored HSAs are just one more tax break for the wealthy. But conservatives say tests show the plans are popular regardless of income.

TANNER: So far the poor seem to like them as much as the wealthy, and in many cases it is because the alternative is very restrictive managed care plans.

GERSH: Analysts say HSAs could attract hundreds of thousands of Americans. So many are expected to sign up, the government estimates the new accounts will cost $6.7 billion in tax revenue over the next decade. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.