OPPORTUNITY SOCIETY KNOCKS:

Crane Seeks Full Tax Deduction for HSAs (Steve Stanek, 04/01/2004, The Heartland Institute)

When Health Savings Accounts became law on January 1, millions of Americans received the chance to buy low-cost health insurance policies and save money in tax-free savings accounts. Now a move is afoot in Congress to make health insurance still more affordable by making HSA insurance premiums 100 percent tax-deductible.

“This deduction would be available to all Americans with a Health Savings Account regardless of whether the individual itemizes or not,” said Congressman Phil Crane (R-Illinois), who plans to introduce tax-deduction legislation this spring. “This legislation is an important step towards reducing the rolls of the uninsured and ensuring that more people have access to affordable health care.”

In his January State of the Union address, President George W. Bush asked Congress to pass legislation allowing individuals who buy catastrophic health care coverage as part of a Health Savings Account to deduct 100 percent of the premiums from their taxes. Under most circumstances, health insurance premiums are not deemed to be qualified medical expenses under the current HSA law. Crane said his bill would address that issue.

Congress approved HSAs late last year as part of the Medicare reform package. The HSA allows a person to buy a high-deductible health insurance policy, which can shave hundreds of dollars off monthly premiums. Eligible individuals (or their employers) may establish Health Savings Accounts to pay for routine medical expenses or expenses that would otherwise be covered by the insurance but fall within the deductible. Once the deductible is reached, the insurance coverage takes over.

If an employer establishes an HSA, employee contributions may be made on a pre-tax basis. If the employer makes a contribution to the HSA, the contribution is tax-deductible by the employer and not considered to be taxable income to the individual. The maximum pre-tax contribution allowed in 2004 is $2,600 for persons with self-only coverage and $5,150 for those with family coverage. In both cases, the contribution may not exceed the annual deductible.

The money grows tax-free and can be withdrawn tax-free for medical expenses not paid for by insurance. Funds left in the account at year-end roll over into the next year. At retirement, unused HSA funds may be withdrawn for any purpose, not just medical care, lending a financial as well as a health insurance component to the accounts.

“Because HSAs allow people to save the money remaining in their account at the end of the year, they will have an incentive to ask for the price before they get medical care, to shop around for a provider and generally become good consumers in the health care marketplace,” Crane said. “Most importantly, HSAs are an essential tool to help 43 million uninsured Americans afford health insurance. People who are currently without health insurance need health coverage, and HSAs will provide an option to people who otherwise would go without medical care.”

Indeed, it will even be worth having government fund them for the poorest Americans to some considerable extent.

Posted by Orrin Judd at April 19, 2004 5:26 PM