October 3, 2006
SHOULDN'T ONLY THE RICH BENEFIT FROM THIS TAX SHELTER? (via Kevin Whited):
Bad medicine? (The Minneapolis Star Tribune, 10/02/06)
A new form of health insurance — the high-deductible policy — is sweeping into American workplaces, even though no one quite knows how it will change health care in the United States. Is it really a powerful new weapon for consumers to control health-care costs, or mostly a new tax shelter for affluent Americans and a marketing tool for insurance companies? [...]The high-deductible concept came of age with the landmark Medicare law of 2003, which greatly expanded the use of so-called Health Savings Accounts (HSAs). It works like this: You choose insurance coverage with a low premium but a high deductible — meaning that every year you'll pay the first $1,000 to $3,000 of medical expenses out of pocket. Then you open a tax-sheltered Health Savings Account and use the balance to pay those out-of-pocket costs. At the end of the year, you get to keep any money left in the account. The theory is that "consumer-directed health care" will help tame medical inflation because it gives patients an incentive to spend wisely.
Some preliminary research by scholars at the University of Minnesota and Blue Cross and Blue Shield of Minnesota suggests that consumers with high-deductible policies really do use less discretionary health care, such as elective surgery, and so could bring some discipline to a market where third parties have been paying most of the bills.
But an important new study by the Government Accountability Office shows the risky side of HSAs: They appeal mainly to high-income consumers with low medical expenses. For example, taxpayers with high-deductible policies in the GAO study had average adjusted gross income of $133,000, compared to $51,000 for all tax filers under 65.
It's a novel argument for the Left, that while the rich have historically benefited from this great tax shelter, George W. Bush has finally made it universally accessible and now everyone will. The bastard.... Posted by Orrin Judd at October 3, 2006 9:51 AM
It works like this: You choose insurance coverage with a low premium but a high deductible — meaning that every year you'll pay the first $1,000 to $3,000 of medical expenses out of pocket.
Love the requisite class envy language. Tax shelters are only for the rich, see? This explanation either deliberately or ignorantly blurs the most important and powerful point about the HSA: that first $1-$3,000 of qaualified medical expenses is paid with TAX FREE DOLLARS regardless of your marginal tax bracket and whether you itemize or not.
If Bush had anything to do with it, the glass is half empty at best and might even be poisoned.
Posted by: John Resnick at October 3, 2006 10:17 AMmore importantly: what medical expenses?
Posted by: oj at October 3, 2006 10:24 AMI think you are overestimating how much middle class people will be able to put into an HSA. Unless companies use their health care savings to supplement participation of their employees, I think this will be severely underfunded.
Medical expenses can come quick if you have children.
Posted by: Chris Durnell at October 3, 2006 11:27 AMYes, we'll just require that HSAs be topped up.
Posted by: oj at October 3, 2006 11:33 AMI'm using an HSA and because of my employer's contribution I'm netting an additional $1k. The HSA plan also pays for medical and dental checkups.
Posted by: Mike Beversluis at October 3, 2006 1:09 PMChris: Middle Class people are already buying cold remedies and contact lenses and host of other things on the list. With an HSA they're able to do so with TAX FREE dollars. Even if they spend every dime by year's end, it's better than having to itemize and then being subject to a 7.1% threshold, no?
Posted by: John Resnick at October 3, 2006 1:54 PMHey, I just checked out that list John R., and it says alcoholism is an eligible medical expense.
Does that mean I'd get to pay for my beer, wine, and whiskey with tax free dollars?
Posted by: Jim in Chicago at October 3, 2006 3:56 PMJim: Not a CPA but guess it depends how aggressive you want to be in an audit. Though, with all that liquid courage on your side, sounds like the Revenuer would have his hands full. YRMV.
Posted by: John Resnick at October 3, 2006 4:12 PM