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CRS: Health Savings Accounts "Burgeoning Market"

APRIL 15, 2005 — A new report by the Congressional Research Service on Health Savings Accounts (HSAs) should be music to the ears of the Bush administration — some of it sweet, some of it discordant. The report finds a "burgeoning market" for the accounts, which are much touted by the White House and by many congressional Republicans as the answer to fast-rising health spending in the U.S. and to widening coverage of the uninsured.

The report finds some evidence that HSAs reduce health care spending, but adds that the data is not rigorous. And health plans associated with the accounts "are not likely to make a big difference in the number of uninsured."

Funded either by employers or individuals themselves, HSAs give their owners big tax breaks for investing in the accounts and using them to pay their out-of-pocket health care expenses. The accounts are sold in tandem with high-deductible health plans, whose premiums are cheaper than those insurers charge for traditional employer health coverage.

Money from the accounts is used to pay expenses not covered by the health plans, but the owner gets to keep what is left over and can make it grow by shopping carefully for health care and by taking responsibility to maintain personal health, enthusiasts say.

Improved health and growing consumer demand for better deals on medical procedures and products will rein in growth in health care spending, they add.

Prominent insurers have entered the HSA market, some offering the plans nationwide, says the report. The accounts have drawn widespread interest on the part of large employers already offering high-deductible coverage, as well as among a number of small businesses. But "while HSA plans may reduce health care spending, it would be unreasonable for them to produce a significant reduction in the nation's health care costs," CRS says.

"It is a well-established paradigm that 5 percent of individuals account for approximately 50 percent of health care costs and 20 percent account for approximately 80 percent of costs. HSA plans with their relatively low out-of-pocket maximums will have little impact in reducing the health care spending for these groups."

Policies promoting the accounts also entail losses of revenue to the federal government. "Some might question whether it is fair that the largest tax savings per person will likely flow to healthy, higher income taxpayers. Some might also question whether the revenue loss is an appropriate use of federal health care resources, given the many people in the country who have no health insurance whatsoever."

The CRS researchers uncovered mixed data on whether HSA-related health plans reduce the number of uninsured. Overall effects are likely to be modest, the analysts said. "Many uninsured are in the 10 percent or 15 percent tax brackets and would not find the tax advantages of HSA contributions to be a compelling reason to buy the insurance."

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