March 13, 2006
HSAs: Good for the Middle Class & Great for the Rich?
Joe Paduda has a good post over at the Managed Care Matters blog, where he quotes LawProf Blogmeister Paul Caron to the effect that President Bush's announced plan to expand the health-savings accounts would create "the mother of all tax shelters." Paduda, relying on a March 3 Bloomberg article, concludes that the plan disproportionately favors the rich and typically amounts to a wash for middle-incomers who will rely use the "savings" to pay for out-of-pocket expenses, resulting in a wash. At least one commenter points out that his company's HSA saved an employee thousands of dollars, compared to what her out-of-pocket payments would have been with her previous PPO, but that doesn't negate the underlying fact that employees have to have enough free-floating cash to fund their HSA in the first place, and dollars-in-dollars-out in the same year will produce little or no tax gain.
Even if you think expanded HSAs are a good thing because they will help increase coverage and therefore access to healthcare (by alllowing out-of-pocket expenses to be paid with untaxed income and even untaxed gain on that untaxed income), I will stand by my previous comment that the one thing expanded HSAs will not do -- contrary to the claims made by Pres. Bush when he first floated this plan -- is constrain the rate of inflation in the health-care sector. You can't have it both ways. If a plan will make health care more affordable and increase access, it will increase demand, and more dollars will end up chasing available resources. If you're a believer in markets, as the president claims to be, you have to see a scenario that will result in higher inflation, unless you honestly believe that tax-supported savings will make patients better consumers to such a degree that the savings attributable to "smart shopping" will offset the increased demand produced by the expanded HSA program. I don't buy that for a minute. If the administration was serious about relying on market forces it would reduce the tax subsidies for health care expenditures, not increase them. That's not necessarily my preferred approach, but it would have the advantage of at least being internally consistent. [tm]
March 13, 2006 | Permalink
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