The Debate Over Health Savings Accounts

President Bush has made HSAs the centerpiece of his health policy agenda this year, offering new tax incentives for more people to sign up for the accounts and purchase portable health insurance. This week he hosted a White House meeting on HSAs and attended a panel discussion in Bridgeport, Conn.

Opponents of HSAs, including state Insurance Commissioner John Garamendi, call them a "dangerous prescription" that will destabilize the health insurance marketplace and make things even worse for the uninsured. House Minority Leader Nancy Pelosi, D-San Francisco, has said she will oppose any expansion of HSAs because they wouldn't lower health care costs or reduce the number of uninsured people.

Who is right?

First, it would be helpful to sort out a few facts: Health Savings Accounts are simply a new way to put a limited amount of money aside, tax-free, to pay for routine health care expenses. What you don't spend in one year rolls over to the next, and earnings grow tax-free.

But you can only open an HSA if you have health insurance with a relatively high annual deductible -- at least $1,050 for individuals and $2,100 for families this year. The policies also can cover preventive care, including screenings and medicines, so these costs don't have to come out of your HSA.

These higher-deductible health policies generally are less expensive than traditional insurance, just like having a higher deductible on your car insurance means your premiums are lower.

It's hard to understand what all the fuss is about. The real point of HSAs is to offer people a new incentive, a tax-free carrot, to purchase health insurance. Consumers can purchase health insurance that protects them against major medical expenses, and, if they choose, can put the savings from the lower premiums into their HSA for routine health expenses.

And it appears to be working: About 3 million people have purchased HSA-qualifying health insurance, and early studies showed about one-third of these people were previously uninsured.

Critics contend that HSAs will appeal only to the young, the healthy, and wealthy, but that doesn't appear to be the case. Forty percent of HSA purchasers make less than $50,000 a year, about half are over age 40, and the biggest share of purchasers are middle-aged families with children.

Blue Cross Blue Shield found that those with HSAs follow the same bell curve in age and health status as those with traditional coverage: As many are young and healthy in both types of plans as are older and sicker. Early evidence also shows that HSA users are more likely to use preventive services and to comply with medical treatments.

And they are helping to solve one of the biggest problems in the health sector: high costs. One survey by Deloitte's Center for Health Solutions found that the cost of consumer-directed health plans increased by 2.8 percent last year among the 152 major companies it surveyed.

Unless more people and businesses find ways to cut health costs, we will certainly see a further deterioration in the number of people with health coverage. HSAs and their accompanying higher-deductible health coverage can keep individuals and small businesses in the game.

A survey by American's Health Insurance Plans found that 27 percent of small businesses offering HSAs didn't previously offer insurance. Couple that with the one-third of individual HSA purchasers having been previously uninsured, and it's clear this is a new option for people who had been shut out of the system.

California needs to join the 43 other states that have conformed their state tax laws to federal law to allow deposits to HSAs to be deductible from state taxes. This will give Californians more incentive to purchase more affordable, high-deductible health insurance.

HSAs are not a silver bullet but one tool in stabilizing our health sector by helping to reduce the number of uninsured people.