Strengthening the Free Market in the Health Sector

Health Savings Accounts are the centerpiece of his agenda, with supercharged tax breaks to encourage people to sign up for these tax-favored savings and spending accounts.

HSAs, which have been available for only two years, already have three million enrollees. The clear focus is to make HSAs even more attractive, allowing larger deposits to these tax-preferred accounts, tax deductibility for HSA-compatible health insurance, and tax credits to offset payroll taxes and to help low-income people get HSAs.

With these new proposals, President Bush has made a strong statement that he wants to give consumers more control over their health care and the power to demand more attractive, affordable choices. This is partly in response to a growing middle-class anxiety about the high cost of health insurance and to workers? fears that they will lose their health coverage if they lose their jobs.

Several proposals are organized around giving people more options to buy health insurance that is portable so they can keep it as they move to another job or even another state.

The goal is to level the playing field between job-based and individually-purchased health insurance. Here are some highlights:

? Premiums for HSA-compatible insurance would be tax deductible to people who purchase their policies outside the workplace.

? Larger annual deposits to HSAs would be allowed, up to the maximum out-of-pocket exposure on the policy ($5,250 individual and $10,500 family this year).

? To further level the playing field between individually-purchased and job-based health insurance, the president would give a tax credit equal to the amount of payroll taxes paid for both the cost of the premiums and HSA deposits.

? Low-income families would qualify for a refundable tax credit of up to $3,000 to buy HSA-compatible health insurance.

This gets lost in all the debate, but HSAs are basically a bribe to get people to buy health insurance. People can?t get this tax-preferred savings account unless they buy health insurance. So the real incentive here is to encourage people to get coverage. Early surveys have shown that a third of those purchasing HSA-qualifying health policies were previously uninsured.

The new tax breaks for purchasing health insurance will supercharge the incentive. The White House estimates that 21 million people will have HSAs by 2010.

Now the ball is in Congress? court. The response from Capitol Hill has been largely positive among free-market advocates, with members scrambling to be the first to introduce legislation covering some or all of the president?s package.

But the response from others has not been so warm. Reps. Pete Stark and Henry Waxman, both of California and both vocal opponents of HSAs, released a study last week criticizing HSAs as being only for the healthy and wealthy. And California Insurance Commissioner John Garamendi issued his own scathing report, calling HSAs ?a dangerous prescription? for a struggling health care system. The data refutes their accusations, as we note in our studies on early experience with consumer-directed health care at www.galen.org.

The Wall Street Journal editorialized that: ?[The] attacks from liberals on health savings accounts -- the tax-favored medical accounts that are a key part of the White House proposal -- is a sign that this idea is a threat to the government control of health care.?

The battle is engaged, once again, between those who envision a free, competitive, market-driven health system and those offering the false security of a government-driven health system. The president?s new proposals give advocates of a private system fresh ideas to advance their case.

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Grace-Marie Turner is president of the Galen Institute, a public policy research organization focusing on free-market ideas for health reform. She can be reached at galen@galen.org