Heads up, Americans. The Bush administration is now greasing the skids for employers to drop your health coverage. This is a biggie.
Radical change was not the headline when the president unfurled his latest proposals for health savings accounts. It was presented mainly as a sensible-sounding way for people without medical insurance to buy it with pre-tax dollars, the same way companies do.
Bush’s new HSA is actually a rocket-powered tax shelter dressed up as a sweet little program to help the uninsured. It would also undermine the traditional health coverage now offered by employers. (More on that in a minute.) And in case anyone still cares about deficits, it would cost the Treasury $156 billion in lost tax revenues over 10 years – more than wiping out any savings Bush hopes to achieve with his cuts in projected Medicare spending.
An HSA lets people put pre-tax earnings into a tax-advantaged account to be tapped for medical expenses. They must also buy a high-deductible health insurance policy to pay for big-ticket medical needs.
Bush’s HSA proposal is a wedding cake of tax credits piled on top of tax deductions. And unprecedented in the annals of tax breaks, this one would tax neither the earnings going into the accounts nor the withdrawals coming out. This is unlike 401(k) plans, where people contribute pre-tax dollars into accounts but pay taxes on the money they withdraw.
If you thought that the people most in need of help buying health coverage were the working poor, you haven’t been hanging around administration circles. The Bush plan would raise the amount that could be contributed into an HSA to $10,000 a year, a sum even most middle-class families don’t have lying around.
“This is not about health care anymore,” notes Jason Furman, senior fellow at the Center on Budget and Policy Priorities. “It’s an excuse for allowing people to put $10,000 away tax-free.”
The center figures that for a family making $180,000, a $1,000 contribution into an HSA would reap a $433 tax subsidy. If that family makes $15,000, the subsidy would total only $153 – and that’s assuming that a tax credit is made refundable. Otherwise, it would be zero.
Demonically, the Bush proposal gives employers new reasons not to offer traditional health coverage, or any medical benefits at all. Indeed, the new health savings accounts could do to the traditional health plan what the 401(k) plan did to the traditional pension: Kill it off.
Like 401(k)s, the proposed HSAs could save money for employers while transferring the cost and risk of providing what was once an expected benefit onto the workers. The move from traditional pensions to 401(k) plans has already amounted to a major hidden pay cut for millions of American workers.
Under the Bush plan, small businesses would have new reasons not to offer employees coverage. Big companies can still get good deals by buying insurance in bulk. But because the Bush plan would end the tax advantages of purchasing employer-based coverage over buying insurance in the individual market, small businesses might just opt out of the whole health-benefit thing. The boss and other top-earning people, meanwhile, could retreat to their own HSA tax shelters.
Health savings accounts would be most attractive to the healthy and wealthy, drawing this group out of traditional coverage. That would leave the sick and poor in the higher-cost insurance plans, which would then sink.
So the Bush proposal would actually cause more Americans to lose coverage than to gain it. In 2004, MIT economist Jonathan Gruber computed the numbers on the basis of a health savings account proposal that was far more modest than Bush’s. He figured that adding a tax deduction for buying high-deductible health insurance to the tax-advantaged HSA would result in 1.1 million currently uninsured people obtaining coverage. These would be mostly the richer folks who are uninsured for some reason and who make enough money to fully enjoy the tax breaks. But the changes would lead to 1.4 million people losing their employer coverage. Guess who they would be.
Just what the American people need: fewer safety nets and bigger federal deficits. Americans would do well to go Code Red on this new potential threat to their economic security, or what’s left of it.
Froma Harrop is a Providence Journal columnist. Contact her by writing to fharrop@projo.com.
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