Health Savings Accounts May Help Offset Costs of Medicare Rx Bill

December 12, 2003
Many analysts fear that the new, $400 billion Medicare prescription drug program could result in tax increases swamping future generations with a tidal wave of unfunded liabilities.

However, critics of the bill concede the price for the new drug entitlement might be at least partially offset by the other major item in the legislation -- creation of universal medical-savings accounts (MSAs), or as they now are to be called, health-savings accounts (HSAs), for those younger than 65.

The accounts would allow an individual, regardless of income, who gets an insurance policy with a deductible of at least $1,000 to contribute or let his or her employer contribute as much as $2,600 a year for a single person.

Families would be allowed to deposit as much as $5,150 in pretax dollars; the accumulated interest or capital gains would not be taxed.

Unlike the current pretax "flexible-spending accounts" that expire at the end of the year, health-savings accounts can be rolled over from year to year. This means someone could come into retirement with $20,000 in such an account.

Proponents hope the HSA will relieve pressure for additional taxpayer-funded programs and encourage employers to remain active in contributing to employees' health care.