Congress Poised to Expand Health Savings Accounts

July 7, 2008 - 8:30 PM

(CNSNews.com) Congress is still negotiating a major Medicare prescription drug bill, but it looks like the Health Savings Account may be one item that's a keeper. Free market critics of the Medicare Prescription Drug and Modernization Act warn, however, that it won't be enough to win their support for the new $400 billion drug benefit.

"I have no reason to believe that we are going to be taken out. And I expect that we will be in the final package," said Dan Perrin, executive director of the Archer MSA Coalition, a group headed by former House Ways and Means Chairman Bill Archer (R-Texas), the architect of the original law establishing limited Medical Savings Accounts (MSAs).

"[House Speaker Dennis] Hastert (R-Ill.), for example, has said that this is the most important part of the bill," said Perrin. "We agree with Hastert. We believe that it will dramatically change the way health care is financed in this country."

Health Savings Accounts (HSAs), an expansion and modification of MSAs, would allow all Americans to contribute tax-deductible dollars to savings accounts to pay for medical costs, like prescription drugs, long-term care insurance and medical services. Employers could make pre-tax contributions to the accounts.

Workers would have an annual deductible of at least $1,000 for self-coverage and $2,000 for family coverage.

The HSA component, however, is still under discussion by conferees.

Louisiana Sen. John Breaux, an influential Democrat on the conference committee, has called HSAs "a tax shelter that basically helps younger, healthier people."

"Within the conference...there's a recognition that there needs to be some sort of solution for long-term care so that people plan more for their retirement," said Kristen Tinsworth, a spokesperson for the Ways and Means Committee. "But I just don't know at this point" what will be the fate of HSAs, she said.

It's a reflection of the importance of the Medicare bill that the list of conferees also includes the majority leaders of both the Senate and House, along with the chairman of the Ways and Means Committee, the most powerful panel on Capitol Hill in the minds of many people.

Lawmakers and their staffs are meeting daily but have not yet announced any breakthroughs over disagreement over how to contain costs while offering substantial drug coverage to seniors who need it most. Means testing of the drug benefit and allowing states to re-import cheaper drugs from Canada have been among the most contentious issues.

However, even if the conferees are able to produce a final bill before Congress recesses for Thanksgiving, many Democrats and a handful of free market Republicans have said they will not vote for final passage.

A spokesman for Rep. Jeff Flake (R-Ariz.) says Flake supports an expansion of MSAs but remains unlikely to support the conference bill "unless it was drastically different" than either the House- or Senate-passed bills.

Despite pressure from the White House and GOP leaders in Congress, Flake and other conservatives voted against the House bill back in July after balking at the high cost of adding an unfunded prescription drug benefit to Medicare. They also felt that the market-based reforms in the bill didn't go far enough.

Medicare's actuaries have said that payroll taxes will be insufficient to pay Medicare bills by the year 2018.

John Berthoud, president of the National Taxpayers Union, said he and his colleagues are "big supporters of MSAs." However, he added, "we don't take an 'MSAs at any cost'" approach.

"MSA expansion is a great thing, but tied to a disastrous Medicare prescription drug expansion...the bad in that bill would still strongly outweigh the good," Berthoud explained.

Berthoud believes the $400 billion, 10-year cost estimate is understated. "The history of Medicare is replete with huge cost overruns, and I think we can definitely expect that history to continue," he said.

But principally, Berthoud, along with the Congressional Budget Office and other health policy analysts, believes employers will see Medicare drug coverage as a prime opportunity to drop drug coverage they now offer to retirees.

"There can only be one conclusion as to why corporate America has signed onto the Medicare prescription drug benefit," Berthoud reasoned. "A lot of them are going to save an awful lot of money when they can dump the coverage of their former employees and let the taxpayers pick up the cost."

See Earlier Story:
Liberals Mount Offensive Against Health Savings Accounts
(July 9, 2003)

Listen to audio for this story.

E-mail a news tip to Christine Hall.

Send a Letter to the Editor about this article.