Accounts are new form of insurance

After years of debate and political maneuvering, Congress has approved the most significant reform of the Medicare system we have seen in decades. While much of the attention on this debate and the legislation it produced has focused on the inclusion of prescription drug coverage, there is another provision that may hold even greater promise for affordable health care in the United States: Health Savings Accounts. These accounts, which will allow us to put aside money — on a pre-tax basis — for medical expenses, have tremendous potential to give Utahns greater control over their own health care and add innovation-producing and cost-reducing competition to the health insurance marketplace.

A precursor program of Health Savings Accounts, called Medical Savings Accounts, was enacted in 1996 in an experimental, temporary form available to only a few Americans. Among the many limitations were that only the self-employed or those working in companies with 50 or fewer employees qualified. But the HSAs Congress has created in this Medicare legislation bring widespread availability with few restrictions and ease of setup and operation.

This is how the accounts will work. Consumers and employers will be able to buy health-insurance policies with low premiums and high deductibles — at least $1,000 for individuals and $2,000 for families. This allows patients to be fully covered for costly injuries or illnesses while choosing to pay routine medical expenses out of pocket in order to take advantage of significantly lower premiums.

The money that is saved by paying lower premiums can then be deposited into a Health Savings Account on a pre-tax basis. Consumers and employers could put up to $2,600 a year for an individual and $5,150 a year for a family into these accounts. The money accumulates year after year, tax free, and can be withdrawn tax free to pay not only for medical expenses normally covered by insurance, such as doctor visits and laboratory tests, but for other medical expenses as well, such as cosmetic surgery, dental care and eyeglasses. If necessary, these savings can be used for other purposes but would be subject to taxes.

These accounts are owned by the individual, not the employer or insurance company. This means that the savings follow the individual from job to job and into retirement. Additional retirement benefits include catch-up contributions during peak saving years to help build a nest egg for future health needs. Tax-free distributions can be used for retiree health insurance — with no minimum deductible requirements — Medicare expenses, prescription drugs and long-term care services. HSAs are also inheritable, which provides security to families by allowing ownership of an account to be transferred tax-free to a spouse on death.