Sick System?

Experts, Tucson's congressmen disagree on the effectiveness of Health Savings Accounts

Picture Arizona Stadium filled to capacity with almost 58,000 screaming fans. Then imagine two more stadiums the same size, both completely full. That is the approximate number of Pima County residents without any form of health insurance.

To address this dismal statistic nationwide--including 18,000 early deaths due to the lack of preventive care among the uninsured--in 2003, Congress approved Health Savings Accounts. Intended to encourage tax-free medical savings, including by the 45 million Americans who are uninsured at some point during the year, the program went into effect in 2004.

"I've never heard of them," says uninsured downtown artist David Aguirre. "If I had a lot more income, I'd consider doing it because of the tax benefits, but now, I can't."

The 52-year old Democrat believes the concept behind Health Savings Accounts is wrongheaded. He thinks the United States needs a national health-insurance program, like those found in other industrialized countries. "I'm still peeved President Clinton's (health-insurance proposal) didn't go through," he says.

In many ways, the HSA program is the exact opposite of that government-centered approach to providing medical coverage. After securing a health-insurance policy with a deductible of at least $1,100, HSA participants set aside contributions in tax-free accounts to pay for medical expenses.

As taxpayers rush to complete their 2005 federal returns by April 15, an HSA is an alternative available to those who can afford the insurance premiums, along with deposits to a medical savings account.

Economist Devon Herrick works in Dallas for the National Center for Policy Analysis, an early supporter of the HSA program. From his viewpoint, the 3.2 million people estimated to have enrolled so far show the program is attracting a significant number of participants.

"I think they're doing a pretty good job," Herrick says of the program. "I expect this year, we'll see a large push by large employers" interested in offering HSAs to their employees. "I think their growth will be pretty fast."

Herrick cites personal experience. A few years ago, he says, his employer paid almost $5,000 annually for his health-insurance coverage. After switching to an HSA, the cost of the high-deductible medical policy was lowered to about $2,500, with a similar amount also placed into Herrick's HSA.

"That's my money," Herrick explains of the second $2,500, which he can use for medical expenses. "I'm controlling more of the dollars."

But while HSAs may potentially save employers money in providing health insurance, will they do anything for the tens of millions of Americans without any medical coverage at all? Herrick thinks they will.

Pointing out that almost 1 million people who were previously uninsured are now believed by the insurance industry to be investing in an HSA, Herrick indicates a lack of funds isn't the only reason Americans don't have health insurance.

"Sixteen million people without medical coverage live in households with incomes of more than $50,000 a year, and half of them earn more than $75,000," he says. Based on their ability to afford a policy, Herrick feels Health Savings Accounts may attract some of these people to enroll in the program.

Re-enforcing that sentiment, Congressman Jim Kolbe, a Tucson Republican, writes in an e-mail statement: "I have long supported Health Savings Accounts as one way to provide more Americans with affordable health care. In just one year's time, the number of participants has more than tripled--from 1 million in 2005 to more than 3 million participants today. ... Of those with HSAs, almost one-third were previously uninsured."

But others strongly dispute that figure.

Edwin Park, of the Center on Budget and Policy Priorities, says from his California office: "Those claims don't hold water. Ninety percent of the uninsured are in the 15 percent tax bracket or less. They don't have excess income to make contributions to an HSA."

To promote additional interest in Health Savings Accounts, President Bush has proposed increasing their tax advantages. Herrick says this idea would allow an individual participating in an HSA to use tax-free dollars to buy an insurance policy. "It would be a level playing field" with employer-financed health insurance programs, Herrick states of the proposed amendment.

Predicting rapid growth in the number of people using HSAs, Kolbe's statement continues: "An online insurance brokerage reports that nearly half of its HSA customers earn less than $50,000 a year, and 70 percent pay under $100 a month for the coverage. HSAs are bringing health care coverage to those who did not have it before and proving beneficial to lower-income workers."

But Park counters that the total number of uninsured people will actually increase by 600,000 if Bush's proposals become law. "HSA insurance policies don't appear to be any more affordable," Park says. "Those who can take advantage of the program have higher incomes."

An ardent opponent of the HSA approach to providing medical insurance, Congressman Raul Grijalva, a Tucson Democrat, concurs. "The program does nothing for the average person. If, in fact, 3 million people have signed up for an HSA, that doesn't mean much, because 45 million aren't signing up because they don't have the money."

Labeling the program as simply a tax shelter for the financially well-off, Grijalva continues: "The HSA program doesn't address the issue. It's a diversion and doesn't deal with the fundamental root problems of accessibility and affordability. The crisis is not in tax-sheltered accounts, but in accessibility and affordability."

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