Jewish World Review Dec. 12, 2003 /17 Kislev, 5764
Drs. Michael A. Glueck & Robert J. Cihak
Silver Lining in the Medicare Clouds?
Last week in these pages, Dr. Glueck described how our children and
grandchildren will have to do a "Medicare mop up" as a consequence of HR 1,
the "Medicare Prescription Drug, Improvement, and Modernization Act of 2003"
that President Bush signed Monday. They're the ones who will have to pay for
the multitrillion-dollar bill ... or endure the collapse of the entire
Yet a potentially revolutionary change, providing for a tax-exempt Health
Savings Account (HSA), did get included in the spendthrift law. And this
little proviso holds a wondrous potential for freedom.
Before explaining, let's review the general situation with consumer-oriented
health plans, such as Medical Savings Accounts (MSAs) and HSAs.
Seven years ago, the Kennedy-Kassebaum Health Insurance Portability and
Accountability Act (HIPAA) of 1996 (HR 3103) included a Medical Savings
Account (MSA) "pilot program." This allows federal tax exclusions for money
put aside in special savings accounts for buying routine medical services
when these are coupled with a high-deductible ($1,700 to $5,050) health
In essence, you put before-tax dollars into your MSA and, so long as you
keep them there (earning interest) or spend them on medical care, you pay no
income tax on the money. The idea is to give consumers a financial interest
in their health care by encouraging them to shop around, and by making them
the owners of their MSAs.
At the time, many of us hoped that MSAs would be such a hit that they'd have
to be expanded.
We were wrong, not least of all because the law limited the number of MSA
accounts to less than 1 percent of the total market. Further,
company-sponsored plans were limited to firms with 50 employees or fewer.
Large employers, the bulk of the health insurance market, had no chance
here; nor did their employees have any incentive to investigate. In short,
the "experiment" was set up to fail.
Now, fast-forward to almost yesterday.
Last week, Dr. Glueck alluded to some of the dark leaden linings of the new
law. Suffice it to note Rep. Scott Garrett's statement:
"Under the new plan, seniors will have to pay a $35 a month premium, a $250
annual deductible, and 25% of their next $2,250 in drug expenses - all for a
plan they may have not needed in the first place. A senior with $999 in drug
costs will still have to pay $771 out of their own pocket. A senior with
$5000 in drug costs, will still pay $3976 out of their own pocket. The new
plan proves to be more costly to seniors who are already on a very limited
And this is but a summary of one small part of a law that the legions of
locusts - er, bureaucrats - will soon be busily "interpreting" and
However, the HSA provisions may be a silver lining. Greg Scandlen, a health
care policy expert at the Galen Institute, a Washington think tank, says,
"They [HSAs] have the potential to become the dominant kind of health care
financing in the next five to 10 years." Henry Aaron of the Brookings
Institution thinks HSAs may change regular health insurance far more than
the new law changes Medicare.
And lest anybody doubt the freedom-enhancing potential, Sen. Tom Daschle,
D-S.D., has already introduced the Medicare Preservation and Drug Price
Fairness Act (S 1974), which would repeal the HSA part of the brand new law
and make other changes in the direction of, shall we say, greater
So, what's got Mr. Daschle so scared?
In essence, HSAs share the same fundamental concepts as MSAs, but include
many significant advances. For example:
- An unlimited number of HSA accounts can be opened.
- There's no limit on the size of companies that can include HSAs in
their health plan offerings.
Other features are similar to MSAs, such as
- An employer and employee can both contribute to the account.
- The tax-exempt cash contribution each year can be as high as $4,500
for a family plan.
- The high-deductible health insurance has a wider range of deductibles,
starting at $1,000 for individual insurance, with a $5,000 maximum on
out-of-pocket expenses; the range for families is double these amounts.
- The HSA provisions are permanent.
- Taxpayers don't have to itemize deductions to take this particular
- Tax-exempt HSA money can pay for health care not covered by insurance.
- The individual or family owns the account, not the employer; the money
belongs to them, permanently.
- People have both health and financial incentives to learn more about
their own health care needs.
As President Bush said during the signing ceremony Monday: "Our laws
encourage people to plan for retirement and to save for education. Now the
law will make it easier for Americans to save for their future health care,
This is a big step toward equalizing tax treatments of individuals and
families with corporate employees.
In sum, I urge you, dear readers, to check with your employer, union steward
or health insurance agent as soon as possible to see if these new accounts
might be available to help you meet your family's goals. Don't be surprised
if they haven't heard of them. If they haven't, tell them to get up to
You can use an HSA in your next tax year, Jan. 1, 2004, for most of us. The
sooner you sign up, the better, if an HSA fits your situation.
If you want a sound bite, try "Don't Debate, Investigate."
Or, if you want a dreary old political slogan that, for once, might make
sense: "Do it for the children."
The children who will someday have to pay the bills.
Editor's Note: Robert J. Cihak wrote this week's column
Michael Arnold Glueck, M.D., is a multiple award winning writer who comments
on medical-legal issues. Robert J. Cihak, M.D., is a Discovery Institute
Senior Fellow and a past president of the Association of American Physicians
and Surgeons. Both JWR contributors are Harvard trained diagnostic radiologists.
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