While critics claim that Health Savings Accounts are simply a new tax break for the rich, young, and healthy, studies show they in fact are a valuable potential savings resource for middle-aged and middle-class Americans.
HSAs allow people to put aside up to $5,450 a year tax free to pay for medical expenses. Whatever isn't spent rolls over to the next year, and the earnings accumulate tax free. The only catch is that to qualify for the tax free account, people must purchase a high-deductible health insurance policy to cover major expenses.
The earnings potential is significant: For example, let's take a working family that begins at age 40 depositing the full amount into an HSA each year. The family could spend $2,000 out of the account every year for the next 25 years to cover routine health costs, and still have more than $125,000 saved by retirement at age 65.
HSAs are also valuable for people who can't afford the maximum deposit. Take a single worker whose employer deposits $500 a year to his account, and the worker matches that with another $500. He's likely saving that much from the lower premiums he is paying on his less expensive, high-deductible health insurance policy. This worker can withdraw an average of $200 a year from the account, and in 40 years, he would have more than $60,000 set aside in his health savings account.
In addition, both the family and the worker would receive tax savings every year — about $2,000 a year for the family and $280 a year for the single worker.
You can do your own HSA calculations at www.wageworks.com.
A new report by the consulting firm DiamondCluster International estimates that by 2010, there will be 15 to 25 million HSAs and that the accounts will hold more than $75 billion in assets.
It's not surprising that 40 percent of HSA purchasers make less than $50,000 a year, a majority of purchasers are families with children, and about half are over age 40.
America's Health Insurance Plans, which represents major insurers and health plans, surveyed its members in January and found that more than three million people now are enrolled in HSAs. An earlier study by AHIP found that 37 percent of those purchasing individual HSA policies were previously uninsured.
Some say that consumer-directed health care means shifting more of the cost burden onto consumers. However, it really is a way of making the costs that consumers already are paying more visible so that they can be more involved in decisions about how they want to allocate their health care dollars.
Grace-Marie Turner is president of the Galen Institute, a non-profit research organization in Alexandria, VA, that focuses on free-market ideas for health reform. She can be reached at firstname.lastname@example.org.