Fact Sheet: Expanding Access and Increasing the Affordability of Health Insurance Through Health Savings Accounts

Millions of Americans will get help with their out-of-pocket medical expenses through President Bush's support of health savings accounts (HSAs). The Medicare bill that President Bush signed into law establishes new tax-free savings accounts for individuals and groups who purchase affordable high-deductible health plans. Businesses and individuals who take advantage of these accounts will save substantial sums on health insurance premiums and gain more control over health care expenditures. The tax-free, portable accounts will help families pay their routine medical expenses and provide a tax-preferred means of saving for future health care needs.

New health insurance deductions will make coverage more affordable to millions of Americans whose employers don't provide health benefits. The President's proposal will allow individuals who establish HSAs to deduct the premiums they pay for their low-premium, high-deductible health insurance policies. This new deduction will be available to taxpayers whether or not they itemize. It will reduce the net cost of these policies and encourage the use of HSAs for saving for health care needs and making wise, cost-effective health care choices.

• HSAs are open to individuals covered by a high deductible health insurance plan. The annual deductible must be at least $1,000 for individual coverage, and at least $2,000 for family coverage. HSAs are a significant improvement over previous savings vehicles, which were limited to employees of small businesses and the self-employed and required health insurance policies with much higher deductibles. Individuals with existing medical savings accounts (MSAs) can either retain them or roll the amounts over into a new HSA.
• Contributions to HSAs by individuals are deductible, even if the taxpayer does not itemize. Contributions by an employer are not included in the individual's taxable income. Individuals, their employers, or both can contribute tax-deductible funds each year up to the amount of the policy's annual deductible, subject to a cap of $2,600 for individuals and $5,150 for families. In addition, individuals over age 55 can make extra contributions to their accounts ($500 in 2004, increasing to $1000 by 2009) and still enjoy the same tax advantages.
• The interest and investment earnings generated by the account are also not taxable while in the HSA.

Tens of thousands of individuals already are saving on their health care costs through HSAs. These accounts can save families thousands of dollars on their health insurance premiums. Individuals can deposit some or all of these savings into their tax-free accounts and use the money for current health care needs and to save for future medical expenses. Employers also can contribute to these accounts, which the employee controls. Instead of sending more money off to insurance companies in the form of higher premiums, families can keep their savings in an account that belongs to them, not to their employer or to an insurance company.

Americans from all income levels are taking advantage of HSAs. eHealthInsurance, an Internet-based insurance brokerage that offers coverage in the individuals and small firms throughout the country, last week published an analysis of people who had purchased HSAs through its internet portal over the first six months of this year. Key findings of small sample include:

• The majority of HSA purchasers (52 percent) were 40 years of age or older.
• Nearly half of HSA purchasers (49 percent) were families with children.
• Two-fifths of HSA purchasers (41 percent) had incomes of $50,000 or less.
• Three of ten HSA purchasers (30 percent) had previously been uninsured.

HSAs provide a much more affordable, consumer-friendly product for businesses to offer their employees.

• The National Federation of Independent Businesses (NFIB) says that "some small businesses have saved up to 42 percent" on their health care costs through these products. NFIB also says that HSAs "will help reduce the number of uninsured Americans by allowing small businesses and their employees more choice in the current small group market."
• Testifying at a Congressional hearing last March, Kate Sullivan of the US Chamber of Commerce said, "Enactment last year of HSAs came at a critical time for America's employers and working families, due to the increasing difficulties of affordable family health coverage. HSAs offer a great deal, not only to small business, but to workers at any point in their lives."