Saturday, January 27, 2007

Is the Bush Health Plan Tilted Too Far In Favor of Health Savings Accounts (HSAs?)

Chris Lee has an article in today's Washington Post that raises an important question.

Has President Bush gone too far in tilting his new health care proposal in favor of health savings accounts (HSAs)?

The President would level the health insurance tax preference playing field for consumers whether they get their health insurance at their place of employment or buy it in the individual market.

But because both individuals and employees also get another tax break for their contributions to HSA accounts, some are arguing HSAs get a whole lot more in tax incentives for taking advantage of that kind of health plan.

For example, if an individual has a health plan under the Bush proposal, they would get an automatic tax exemption of $15,000 for family coverage. They would also get another tax deduction if they made a $5,000 contribution to a health savings account. Someone with a conventional plan would get only the first $15,000 in tax benefits under the President's new plan.

Someone in an employer plan today is not taxed on the value of the employer-based plan--no matter how much it costs and whether the employer made an additional contribution to an HSA (to HSA limits). Any additional HSA contributions by the employee, up to the federal limit, would be tax deductible.

Under current rules, it is possible for a person to take advantage of both the unlimited exemption on employer-provided health insurance and the specific HSA tax benefits.

However, under the President's new plan, the federal tax preference for an insurance plan would be capped at the limits and HSA contributions would not come under the $7,500/$15,000 cap on health benefit tax exemptions.

Does this tilt the Bush Plan too far in favor of HSAs?
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