Sunday, July 02, 2006

Cato Institute Calls for "Large Health Savings Accounts"

The Cato Institute, a conservative, free-market think tank, proposed in 2005 that we enhance the Health Savings Account (HSA) to something they call a "Large Health Savings Account."

It seems like President Bush and the Republican Congress are in favor of this, because Bush mentioned it in his State of the Union speech. However, the HSA legislation has not come up yet, hopefully it will soon.

The Cato Institute is saying that we should be able to use our HSAs for paying our health insurance premiums as well as for medical expenses.

They are also advocating increasing the contribution limits from $2700 (individual) and $5450 (family) today up to $8000 (individual) and $16,000 (family).

They are further saying that we should abolish the restriction that in order to get an HSA you must have a health insurance policy.

I personally think that these are very, VERY positive changes. By allowing us to pay for health insurance premiums out of the HSA, we can save money on taxes for all self-employed people. And also people who are employees of larger companies can get a lump sum from their company deposited into their Health Savings Account, which they can then decide how to spend. Perhaps they'll take spend it on health insurance through their own company, or maybe they'll shop around for a better deal somewhere else. This means that there will certainly be insurance companies springing up that offer alternative medicine, because they would snare so many of these now captive corporate employees.

Dropping the requirement to have an insurance policy means that part-time and low-wage workers who have no insurance and no HSA today, could open an HSA to save for their own healthcare needs and save money on taxes too. If they do decide to get a policy, they can use that HSA money to pay for the premiums (all pre-tax).

Any expansion of the HSA program is exciting to me, but these changes are very useful for the self-employed, the working poor and the corporate employee.

For more information, click here for the Cato Institute reports on the topic of "Large Health Savings Accounts."

If you'd like to hear Michael Cannon from the Cato Institute explain his reports (mp3 format), here are Parts One, Two and Three of his talk.

I can't believe it took me this long to catch on this proposal. Although I'm in good company. When I searched for "large health savings account" on Google, there were only 2 references (search in quotes).

I think we need to push for these reforms. HSAs are a fantastic tool today, but look at how much better they could be. I am not a huge fan of the Cato Institute, especially when it comes to programs for the poor, etc., but I feel they nailed this issue on the head.

Incidentally, the Cato Institute was where the idea of the Health Savings Account came from originally in 1992.

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