President Bush is urging Congress to expand the availability and attractiveness of health savings accounts (HSAs). Among other things, his FY2007 budget proposes (1) new tax deductions and refundable income tax credits for purchasing individual insurance policies that allow one to have an HSA, (2) increases in allowable HSA contributions, (3) a refundable income tax credit for contributions not made by employers, and (4) permission for employers to make larger contributions on behalf of employees and family members who are critically ill. The Administration argues that the proposed changes, which would have a 10-year revenue cost of $156 billion, would slow rising health care costs by enabling additional consumers to play a more direct role in their health care decisions. In considering the proposals, Congress might review three important issues in light of recent developments and the likelihood, given the initial market response, that HSAs are here to stay. One is the tax treatment of contributions, which now favors higher income individuals and families. A second is the purpose of health care savings, for which it appears there are multiple and sometimes competing objectives. Finally, there is the question whether HSA policies should favor or be neutral towards employmentbased and individual market insurance. This report may be updated to reflect further analysis and debate. Health Savings Accounts (HSAs) are one way that people can pay for their unreimbursed medical expenses (deductibles, copayments, and services not covered by insurance) on a tax-advantaged basis. The basic rules for 2006 are straight-forward, though some aspects are complex. Source: Congressional Research Service [via OpenCRS]
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