Medicare law grants tax break for health savings accounts

High-deductible plans readied by insurers


Probably no one was more surprised that Congress added tax breaks for health savings accounts to the new Medicare law than John C. Goodman, a conservative Texan who has been avidly promoting medical accounts for a decade.

The measure, a favorite of Georgian Newt Gingrich, the former speaker of the House, and Rep. Bill Thomas, a California Republican and chairman of the conference committee, was added to the bill, dropped and restored during negotiations.

"People thought it would be gone at the end," Goodman, president of the National Center for Policy Analysis, a research group in Dallas, said yesterday as President Bush was signing the legislation. "Frankly, even I thought that was going to happen."

Under the new law, consumers will be able to obtain relatively inexpensive health insurance policies with high deductibles combined with savings accounts. The contributions to the accounts will be tax-deductible, the money will accumulate year after year tax-free, and it can be withdrawn to pay for medical expenses.

Insurers could only guess and gamble on the outcome in Congress, but at least two insurance companies were ready to seize the opportunity.

Days before the bill passed, UnitedHealth Group Inc., the largest insurer, bought Golden Rule Insurance Co., a pioneer in selling medical savings accounts, a less-favored version of the accounts, for $500 million. Aetna Inc., which had 45,000 members in high-deductible health plans that include savings accounts, jumped in yesterday with a plan to add 100,000 more under the new law.

"Over a million people are currently covered by a variety of consumer-driven health plans, most of which involve a spending or savings account," said Tom Beauregard, a health care consultant with the consulting firm Hewitt Associates. As employers shift an increasing share of health costs to workers, a growing number need to put aside money to pay those bills, he said.

Gingrich said he knows of several other insurance companies that plan to introduce similar types of coverage by Jan. 1, when the provision is to take effect.

Some Wall Street analysts view the accounts as a threat to the health care system. "This provision gives employers a door to discontinue health care as an employee entitlement," Charles Boorady, a securities analyst at Smith Barney, wrote in a research report yesterday.

The new accounts could attract competitors, including life insurance and property-casualty companies, 401(k) retirement administrators and startup ventures, Boorady said, while draining profits from many current health insurers.

Some large employers are wary of the high-deductible policies, which have come under sharp attack from several Democratic presidential candidates and consumer advocates.

The accounts have long been a goal of conservative lawmakers and academics who want to add cost-cutting competition to the health insurance marketplace and offer a way for workers to save money for medical expenses in their retirement.

Bush said that under the new law, people with health savings accounts would "save between 10 to 35 percent on any costs covered by money in your account," depending on their tax brackets.

Critics contend that the health savings accounts will attract healthy and higher-income workers, raising costs for low-wage and sick people who stay in traditional health plans.

Jack Whelan, chief executive of Golden Rule, said the legislation will be "a benefit to us because an enormous slice of the population are now eligible for the accounts."

His new owners at UnitedHealth Group are considering offering the plans to larger employers, said Mark Lindsay, a spokesman for UnitedHealth. Golden Rule's customers are mainly individuals.

"This is one more step on the path of consumerism as a movement," said Shellie Stoddard, a bond analyst at Standard & Poor's, the credit-rating firm. She said "increased cost-shifting to consumers will temporarily benefit the health insurers" by holding down wasteful spending.

But she sees problems in the long run for the industry if too many lower-income workers decide coverage is beyond their means.

"We feel that the political pressure to maintain the affordability of health insurance will be focused on the health insurance industry," she said.

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