Sunday, February 1, 2004

Health savings law missed the mark

Guest column

George White

The Enquirer's recent editorial citing the new Health Savings Accounts as the best provision in the recently enacted Medicare Prescription Drug law was close to the mark, but did not tell the whole story.

These accounts would encourage Americans to accept health insurance policies with higher deductibles in exchange for the opportunity to save money for future health care expenses in tax-favored accounts like Individual Retirement Accounts.

The goal is to increase personal responsibility for health care costs, which the Enquirer stated should lower demand for health care and therefore hold down health care cost increases in the future.

Unfortunately, the Congress and President Bush missed a major opportunity to make these accounts truly revolutionary - and to solve the most pressing long-term issue facing our federal government - by tying the tax deductibility of these accounts to future Medicare benefits.

The issue is the immense unfunded liability of our Medicare system, or, in plainer language, the lack of enough money to pay Medicare benefits for baby boomers and those who retire after them.

The Medicare "system" is actually comprised of two programs, which together accounted for $279 billion in government expenditures in 2003:

• One covers hospital costs for retirees, and is funded by today's workers, who pay payroll taxes (2.9 percent of all earned income) that go into a Hospital Insurance Trust Fund to fund such benefits.

• The other pays doctor bills, and is funded by a combination of premiums paid by today's elderly (covering 23.6 percent of program costs) and general revenues (i.e., our income tax dollars).

Every year the Board of Trustees for Medicare issues a report on the financial health of the program. For more than 20 years, the trustees have been warning that the financial health of Medicare is "highly problematic" due to the increase in health care costs and the number of retirees receiving benefits.

The 2003 report states that Medicare's Health Insurance Trust Fund will be "exhausted" in 2026, and that expenses will be greater than tax revenues within 10 years. The trustees further state that the program could be brought into long-term actuarial balance (i.e., where payroll taxes could cover expenses) by immediately increasing payroll taxes by a whopping 71 percent, or cutting benefits by a draconian 42 percent.

Rather than addressing Medicare's long-term funding shortfalls, which will require a full quarter of federal income tax revenues within 20 years to address, the Congress and the president responded to this warning by further weakening its financial stability, as the prescription drug benefits add future liabilities to the system. This is unconscionable.

It is clear that a 71 percent tax increase on today's payrolls or a 42 percent benefit cut for Medicare recipients is unthinkable for constituents, and, therefore, not going to be even considered by Congress. Nor should they, as there is a better way.

By permitting Americans to set aside money in tax-favored Health Care Savings Accounts (HCSAs) during their working years in exchange for accepting a higher Medicare deductible in retirement - agreeing to pay for more health care costs before coverage would kick in - Congress could reduce the long-term liability of the Medicare system.

The program would be completely voluntary, so that Americans who want to rely on the current Medicare system could do so.

Many Americans would be pleased to accept the responsibility of covering more of their own health care costs in retirement, however, if the government would provide current tax saving inducements to do so.

Tens of millions of Americans have responded to the opportunity the government has provided to save tax-favored funds in IRAs, Roth IRAs and Education Savings Accounts. Americans would also respond well to the opportunity to save for the biggest retirement concern - health care costs - in exchange for taking on more of the responsibility to finance those costs, rather than relying on Medicare.

The short-term tax revenue loss to the government from HCSAs would be more than offset by the long-term reduction in Medicare's unfunded liability for retirement health care costs for baby boomers, Generation X and their children.

Such a policy would also ensure that the Medicare program remains able to cover future health care costs for retirees who choose to stay in the system.

Congress and the president missed a major opportunity to enhance the health of Medicare when it considered the Prescription Drug bill last year.

I hope they will exert more leadership and long-term thinking in 2004 by adopting Health Care Savings Accounts to ensure the long-term health of Medicare.


George White, a marketing executive living in Wyoming, drafted the first Health Care Savings Account Medicare reform legislation in 1985, when he worked on the staff of the late Rep. D. French Slaughter Jr., D-Va.

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