Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

HAMMERING HENRY ON HSAs

February 24, 2004

Henry J. Aaron, Brookings Institution economist, has a piece in today's Tax Notes (sorry, subscription only) discussing Health Savings Accounts.

He says most discussions of HSAs have missed their real significance:

"For reasons explained at length below, both the claims that HSAs will lower medical cost inflation and the fears that they will undermine coverage are probably overstated. But the larger point is that the appeal of HSAs should not be considered within the confines of company-financed health insurance, but in the larger context of total labor compensation. The principle effect of the new HSA provisions is to break down the distinction between health and pension benefits. Much retirement saving is devoted to paying for health care. HSA balances that remain unused during an employee's working years may be used under extremely favorable terms to pay for health care during retirement, and they may be used on terms identical to those of tax-sheltered savings plans to pay for general consumption. Those options mean that HSAs are just defined contribution pension plans, with particularly advantageous tax treatment and particularly generous rules for withdrawal." (Emphasis in original.)

Aaron says the tax advantages of HSAs are so significant that employer-sponsored HSAs are likely to become widespread - not as a health-care benefit, but as a particularly tax-favored retirement benefit.

See our prior HSA coverage here and here. The BenefitsBlog has a thorough roundup of HSA information here.

      Bookmark: del.icio.us • Digg • reddit