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President Proposes to Make Tax Benefits of Health Savings Accounts More Lucrative for Higher-Income Individuals

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Publication Date: February 2004

Publisher(s): Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Robert Greenstein; Edwin Park

Funder(s): Center on Budget and Policy Priorities (Washington, D.C.)

Funder(s): Center on Budget and Policy Priorities (Washington, D.C.)

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Health (Health care financing)

Keywords: Economic projections; Health care costs; Health insurance; Income diversity

Type: Report

Abstract:

The President’s budget proposes to expand Health Savings Accounts (HSAs) by allowing HSA participants to claim a tax deduction for the premium costs of high-deductible health insurance policies if they purchase such policies in the individual health insurance market. The stated intent of the deduction proposal is to help more of the uninsured purchase health insurance, albeit less comprehensive high-deductible coverage.

Health Savings Accounts were established by the recently enacted Medicare drug legislation. Under these accounts, individuals who enroll in high-deductible health insurance plans — whether through their employers or on their own — may establish tax-favored savings accounts. Contributions to these accounts are tax-deductible, earnings on funds in these accounts accrue tax-free, and withdrawals from the account are not taxed if they are used to pay for out-of-pocket medical costs.