HSAS: A Healthy Idea?

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President Bush says health savings accounts will expand medical coverage to the uninsured and help control soaring costs. But critics aren't so optimistic. Here's a primer on the key issues.

How do HSAs work? If you have regular health insurance or are on Medicare, you don't qualify for an HSA. If you qualify, you or your employer may contribute. This year the limits on contributions, which are tax deductible, are $2,700 per individual and $5,450 per family. The money grows and can be withdrawn tax free, and may be spent on expenses such as drugs and checkups. One twist: to get an HSA, you must buy catastrophic health insurance with a deductible of about $2,100 for a family.

Can HSAs contain health-care costs? The thinking behind HSAs is that people will be prudent with the money because it's their own, not some insurance company's. Maybe, but that won't solve a big problem: at least 75% of U.S. health-care dollars go to treat those with chronic ailments. Getting the majority to spend their first few thousand dollars wisely won't help the ailing minority cut their astronomical costs.

Will an HSA get people better care? It's not clear. If it extends health insurance to the previously uninsured, that's a good thing. But if people try to save HSA dollars by, say, avoiding paying for an inexpensive antibiotic and then winding up with a major infection, no one wins.

Will Congress expand HSAs? President Bush wants to raise contribution caps and expand eligibility. But the plan's tax benefits will already cost at least an estimated $92 billion in its first 10 years. Bush will argue that's a small price to pay for better and broader health care, but even a Republican Congress that agrees--and loves to create tax-free accounts--may hesitate to foot such a big bill.