The health care bill that passed this week offers subsidies to people with low income so they can afford health insurance. To help pay for those subsidies, people with large incomes will have higher tax bills.
It sounds like a rout for Robin Hood, but President Obama and Congress ultimately spared one big tax break the health savings account that Republicans love and senior members of George W. Bush’s administration had championed. In fact, the legislation makes it likely that many more people will take advantage of the accounts by the middle of the decade, keeping even more money out of the hands of the government.
Consumers were able to sign up for H.S.A.’s beginning in 2004, though similar accounts had existed before that. When you deposit money into an account at a bank, you pay no federal income taxes on the money you deposit, it grows tax-free in the account and there’s no levy on earnings once you tap into the account for qualified expenses. It’s a rare triple play in the world of tax breaks.
But it comes with some big restrictions. You have to use the money for health care costs to qualify for the tax break. And you can put in only $3,050 in 2010 if you’re just covering yourself or $6,150 if you’re also covering your family. (If you’re 55 or older, you can make an extra $1,000 contribution. Anyone of any income level can put in money, and an employer can contribute, too.)
Why were H.S.A.’s created in the first place? The big idea was that if people had to pay more out of pocket each year, they’d have an incentive to shop around and be less wasteful with their health care spending. The cumulative effect of millions of people doing that would supposedly lower costs. Tax savings from the accounts, meanwhile, would lure the uninsured into high-deductible plans, which often have lower premiums. And if the new enrollees were young and healthy, their premiums could subsidize coverage for the old and the sick.
We don’t know yet whether all of this can help cure what ails health care. But it is definitely a spectacular tax dodge for those who can afford to max out their contributions and not touch them for decades. Plenty of doctors and tax lawyers have their own H.S.A.’s. And they would know, wouldn’t they?
But for anyone who will soon be paying higher taxes because of the health care bill, taking some of it back through an H.S.A. contribution is pretty easy money if you qualify. And for everyone else who ends up in an eligible health insurance plan, it would be wise to at least cycle some money through an account.
It sounds like a rout for Robin Hood, but President Obama and Congress ultimately spared one big tax break the health savings account that Republicans love and senior members of George W. Bush’s administration had championed. In fact, the legislation makes it likely that many more people will take advantage of the accounts by the middle of the decade, keeping even more money out of the hands of the government.
Consumers were able to sign up for H.S.A.’s beginning in 2004, though similar accounts had existed before that. When you deposit money into an account at a bank, you pay no federal income taxes on the money you deposit, it grows tax-free in the account and there’s no levy on earnings once you tap into the account for qualified expenses. It’s a rare triple play in the world of tax breaks.
But it comes with some big restrictions. You have to use the money for health care costs to qualify for the tax break. And you can put in only $3,050 in 2010 if you’re just covering yourself or $6,150 if you’re also covering your family. (If you’re 55 or older, you can make an extra $1,000 contribution. Anyone of any income level can put in money, and an employer can contribute, too.)
Why were H.S.A.’s created in the first place? The big idea was that if people had to pay more out of pocket each year, they’d have an incentive to shop around and be less wasteful with their health care spending. The cumulative effect of millions of people doing that would supposedly lower costs. Tax savings from the accounts, meanwhile, would lure the uninsured into high-deductible plans, which often have lower premiums. And if the new enrollees were young and healthy, their premiums could subsidize coverage for the old and the sick.
We don’t know yet whether all of this can help cure what ails health care. But it is definitely a spectacular tax dodge for those who can afford to max out their contributions and not touch them for decades. Plenty of doctors and tax lawyers have their own H.S.A.’s. And they would know, wouldn’t they?
But for anyone who will soon be paying higher taxes because of the health care bill, taking some of it back through an H.S.A. contribution is pretty easy money if you qualify. And for everyone else who ends up in an eligible health insurance plan, it would be wise to at least cycle some money through an account.
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