Bush Buys Into Tax-Free Health Savings Account

President Bush may enjoy the best healthcare in America, and for free, too. But that didn’t stop him this week from setting up a tax-deferred health savings account.

As president, he has championed such accounts as a way to make health insurance more affordable, and Congress created them last year in the same legislation that provided prescription drug coverage to some seniors.

The accounts allow workers to save money tax-free to spend on medical expenses. To qualify, workers or their employers must buy low-cost, high-deductible health insurance, intended to cover catastrophic medical expenses.

The White House indicated Thursday that Bush had set up the account for practical as well as political reasons.

“He currently gets the best healthcare in the world, but when his term ends, he will return to the private sector,” said Deputy Press Secretary Trent Duffy, adding that Bush also opened the account to set an example.

“He felt that this was the best move for his current and future healthcare needs,” Duffy said.

All commanders in chief receive free healthcare from the military -- for example, Bush had his annual physical last weekend at the National Naval Medical Center in Bethesda, Md. -- but their family members do not. Duffy said the president has had a private insurance plan for his family, like those available to the families of all federal employees, the entire time he has been in the White House.

That plan would cover Laura Bush and, like most private plans these days, it requires deductibles and co-pays. Citing privacy reasons, Duffy declined to identify the specific plan that the Bushes chose.

It was the president who disclosed that he had set up the health savings account. He mentioned it during closing remarks at a two-day White House conference on the economy that was designed to highlight his second-term initiatives for Social Security, tax simplification and health insurance access.

“And I’m pleased to report that ... health savings accounts are beginning to work their way through our markets. After all, I just signed up for one two days ago,” Bush said. “When it makes it to my level, you know it’s going to be widespread these days. But HSAs are making a difference.”

Some health experts, however, disagree, saying the jury on such policies is still out -- and warned that a proliferation of health savings accounts could leave the ill facing ever-rising insurance premiums.

To qualify for a health savings account, individuals must be covered by a catastrophic policy with an annual deductible of at least $1,000 for individuals or $2,000 for families. Contributions to such accounts are tax-deductible, and the accounts are portable -- that is, not connected to a place of employment. Individuals may contribute as much as $2,600 per year and families $5,150 per year.

Unlike some tax-free healthcare accounts sponsored by employers, which must be used up in a calendar year or the funds are lost, unused funds in a health savings account can grow over the years. They can be withdrawn only for medical expenses, with no tax incurred, until retirement, at which time they can be used for any purpose as long as taxes are paid.

These accounts largely appeal to the young and the healthy, who are more prone to believe that they are unlikely to have high medical bills in any given year. As a result, the accounts amount to another tax-free savings plan. The interest and investment earnings generated by these accounts also are not taxable while in the account.

But Drew Altman, president of the Henry J. Kaiser Family Foundation, an independent policy center specializing in health issues, said the health savings accounts were not a proven success.

“The fair thing to say about HSAs is there isn’t a lot of experience with them yet. It’s not clear,” he said.

Some analysts believe that the accounts will help drive down costs, in part by making their owners wiser spenders of their own funds.

But others warn that if the young and healthy flock to such accounts, that would deplete the large pool of health-insurance consumers, thus destroying the concept of shared risk, resulting in higher premiums for those in traditional plans.

“So HSAs may be good for some people, but may be bad for the health insurance system,” Altman said.

Labor unions and some economists have argued that the accounts will prompt businesses to eliminate traditional health plans and offer only policies that cover catastrophic expenses. To pay for routine expenses that insurers now cover, critics fear, employers will tell workers to open health savings accounts and pay the costs themselves.