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Sunday, December 07, 2003 - Page updated at 12:00 A.M.

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Health savings accounts could benefit workers

By Mark Schwanhausser
Knight Ridder Newspapers

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SAN JOSE, Calif. — The raucous debate over the Medicare bill overshadowed a provision that could change how — and how much — some pay for health care.

The Medicare reform bill will allow employers to create tax-exempt "health savings accounts" that workers will be able to tap to pay medical expenses. That means qualifying employees will have access to tax-sheltered accounts for three of life's biggest bills: retirement, college tuition and medical care.

However, only those employees enrolled in company-sponsored health plans with high deductibles can open the accounts.

President Bush is expected to sign the legislation, which passed the Senate Nov. 25 and the House the previous week.

Loosely akin to a medical 401(k), the health savings accounts will appeal to many workers. The so-called HSAs can build from year to year as employers and employees contribute money. Workers can take the money with them if they change jobs.

The accounts may be used to pay for everything from doctor's visits and drug prescriptions to chiropractic care and premiums for long-term-care insurance. Cash-strapped workers can even tap their HSA for nonmedical expenses but they must pay a 10 percent penalty on the amount withdrawn. Experts predict such accounts could slow spiraling health-care costs by encouraging workers to conserve on medical care because they'll be paying some bills themselves.

Not all workers will be eligible, however. To qualify, workers must be enrolled in "high-deductible" insurance plans that require workers to pay at least the first $1,000 of medical expenses themselves before the insurance begins to pick up the tab.

Such plans allow workers and their employers to pay sharply lower premiums — and plow the savings into an HSA "rather than give that money to the insurance company month after month after month," said Michael Berry, who heads American Health Value in Boise, Idaho.

Under the new Medicare bill, workers or their employers could fund HSAs with the amount of the deductible, not to exceed $2,250 for an individual and $4,500 for family coverage. Starting in 2006, workers who are 55 and older would be allowed to contribute at least $500 extra.


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