Continuation of Research on Consumer Directed Health Plans: HSA Simulation Model Refinement . A. Prior Study

01/21/2007

In a previous report for the Office of the Assistant Secretary (QASPE) of the Department of Health and Human Services (DHHS),3 we simulated the effect of the Medicare Modernization Act of 2003 (MMA) on take-up of HDHP in the individual health insurance market.  High deductible health plans feature a large deductible coupled with a Health Savings Account (HSA) owned by the individual that can be used to pay for eligible medical expenses.  The MMA made it possible for contributions to the HSA to be made on a tax-preferred basis.  That is, contributions less than the size of the deductible are exempt from federal income taxes.  If the contribution is made by an employer, it is exempt from Social Security taxes as well.  Assuming no additional tax policy incentives are offered for HDHP enrollment, we predicted that there could be approximately 3.2 million HDHP-covered lives among the U.S. population between the ages of 19-64 who are not students, not eligible for coverage under employer-sponsored health insurance, and not enrolled in public health insurance programs.

We also simulated the impact of additional subsidies for HDHP enrollment, including one based on our interpretation of the Administration's 2004 proposal that featured low-income tax credits for the purchase of HDHPs.4 Our model predicted that proposal would have increased HDHP take-up and reduced the uninsured by 2.9 million people at a tax cost of $8.1 billion per year, or an average tax cost of $2,761 per person newly insured.

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