Health savings accounts, or HSAs, are a new health insurance
option that became available in 2004. HSAs couple a tax-
preferred savings account (the HSA) with high-deductible health
insurance. Enrollees or their employers, or both, make tax-free
contributions to the HSA. Enrollees use the funds in their HSAs
to purchase medical care until they reach their deductibles. At
that point, health insurance begins paying part or all of
enrollees’ medical expenses. HSAs reduce government’s influence
over consumers’ medical decisions by reducing the price
distortions created by the federal tax code. However, HSAs as
they exist today do not eliminate those distortions. Current HSA
law restricts consumers’ health insurance choices, makes it
difficult for the chronically ill to save for their future
medical needs, and discourages cost sharing above the health
insurance deductible. To address some of those shortcomings,
President Bush proposes to reduce the price distortions further,
through higher HSA contribution limits a