The Bush administration advertised new tax-free health savings accounts, which will be available beginning next week, as a way for Americans to gain greater control of health-care spending.
To escape taxation on both contributions and withdrawals, dollars set aside in the accounts must be spent for medical expenses.
"This account is a good option and available to all Americans. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA," White House spokesman Scott McClellan said Monday.
However, guidance issued Monday by the Treasury Department limits eligibility for the special savings accounts to people who have health insurance policies with annual deductibles, the amount paid to cover expenses before benefits begin, of at least $1,000 for individuals and $2,000 for families.
In addition, Americans 65 years and older cannot open the new health accounts.
The conditions were stipulated in the Medicare law passed by Congress and signed this month by President Bush.
Despite the limitations, millions of Americans will qualify for the accounts, Treasury officials said.
Money deposited in the accounts could be invested, then withdrawn free of taxes for most medical expenses, including prescription drugs, long-term care services and Medicare premiums. Employers also would pay no taxes on amounts they contribute as employee benefits.
Individuals, their employers or their family members can put away the amount of their annual insurance deductibles, up to $2,600 a year for individuals and $5,150 a year for families. People age 55 to 64 could make additional contributions to build a medical nest egg.
The accounts can be set up beginning Jan. 1 and are expected to reduce Treasury revenues by $6.4 billion over a decade.
Critics contend the accounts establish a tax shelter for the wealthy and are a precedent for future accounts to let affluent families evade taxes.
They also worry that the accounts will increase health costs gradually for many people by drawing young, healthy and affluent people out of the general pool of health insurance into high-deductible insurance plans.
"If health savings accounts prove popular, as congressional scorekeepers expect, low-deductible insurance will gradually become more expensive or even disappear," wrote tax expert Leonard Burman and health expert Linda Blumberg of the Urban Institute, a private think tank in Washington.
Burman and Blumberg said that would hurt the sick and the poor most, but it also could affect middle-income wage earners if their employers should switch to higher-deductible group plans.
Aetna and UnitedHealth Group already have signaled their intention to offer the accounts. Several other insurers are expected to follow suit, said Joe Walshe, a principal in PricewaterhouseCoopers HR Services.
"It certainly is a very important contribution to the whole consumer-directed health-care movement," Walshe said.
Just 5 percent of all companies, but 17 percent of firms with 5,000 or more employees, offered high-deductible health plans in 2003, according to the Kaiser Family Foundation.
Smaller employers and people who buy their own insurance are generating the most interest in the new accounts for 2004, Walshe said. "The bigger companies are locked into their health plans for 2004," he said.
The federal Office of Personnel Management is considering establishing high-deductible plans and health savings accounts for federal employees, Treasury officials said.