Economic Report of the President

Participants in HSAs must be covered by a high-deductible healthinsurance plan (a minimum annual deductible of $1,000 for individuals and$2,000 for families). Contributions can be made each year up to the amountof the policy’s annual deductible. The maximum contribution is the lesser ofthe deductible amount under the high-deductible health insurance plan or(for 2005) $2,650 for individuals or $5,250 for family coverage. These dollarlimits will be adjusted for inflation each year. Individuals over age 55 canmake extra contributions with the same tax advantages. Participants can withdrawfunds as needed for deductibles and co-payments, as well as forover-the-counter drugs, long-term care insurance, and health insurancepremiums when unemployed. Amounts withdrawn for any other purpose aresubject to taxation plus a 10 percent penalty. Once employees reach age 65,they can take money out without penalty for any reason.HSAs have major potential benefits. They can reduce health care spendingbecause, for amounts up to the deductible, people will choose to consume thelevel of care that best suits their needs, rather than consuming the amount ofcare provided by their health coverage. HSAs also are likely to increase thenumber of insured because, using HSAs, premiums are paid with pre-taxdollars. This effectively makes high-deductible health care plans less expensivefor the individual purchasing them.The benefits of HSAs can be extended in a number of ways. More than halfof the uninsured are small-business employees and their families. The Presidenthas proposed giving small-business owners a refundable tax credit for contributionsmade to their employees’ HSAs. He also has proposed extending thebenefits of HSAs to low-income Americans by providing a $1,000 directgovernment contribution to their HSAs, combined with a refundable taxcredit up to $2,000 to help purchase a high-deductible health plan.Millennium Challenge AccountsStrengthening property rights systems creates a variety of benefits inthe context of international development, some of which are described inBox 5-2, which discusses land titles in developing countries. To encourageeconomic growth and poverty reduction in the developing world, the Presidentestablished the Millennium Challenge Account (MCA). The MCA representsa significant change in the provision of economic development assistance todeveloping nations. The MCA is based on the insight that development assistanceis most effective when funds flow to countries that have policies andinstitutions that promote growth. Only those countries that have takenconcrete steps to improve their own economies and governance structures, andthus ensure that aid will be effective, are eligible for MCA assistance.To receive grant assistance, a country must abide by three key principles:economic freedom, just governing, and investment in people. Those principles130 | Economic Report of the President