Washington, DC — Those who push for market-based health reforms on Capitol Hill are feeling cautiously optimistic. The current buzz fueling optimism is the data being reported from several sources including AHIP, EHealthinsurance, and Assurant Health about the impact of Health Savings Accounts (HSAs).
According to these reports, Congress and the American people are discovering that the naysayers were wrong and those pushing market principles were right: HSAs are not simply for the wealthy, healthy, and young. EHealthinsurance finds 40 percent of HSA purchasers have incomes less than $50,000. Assurant reports 27 percent of those purchasing HSAs have a net worth of less than $25,000–about 1/12 the average cost of a home in the D.C. metropolitan area.
HSAs Benefit Uninsured
|America’s Health Insurance Plans||37 percent of HSA policies were purchased by persons who were previously uninsured.|
|EHealthInsurance||Nearly 33 percent of HSA purchasers were previously uninsured for more than six months.|
|Assurant||40 percent of applicants did not indicate having prior health insurance.|
The most exciting and politically motivating news is that HSAs are making a dent in the uninsured population. Three different sources report that between 33 percent and 40 percent of those purchasing HSAs were previously uninsured. (See table.)
As a result, members of Congress who supported HSAs can say they have done something that (a) helps the uninsured, (b) is not another public program or entitlement expansion with an inherent budgetary time-bomb, and (c) may in fact encourage consumers to treat their health and pocketbooks in ways that are better for both their health and welfare.
Further Legislation Possible
Because of the positive results being reported from HSAs, proposals that build upon their expansion may be the best bet for a Congressional “next step” that goes all the way to the president’s desk for signature.
One bill that has been introduced in both the House (H.R.1872) and the Senate (S.978) combines three proposals that would make HSAs more affordable for those who are uninsured and have modest incomes and those who work in small businesses. These demographic groups represent large proportions of the uninsured.
The “Health Coverage for the Uninsured Act of 2005,” sponsored by Reps. Sam Johnson (R-TX), Eric Cantor (R-VA), Paul Ryan (R-WI), and J. D. Hayworth (R-AZ) and Sens. Rick Santorum (R-PA) and Jim DeMint (R-SC), would build on HSAs in the following ways:
Individual health care tax credit for HSAs. The bill would create a refundable and advanceable health care tax credit to help those with modest incomes purchase private health insurance. The advanceable feature means taxpayers with limited income do not have to front the money to buy health insurance and wait until the end of the tax year to receive the credit. Instead, they would get the credit month-by-month during the tax year as their premium came due.
Refundable means those taxpayers whose income is so limited they do not owe income tax would receive a payment from the government. Eligibility for the credit would be limited to those with incomes up to $60,000 (family) and $30,000 (single). If the consumer chooses a Health Savings Account, the legislation allows a portion of the credit (for example, $2,000 of the proposed $3,000 family credit) to be used for premium payments for a high-deductible health plan and the rest ($1,000 for a family) to be put into the person’s HSA account, helping them afford the deductible.
Projected cost to the federal government: $74 billion over 10 years, according to the Office of Management and Budget (OMB).
Tax credit for small business owners who contribute money to an employee’s HSA account. More than half the nation’s uninsured are either self-employed or work in businesses with fewer than 25 employees. Many small business owners want to help their employees with health insurance but cannot afford the $2,000 or $4,000 per employee for premiums. This bill gives them another option and promotes HSAs by encouraging them to provide dollars for HSA accounts.
Employers would receive a tax credit of up to $200 for individual and $500 for family contributions they make into an employee’s HSA account. Projected cost to the federal government: $22.7 billion over 10 years, according to the OMB.
HSA premium deductibility. Individuals who purchase a high-deductible health plan and contribute to an HSA and do not receive health insurance through their employers would be allowed a federal tax deduction for the amount of the premium. Projected cost to the federal government: $28.4 billion over 10 years, according to the OMB.
Political Support Rising
With a price tag of more than $125 billion over 10 years, the entire package is unlikely to pass during the current Congress. Senate Finance Committee Chairman Chuck Grassley (R-IA) likes HSAs, however, and his staff has indicated he is keen on making premiums for high-deductible health policies deductible for individuals, giving HSA owners in the individual market parity with those who receive employer-provided coverage.
Grassley’s counterpart in the House, Ways and Means Committee Chairman Bill Thomas (R-CA), has stated the tax code should not favor one form of insurance over another, so it’s unclear whether he would support making HSA premium payments tax deductible. However, Thomas will want to take into account the fact that four of his fellow Republican committee members and close allies are the sponsors of the “Health Coverage for the Uninsured Act,” containing the HSA premium deduction, and negotiate with them on any final outcome.
If Thomas can find the money, health care tax credits, an important part of H.R. 1872, could pass.
Another plus for these particular proposals is their broad-based support. Both Democrats and Republicans have come out in favor of health care tax credits, and all three of these proposals have the support of the Coalition for Affordable Health Coverage, a group representing the key stakeholders. (The author is executive director of this group.)
Timing, Agendas Tricky
Here’s where the “cautious” part of the optimism comes into play. Congress is overwhelmed with other thorny and complicated issues, in addition to the usual business of authorizing and appropriating.
For example, this summer Congress is supposed to complete significant work on Social Security Reform. In addition, the Senate will be preoccupied with the confirmation process for a new Supreme Court justice.
This fall, two other difficult tasks are on the agenda. First, Congress must finish a dozen appropriations bills–the legislation setting spending levels for all departments and functions. As of June, the House had passed all 11 of its bills, but the Senate had passed only two of 12.
The other difficult item on the fall Congressional agenda is passage of a so-called “Budget Reconciliation Bill” sometime in late September. Many see the reconciliation process as the prime opportunity for Congress to pass any or all of the items mentioned here to expand HSAs.
Laura Clay Trueman ([email protected]) is executive director of the Coalition for Affordable Health Coverage and senior director of Jefferson Government Relations, LLC.
For more information …
HSA demographic data are available online at:
“Number of HSA Plans Exceeded One Million in March of 2005,” America’s Health Insurance Plans, May 2005; http://www.ahipresearch.org.
“Health Savings Accounts: The First Year in Review, January, 2004-December, 2004” published by online broker, eHealthInsurance, February 2005, http://www.ehealthinsurance.com/content/ReportNew/0215052004HSA1stYrRev.pdf.
“Quick Facts: Health Savings Accounts,” Assurant Health, based on Assurant Health’s HSA sales from January 1, 2004, through February 2005, May 2005, http://www.assuranthealth.com/about/factsheet.shtml.