Wisconsin Gov. Says No to HSA Tax Break

Published August 1, 2004

As the Wisconsin legislative session came to a close, state legislators passed a bill to give citizens a state tax deduction for contributions to Health Savings Accounts. Democrat Governor Jim Doyle promptly vetoed the measure.

“The Council for Affordable Health Insurance (CAHI) is very disappointed by Doyle’s veto,” said CAHI State Affairs Director J.P. Wieske, a Wisconsin native.

“Wisconsin employers have been begging for help with their health insurance premiums,” said Wieske, “and Doyle’s answer to rising health care premiums in Wisconsin is to just say no. Unfortunately, this problem isn’t going away. This is why HSAs are necessary: By allowing people to manage their own costs and make their own decisions, HSAs have an inherent ability to bring costs under control.”

Congress authorized federal tax deductibility for HSAs in last year’s Medicare reform bill. HSAs allow employers, employees, or both to contribute to a tax-deferred personal savings account that is used to pay for routine care and other small medical expenses. An HSA must be linked to a high-deductible health insurance policy with a minimum $1,000 deductible for an individual or $2,000 for a family.

Wieske noted Wisconsin has one of the nation’s highest income tax burdens. A deduction for HSAs, as allowed on federal income tax returns, would have provided some welcome tax relief to citizens of the state and helped make health insurance more affordable, he said.

Wieske added there “is no possibility” of legislators overriding the veto, because the margin of approval for SB 568 was too small. He also noted Wisconsin legislators have not overridden a veto since the 1970s.

Bargaining Chip

“I am concerned that Doyle may continue to make the wrong decisions regarding health care legislation,” Wieske said. “As a Wisconsinite I am very disappointed in the governor, and I hope that he will start making the correct decisions for the health of Wisconsin’s citizens.”

Wieske said the governor’s veto apparently was issued at least in part to assuage concerns of labor union leaders, who have come out against HSAs. “I think the theory is that it’s a bargaining issue for them,” Wieske said. “If there’s a move into the high-deductible health plans, the unions lose something to bargain with. Bargaining then becomes only a wage issue and not a quality of life issue, which a lot of their bargaining has been based on.”

Additional Burden

In issuing his veto, Doyle said, “Health Savings Accounts are inextricably linked to high-deductible medical insurance and therefore could decrease employer-sponsored insurance coverage.”

CAHI points out no study supports that contention. The evidence, in fact, supports the opposite conclusion, according to CAHI reports. High-deductible plans, which are less expensive than low-deductible plans, make it easier for employers to continue providing coverage, according to CAHI.

Doyle objected to the bill as changing the state tax code “for employers to reduce their current level of coverage and offer only policies with high deductibles which will burden middle-income families.”

CAHI responded, “the proposed tax deduction applies only to individuals who contribute to an HSA account. As a result of Governor Doyle’s veto, employees who have had their benefits ‘reduced’ will have the additional burden of paying Wisconsin taxes on their HSA contributions.”

Industry evidence suggests the appeal of HSAs is not primarily as a means for employers to reduce health care expenses. Milwaukee-based Assurant (formerly Fortis) has reviewed data of roughly 44,000 HSA applicants from January to April 2004 and found:

  • 42 percent of the applicants were previously uninsured;
  • 27 percent of HSA purchasers have a net worth of less than $25,000; and
  • more than 70 percent of HSA purchasers are over age 40.

Wide Appeal

Doyle has argued that Medical Savings Accounts (MSAs)–a very restricted precursor to HSAs–appealed only to high-income individuals in good health. He said he believed HSAs would follow the same course.

CAHI charges Doyle is wrong on all counts. At a February 2004 Galen Institute forum on consumer-directed health care, six insurers presented data showing that MSA enrollees as a group were older and of slightly poorer health status than those opting for other forms of coverage.

Other organizations have presented evidence that despite chronic conditions or high medical expenses, some people are attracted to consumer-directed plans because they gain greater control over health care decisions than under conventional managed care plans.

Steve Stanek is an Illinois-based freelance writer and regular contributor to Health Care News. His email address is [email protected].