There is a new option in health insurance coverage that is particularily well-suited for small business. Health Savings Accounts (HSAs) are individual investment accounts, owned by the individual, associated with high-deductible major medical insurance plans.
HSAs are designed to cover the out-of-pocket exposure from the deductible and co-pays. For 2005, the maximum contribution allowed is $2,650 for an individual or $5,250 for a family. While they are not a fix-all to the health care crisis we are facing, they can have a real impact.
HSAs are currently tax-exempt on the federal level and in all but nine states. We are now debating the tax status of these accounts in Madison. I believe the money used for these accounts should be state tax-exempt to encourage their use and bring us in line with most of the country.
HSAs were created as part of the Medicare Modernization Act of 2003. They were modeled after Medical Savings Accounts, but require a high-deductible plan. Since that time, their popularity has been growing rapidly, and for good reason.
After speaking with both business owners and insurance agents, some very common themes appear. There is no doubt that companies can save money by switching to a high-deductible plan, but even with the employer contributing fully on behalf of the employee, the company still saves significant money. Plus, the employee appreciates seeing a growing account in their name. Because the plans encourage both a wise use of health care dollars and an increase in preventive care, the premiums are also likely not to suffer huge increases.
The big advantage long-term is that these accounts roll over until retirement with the interest gains also being (federally) tax-exempt. Additionally, these plans allow the application of that money to a much broader area of medical expenses than a traditional HMO plan.
Some political critics of these accounts are fearful that companies will switch to the HSA
plans, pocket the savings and not contribute to the account. At this time, there is no data to back this up. In fact, just the opposite seems to be true. The companies that are taking advantage of these plans are contributing to the employee’s accounts as an incentive to retain workers. But the most important change, according to a report by the Heartland Institute, is that 43 percent of those getting HSAs were previously uninsured. These plans simply allow businesses to provide coverage that were unable to previously do so.
Another opposing theme is that these plans are for the healthy, wealthy and young. From the same study, we learn that 46 percent of HSA owners have a family income of less than $50,000, 70 percent are over 40 years old, 77 percent have children and they are 31 percent more likely to use preventive care than those with traditional insurance.
We passed an amendment to AB4 which would allow for a tax-free rollover of funds from an MSA to an HSA and enabled the tax deduction to be retroactive for 2004. Eventually, it will end up on Gov. Doyle’s desk. I am hopeful that he will allow the State of Wisconsin to match the federal tax status on these accounts, giving business owners a useful tool in providing benefits.
State Rep. Jeff Fitzgerald (R-Horicon) represents the 39th Assembly District and is the assistant majority leader of the Wisconsin State Assembly.
February 4, 2005, Small Business Times, Milwaukee, WI
