The House Small Business Subcommittee on Workforce, Empowerment, and Government Programs held a hearing on March 18 to discuss health savings accounts (HSAs), which were established under the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (P.L. 108-173). Under HSAs, an individual, employer, or family member can contribute a pre-tax amount equal to an individual’s health plan deductible, with an annual maximum of $2,600 for an individual and $5,150 for a family. The accounts earn interest tax-free and any unused funds may be rolled over each year.
“Approximately six out of every ten uninsured Americans are in families headed by workers who are either self-employed or work at firms with fewer than 100 employees,” stated Chair Todd Akin (R-MO). “It is often the case that the overall cost of health insurance is the greatest barrier to small businesses in providing such coverage to their employees,” he stated, noting that HSAs would help individuals and small businesses better control their health care costs.
The subcommittee heard from several witnesses who testified in support of HSAs. Victoria Braden of Braden Strategies, Inc. testified on behalf of Women Impacting Public Policy (WIPP). “WIPP commissioned a bipartisan poll of women business owners in December 2003. Only one in five businesses offer fully paid health insurance coverage,” she said, continuing, “When asked why they do not provide coverage, the majority said it was just too expensive to offer.”
Ms. Braden said, “As costs are increasingly shifted from employer to employee, the availability of a Health Savings Account will help employees make wise health care choices by allowing them to choose how to spend their health care dollars.” While applauding the creation of HSAs, Ms. Braden told the subcommittee that several clarifications were needed before carriers could fully implement the accounts: 1) what services are considered preventive, and what services are allowed co-pays; and 2) whether employees are allowed to use Flexible Spending Accounts in conjunction with HSAs.
Saying that HSAs would “jump start the small group health insurance market in 2004,” Kate Sullivan of the U.S. Chamber of Commerce told the subcommittee, “Many small businesses have already been forced to adopt higher deductible health plans as insurance costs nearly doubled over the last five years. Insurers specializing in these kinds of health plans will enter states where they had once done business and left, or will become new market alternatives to the one dominant insurance carrier serving the small group market. Traditional insurers will also offer HSA products in an effort to retain small business customers. Small businesses desperately need this market competition for their substantial premium dollar.”
Ms. Sullivan suggested additional measures aimed at reducing health care costs, including refundable tax credits, a modification to the “use it or lose it” rule for Flexible Spending Accounts that would allow employees to carry over up to $500 of unspent funds to a retirement savings plan, and improved information about the health care delivery system. “Critics of market-based health care solutions are working overtime to convince policymakers that the widespread use of Health Savings Accounts and health insurance tax incentives aimed at individuals will undermine the employer-based health system,” she said, adding, “In fact, such windmill-tilting exercises divert attention from the true enemy of the system on which 136 million American employees of private employers and their dependents rely: COST.”
Dr. Linda Blumberg of the Urban Institute agreed with the scope of the problem facing small businesses: “Only 39 percent of establishments in firms of fewer than 10 workers offer health insurance to any of their workers, compared to 99 percent of establishments in firms of 1000 or more workers.” However, she disagreed that HSAs were the solution. Saying that the accounts would “exacerbate the problems faced by small employers and their workers,” Dr. Blumberg added, “These accounts are most attractive to high income people, and those with low expected health expenses. The tax subsidy is greatest for those in the highest marginal tax bracket and is of little or no value at all to those who do not owe income tax.” She also said that HSAs “increase administrative costs” and “further segment individuals according to health care risk.”
Dr. Blumberg pointed out that there are other tools available to provide affordable health insurance. “The focus of such efforts should be on lowering administrative burdens, developing mechanisms for spreading the risk of high cost cases more broadly, and subsidizing low income workers. Reforms intended to expand coverage to small firm workers and their dependents should be evaluated in terms of these goals,” she said.
Rep. Phil Crane (R-IL) also testified before the subcommittee in support of a bill (H.R. 3901) he has introduced that would allow a tax deduction for individuals who purchase high-deductible insurance policies in conjunction with HSAs.
