Relief From High Health Insurance CostsWritten By Anthony Obadal Written by Christian Klein
Article Date: 06-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
Rising Costs are taking a toll on all sectors of the economy.
America is facing a health insurance crisis.
Ninety-five percent of respondents to a recent AED member survey said their health insurance premiums had increased in the past year, with 85 percent reporting increases of 10 percent to 30 percent.
Higher insurance costs are hurting distributors and their employees. Sixty-two percent of survey respondents said their companies had absorbed all or part of the cost increases, 79 percent said they had been forced to increase employee contributions, and 45 percent said their companies had scaled back coverage.
The nation’s leaders recognize they’ve got a problem on their hands. Congress is considering legislation supported by President Bush that would make it easier for organizations like AED to offer “association health plans” (AHP) to member companies and reduce their insurance costs.
Enacting an AHP bill is one of AED’s top legislative priorities. Another is passing legislation to restore sanity to the nation’s tort law system, thereby mitigating the impact frivolous lawsuits have on insurance premiums. Unfortunately, the narrow margin of Republican control in the Senate make enactment of either AHP or tort reform bills unlikely in this divisive election year.
But some help has arrived. Business owners around the country are starting to wake up to a provision in last year’s Medicare bill that seeks to make it less costly for employers to provide health coverage for employees, while at the same time encouraging them to be more responsible health care shoppers.
The new law allows for the creation of health savings accounts (HSA), which have been likened to “a health care 401k”. Simply stated, HSAs provide a vehicle for employees to pay current health care costs and save for future medical expenses on a tax-free basis.
The new law requires HSAs be used in conjunction with high-deductible health plans (HDHP), health insurance policies that, among other things, have minimum deductibles of $1,000 for individuals and $2,000 for families.
Once the HDHP and HSA are set up, individuals or employers (or both) can contribute to the HSA account. Contributions by individuals are considered “above-the-line” tax deductions, while employer contributions are not considered part of the employee’s income and are not subject to tax. Each year the employee and employer can contribute an aggregate amount to the HSA equal to the lesser of the HDHP’s deductible or the maximum specified by law ($2,600 for individuals and $5,150 for families for 2004). The contribution cap is indexed to increase annually with inflation.
Distributions from the HSA are tax-free if taken for a qualified medical expense, which, according to guidance material, can even include over-the-counter drug purchases. Money in the HSA can be used by the person the HDHP covers, as well as by a spouse or dependant, even if the HDHP doesn’t cover those people. If HSA money is used for something other than a qualified medical expense, it’s considered taxable income and is potentially subject to an additional 10 percent tax.
At a recent briefing, Treasury Secretary John said he believed the new law was “historic” because an HSA puts the individual in charge of health care purchasing decisions.
“If an individual is using an HSA,” he said, “health purchasing decisions are made by that individual, in conjunction with the counsel of their physician. And that ‘s something a lot of people have been asking for. It also gives consumers the opportunity to budget for their health expenses over many years. Money that is not spent in one year can roll over to the next, indefinitely. It’s something that makes a lot of sense and will prove to be empowering for consumers.”
As with all insurance issues, there are important details and nuances to consider before converting your company’s coverage to an HSA-based plan. But to hear the administration tell it, HSAs will prove to be an innovative tool for employers.
For more information about HSAs, go to http://www.treas.gov/offices/public-affairs/hsa/.
Obadal (firstname.lastname@example.org) and Klein (email@example.com) are AED Washington Counsel. They can be reached at 703-739-9513.
Excerpted from June 2004 Construction Equipment Distribution.
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