Americans without employer-based insurance, or those who would rather have individual coverage, should enjoy the same tax benefits as the 175 million Americans with employer-based coverage.

We can do this through a new tax-free income exclusion up to $15,000 for Americans without employer-based coverage. Any amount a family pays less than $15,000 — for individuals, less than $7,500 — could be put tax-free into a Health Savings Account. This would create a powerful incentive for more Americans to own their private health insurance — making it portable instead of dependent on an employer.

If millions of people go into the marketplace looking for less expensive health insurance, it will drive the insurance companies to create less expensive products that meet individual needs instead of government mandates. Americans should have the option to buy health insurance similar to their auto insurance — covering major costs while leaving decisions about minor expenses to the consumer — while those happy with their current coverage can keep it.

Empowering people with real choice will improve markets and lower premiums. Expanded tax-free Health Savings Accounts could be used for insurance premiums, deductibles, and other expenses. With more flexibility and individual control, Health Savings Accounts can become a major source of tax-free savings and security for America’s middle class. As savings are created and there are reductions in the cost of health insurance, we will develop a new health insurance credit for low-income individuals and families so they can purchase private insurance tailored to their needs. We want to empower individuals, not the government.

I almost laughed out loud when I read the Economist’s article on US health care reform: Economics focus, Creeps and bounds (July 21, 2007)

…Massachusetts obliges individuals to buy insurance or else face higher taxes. This requirement lowers premiums overall, by forcing relatively healthy, low-risk people into a system they might otherwise avoid. Their premiums help to cover the costs of people who are more likely to need health care.

Sounds logical doesn’t it? But it’s hard to square with my 26.3 percent premium increase for next year, which coincides with the mandate’s phase-in. Am I supposed to believe that my increase would have been 30 or 40 percent otherwise? What does “lowers premiums overall” really mean in a market where premiums are rising rapidly for most everyone?

I have yet to hear of an economic system that forced people to increase demand lowered prices. That just makes no sense. However, if the uninsured were to go to individual HDHP’s with lower premiums - that could help drive down the cost of not only premiums, but health care itself, which is really the only way to fix this problem.

“A 50% cut in health insurance premiums would only reduce the number of uninsured Americans by 3%, estimates a Rand study out Monday, which suggests that incentives and government tax cuts won’t lead to universal coverage.”

Thankfully - the guys at InsureBlog get it right, by pointing out that these comments are made, despite compelling evidence to the contrary.

High Deductible Health plans may not be attractive to the chronically ill, of course - their premiums are going to be higher (although not up in the stratosphere, as they would with a PPO, if they even qualified).

My personal opinion is that the HSA+HDHP is attractive not only because of the cheaper health insurance (no one gets excited about HAVING to pay for something), but also the financial benefits of the HSA (tax diversion, interest income). THAT is where the interest comes in. If you were able to contribute $15k over 7-8 years to your HSA, the interest alone would pay your premiums (not that you can actually pay premiums with the HSA, it’s a bottom-line thing). That’s not considering the tax benefits on top of that.

The HSA legislation passed by Congress late last year offered many additional benefits not the least of which was the ability for a qualified HSA plan (HDHP) member to fully fund their health savings account regardless of when in the year they became covered by the plan. The only qualifier is that the plan member would have to stay on the qualified HSA health plan throughout what was called the “testing” or “deeming” period.

Unfortunately, the language in the bill was a bit confusing. It was clear that a person who became eligible in December could fully fund their HSA for that entire year so long as they stayed on an HSA-qualified health plan though December of the following year.

What was not so clear is what happens to the person who becomes eligible in June. Must they stay on the HSA plan through June the following year, or through December of the following year?

The answer that we received from the U.S. Treasury Department stated that the 12 month “testing period” is from the end of year. In other words, if the HSA is established in June with June 1, HDHP coverage, the individual must stay eligible until December 31, of next year.

This is probably not the answer most people will want to hear, but it is good to know.

This news came on the same day it was reported in Business Insurance that the Internal Revenue Service has proposed regulations that would allow employers that contribute to employees’ health savings accounts to accelerate contributions for employees whose medical care expenses are greater than what the employer has so far contributed to the HSA during the year.

Business Insurance reported that such an acceleration would enhance the appeal of HSAs by reducing employees’ concerns that their accounts could be exhausted if they incur big medical bills early in the year before employers make all of their contributions.

Technorati Tags: Consumer Driven Health Care

Anyone looking for proof that an HSA-style health plan can save an employer money should read the article posted on jsonline.com.

The article said that thanks to an HSA plan, Manitowoc County (Wisconsin) will save $1.1 million in 2008. Its employees will save $685,000. On top of that Employees pay none of the insurance premium and the county puts $3,000 a year into the employee’s HSA, which fully covers the deductible.

Now - Check this out as well:

An individual can deposit up to $2,850 into their HSA, and a family can deposit up to $5,650. For a family in a 28% tax bracket, this will reduce their taxes by $1,582. If they start their coverage July 1 and apply the tax savings towards their premium, they will reduce their monthly premium by $263. In many cases this will be enough to entirely cover the premium of their high-deductible health insurance plan.

So in other words, your coverage may not cost you a penny for the remainder of 2007.

I suggest, especially if you’re young, that you look into HSA’s as an alternative to traditional health care plans. If you have a great PPO/HMO plan from your employer, congratulation…but don’t rest too easy. Traditional health care plans are becoming too expensive for businesses to manage!

Stay Tuned!

This is yet another side-effect of the consumer driven health care movement - transparency in pricing. While this site isn’t everything you could wish for, it is a great step forward.

As a former resident of Tennessee, I was there when TennCare cuts left hundreds of people who really needed health care on the streets. Kind of makes you stop and think what could happen if we went to a National Health Care plan, doesn’t it?

That’s why you should look into whether or not an HSA and HDHP would work for you, you can take back control of your health care destiny today!

Technorati Tags: HSA, Health Savings Account, TennCare

Thanks to the Jewish Exponent for the info.

Created under the 2003 Medicare Act, a Health Savings Account is a tax-favored savings plan offered by many banks, insurance companies, brokerages and other financial institutions that can be used to pay for qualified medical expenses.

According to the Pennsylvania Institute of Certified Public Accountants, HSAs offer significant tax benefits to individuals who qualify.

But first, to establish an HSA, you must have health-care coverage under a high-deductible health plan. For 2007, these plans are defined as having deductibles of at least $1,100 for individuals and $2,200 for families.

HSAs are designed, in part, to help those with high-deductible policies pay for health expenses until insurance benefits kick in.

To be eligible for a HSA, you cannot be covered by any other type of medical plan.

Each year, you, your employer or both can contribute up to the amount of the deductible for your high-deductible health plan. An individual who is age 55 or older and not enrolled in Medicare may make a catch-up contribution of $800 for 2007.

HSA funds can be used to pay for qualified health expenses that the account owner, and his or her spouse or dependents incur. Qualified expenses include costs for doctor visits, prescription drugs, over-the-counter remedies, Medicare premiums — but not supplemental Medicare benefits — and more.

Once you meet your deductible, your health-insurance policy covers your medical expenses according to your policy provisions.

Funds withdrawn before age 65 for nonmedical purposes are subject to a 10 percent penalty, as well as taxes on the amount withdrawn. Taxpayers who are 65 and older have to pay taxes, but not a penalty, on amounts withdrawn for nonmedical reasons.

Be aware that funds remain in your HSA from year to year. This means the HSA funds continue to accrue tax-free until needed.

If you had an HSA in 2006, you may deduct up to the amount of your policy’s deductible, but not more than $2,700 if you have individual coverage or $5,450 for family coverage. For 2007, the maximum HSA deduction will move up to $2,850 for individuals and $5,650 for families.

The HSA deduction is an above-the-line deduction, meaning you don’t have to itemize to benefit from it. There is also no income or phase-out limit.

If your employer makes an HSA contribution for you, it is excluded from income and not subject to income tax or FICA. Additionally, Pennsylvania allows you to take a state income-tax deduction for HSA contributions.

Dividends and interest in the account are tax-exempt, which means the account grows tax-free until funds are withdrawn.

WHOA! Eric (the author) mentions people going to Canada to buy prescriptions, but he fails to mention that Canadians get to sit on waiting lists to see doctors to get scrips written. If he wasn’t trying to hard to downplay the benefits of free markets in health care, he would have probably mentioned that no form of socialized health care gets top quality physicians.

What he does get right is that, up until the movement towards consumer driven health care and transparency in pricing - the free market DID fail. But, there is evidence every day that it is starting to work. The generation of people just starting out in the workforce have a great option in Health Savings Accounts - and they have the ability to slowly take control of their own health care destiny, and get the power out of the hands of HMO’s and Insurance Companies.