HEALTH CARE: Medical Savings Accounts – A great idea that may go away
In 1996 the U.S. Congress created a pilot program to provide health care benefits for the self-employed and businesses with less than 50 employees. Tax-free Medical Savings Accounts (MSAs) provide an opportunity for individuals to have ownership and control over their health care dollars. They are personal savings accounts that are combined with a high-deductible health insurance policy. Account holders use the funds in an MSA to pay small, routine healthcare costs while using the insurance to pay more costly bills. Any dollars not spent during the year may be left in the account to grow tax-free.
Under the pilot project, Congress imposed several requirements and limitations including:
? Deductibles: The health insurance policy must have a deductible ranging from a minimum of $1,500 to a maximum of $2,500 for an individual, and from $3,000 to $4,500 for a family.
? Contribution limits: Contributions to MSAs are limited to a percentage of the insurance policy’s deductible. For individual coverage, the limit is 65 percent of the deductible and for family coverage the limit is 75 percent of the deductible.
? Joint contributions: The employer or the employee can make contributions, but not both.
? Participation: The pilot program only permits the sale of 750,000 MSA policies over a four-year period ending Dec. 31, 2000.
While the pilot project has been a step in the right direction, it has fallen short of its potential. Adjustments in the law are needed to encourage the health insurance industry to promote MSAs as an alternative to traditional indemnity insurance and managed care products.
Following are reforms needed to allow MSAs to become a viable option for purchasers of health insurance:
The Dec. 31, 2000 end date should be eliminated to allow buyers to be able to use MSAs for years to come and assure sellers of a long-term market for these products.
The 750,000 limit should be eliminated in order to allow an unlimited number of people to utilize MSAs and create a large enough market to encourage insurer’s to create competitive products. The current minimum deductible of $1,500 for singles and $3,000 for families is too high for lower and middle-income taxpayers.
To encourage greater participation, these deductibles should be lowered to at least $1,000 and $2,000 respectively. The current contribution levels of 65 percent for individuals and 75 percent for families creates a gap that can leave participants exposed to significant out-of-pocket costs. This restriction should be eliminated to allow people to deposit the entire amount of the deductible into their MSA.
Since current law does not allow both employers and employees to contribute to an MSA, employees are usually left to bear the entire burden themselves. This restriction should be removed to allow both employers and employees to make contributions.
The limit of businesses with 50 employees or less should be increased or removed entirely to allow greater opportunity for participation.
Changes such as these would allow MSAs to become a viable tool in expanding healthcare coverage and access. In addition, MSAs can offer an alternative product in the insurance market that would bring some much-needed competition.
Hopefully Congress will recognize the value of MSAs and will move to not only keep them alive, but also to expand their usefulness.
Rex Rudolph is the leader of Rehmann Robson’s health care consulting practice in Traverse City.
The CPA firm is one of the state’s largest, with offices in Grand Rapids, Muskegon, Kalamazoo, Saginaw, Jackson, Cheboygan and Farmington Hills. BN