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February 1, 2006

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The President's Health Care Proposal and Small Business

Posted by Barbara Weltman at 11:22 AM

One of the key topics in the State of the Union address concerned Health Savings Accounts (HSAs), a concept introduced by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and first effective for 2004. Health Savings Accounts combine a high-deductible health insurance policy with a savings-type account to pay medical costs not covered by insurance on a tax-advantaged basis. They are a consumer-driven approach to health coverage that the President hopes to expand in several key ways:

Create Association Health Plans to allow small businesses access to low-cost insurance in the same way now available to large corporations and unions.
Improve deductibility for HSAs (e.g., allow tax-deductible contributions for all out-of-pocket expenses rather than limiting them to the insurance deductible).
Add an income tax credit for any payroll taxes on high-deductible health care premiums.

Will these measures help small businesses and individuals (there are an estimated 45 million currently uninsured individuals) obtain affordable health care? The jury is still out, but deliberation is essential. The cost of health insurance continues to rise and many small businesses simply can't afford traditional coverage. Switching to a high-deductible health plan (where the insured bears an initial high out-of-pocket deductible) is becoming increasingly popular for many self-employed individuals and small employers. For some, this alternative is the only way in which they can afford to offer a health benefit to employees. Optimists predict that new incentives could expand the use of HSAs to 21 million individuals by 2010. But even pessimists recognize that the current state of health care must be addressed, and HSAs are certainly an interesting approach.

Read more from Barbara Weltman in the Law & Tax Resource Center.