FOR IMMEDIATE RELEASE Contact: Trent Duffy
April 4, 2001 (202) 225-8933

WASHINGTON – Chairman Bill Thomas (R-CA) and Rep. William Lipinski (D-IL) today introduced bipartisan legislation to expand the eligibility for Medical Savings Accounts (MSAs) to more Americans and to make MSAs permanent. In 1996, Congress enacted a pilot project on MSAs but limited the number of Americans who were eligible to participate. The expansion of MSAs is a key component of President Bush’s tax relief plan and was included in his budget blueprint submitted to Congress in February. A summary of the plan follows this release.

"MSAs can and should be a major part of our effort to make health care coverage affordable and accessible to all Americans. Just like Individual Retirement Accounts that today help 36 million people prepare for retirement, MSAs provide people with a tax incentive to save for their medical needs. This bipartisan plan is one piece of our overall plan to expand health insurance coverage opportunity for all Americans," said Chairman Thomas.

"Today, following in the bipartisan spirit under which MSAs were originally created, Chairman Bill Thomas and I have introduced the Medical Savings Account Availability Act, with strong bipartisan support. This bill would repeal the 750,000 cap on taxpayer participation and make MSAs permanent. The legislation also expands the eligibility of MSAs to all individuals with a qualified high deductible plan. With 43 million Americans vulnerable and uninsured, it's time to make MSAs available to everyone," said Rep. Lipinski.

An MSA is a tax-exempt account, similar to an IRA, for individuals to save their own money, tax-free to spend on their own health care. MSAs have a number of advantages:

• MSAs put individuals in control of their health care.

• MSAs make consumers more cost-conscious by letting them decide how they will spend their own money.

• MSAs make health care more affordable by reducing the cost of premiums. More than one-third of those with MSAs were previously uninsured.

• MSAs allow individuals to save for their own long-term care expenses, rather than depending on government programs such as Medicaid.

Makes Medical Savings Accounts permanent. Last year, Congress extended MSAs for two years. However, many insurers are unwilling to invest the capital to market MSAs if they will expire shortly.

Expands the eligibility of MSAs to all individuals with a qualified high deductible plan. Currently, MSAs are limited to small employers that have 2-50 employees. This provision allows any size company to offer MSAs and also allows individuals to purchase MSAs.

Lowers the minimum deductible to $1,000/individual plan and $2,000/family plan. The lower deductible will be less intimidating to consumers who will be able to raise their deductible and save money on premiums over time as the funds in their MSA grow.

Allows annual contributions to the MSA to equal 100% of the deductible. This will reduce out-of-pocket exposure for MSA holders by allowing them to more quickly reach their deductible with tax-free contributions. It also provides incentives to save more money in their MSA, which can later be used for long-term care.

Allows both employers and employees to contribute to the MSA. This will help all MSA holders to more quickly fund their MSAs, limiting their out-of pocket exposure and allowing build up of reserves for long-term care expenses.

Encourages Preferred Provider Organizations (PPOs) to offer MSAs. Currently, a qualified high deductible plan may cover preventive benefits mandated by state law. However, many PPOs offer first dollar coverage on non-mandated preventive care, as a marketing tool. This provision would encourage PPOs to sell MSAs and cover important preventive benefits.

Allows MSAs to be offered by cafeteria plans. Offering MSAs under cafeteria plans will: (1) greatly expand the number of consumers that can be reached by MSAs; and (2) treat MSAs like other health plans.

Repeals the 750,000 cap on taxpayer participation. Many insurers have been reluctant to offer MSAs because the cap limits the size of the market in which MSAs can be offered.

MSAs put consumers in control of a portion of the money that’s spent on their health care. An MSA is a tax-exempt account, similar to an Individual Retirement Account (IRA), used to pay for eligible medical expenses.

A typical MSA example is as follows (NOTE: The Thomas-Lipinski plan would change many of these provisions to expand MSAs and make them more affordable and attractive).

The consumer buys health insurance with a high deductible – $1,550 or higher for an individual and $3,100 or higher for a family. The policyholder then establishes an MSA and can contribute a maximum of 65 percent of the deductible for individuals, or 75 percent for families. Either an employer or an employee can contribute, but not both. Payments can be made in a monthly installment or in one lump sum at the beginning of the year.

Using checks drawn on those accounts, policyholders pay medical bills and submit claims to insurers. Once the deductible is met, plans often pay up to 100 percent of the medical costs. At the end of the year, any money remaining in the account is carried over to the next year. All contributions are deductible on Federal tax returns, and 25 states offer deductions as well. Interest accrues tax-deferred up to age 65 and is entirely tax free if used for medical purposes. If the money is withdrawn for non-medical purposes, there is a 15% penalty and the income taxes must be paid.

The American Academy of Actuaries estimates that changing individuals from insurance policies with a $200 deductible (and $1,000 maximum out-of-pocket) to a $1,500 deductible (and $2,500 maximum out-of-pocket) would reduce annual premiums from approximately $2,699 a year to as low as $1,920 a year – 29 percent reduction. Premium savings would amount to $779. Under current law, the savings could be deposited tax-free in the MSA for use to pay future medical costs.

A study conducted by the Rand Corporation discovered that when individuals spend their own money on health care services, they spend 30 percent less with no adverse health effects.

Dominion Resources, a utility holding company, deposits $1,620 a year into a savings account for the 80 percent of its employees who choose a $3,000 deductible rather than the standard lower rate. The company experienced no premium increases in their health benefits plan for several years compared to 13 percent annual increases in the same sector.

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