During this past legislative session, Wisconsin’s legislature voted to approve the tax deductibility of Health Savings Accounts, otherwise known as HSAs. The measure, known as Senate Bill 568, was in response to a provision found in the Medicare Prescription Drug Bill passed by Congress this year that provided for favorable federal tax treatment of HSAs.
HSAs are tax-exempt accounts used to pay for certain medical expenses for employees who are covered under qualified high-deductible major medical policies. In essence, an individual or employee would purchase a health plan that has a large deductible. The individual or employee would then set up a savings account to put aside money to help pay for medical care under the deductible.
If the individual seeks medical care, the money in the account would be used to pay for such care until the deductible is met, at which time, the insurance plan would pay for medical care. Any money left over in the savings account becomes the property of the individual to carry over from year to year. The money to put in the savings account can come from two sources:
1. An employer, if the HSA is set up under a group plan.
2. The savings in premium that is generated by purchasing a large deductible plan in comparison with a small deductible plan.
This simple and pro-taxpayer proposal surprisingly generated opposition from at least one labor union and subsequently was vetoed by Wisconsin Gov. Jim Doyle. In a statement, the Wisconsin State AFL-CIO stated that HSAs are "a totally inadequate response to our health care crisis. It is reckless for the state to encourage a health policy that will cost state taxpayers substantial money and actually reduce comprehensive employment-based coverage for working families."
This statement is completely confusing, as HSAs are designed to save money for taxpayers and will potentially ensure the continued availability of employment-based coverage. Moreover, it is not our health care that is in crisis, rather it is health care costs that are in crisis, and thus HSAs are a most appropriate response, as these plans will hopefully encourage individuals to be wise consumers of health care.
In a statement by the governor, he used similar rationale as his reasons for vetoing the HSA bill. The governor also stated that HSAs were only designed for the wealthy and the healthy. This is factually incorrect.
In a review of one insurer who has had over 40,000 enrollees, they found that 42 percent of their applicants were previously uninsured and that 27 percent of all purchasers had a net worth of less than $25,000.
Other insurers have had similar statistics, which showed that HSAs reduced the number of insured.
Everyone could benefit from an HSA, whether you are healthy or unhealthy, rich or poor. The concept of this plan is to fund the account through the savings realized by purchasing a large deductible major medical policy.
Statistically, only a small percentage of consumers actually have large catastrophic claims. For the small minority of people who will end up using those savings for medical expenses, they are no worse off than if they purchased an expensive health insurance policy that had little or no deductible.
However, for the majority of people who incur very little medical expenses during the course of a year, the savings remains their money rather than the insurance company’s. This type of consumer-driven health care plan does not benefit the wealthy, healthy or the insurance companies. It benefits all consumers.
Ironically, Wisconsin consumers continue to purchase health plans with higher deductibles each year. For many, they have already purchased a qualified high-deductible plan. All this legislation would have done is to provide tax incentives that allow individuals to put aside money to help pay for medical expenses, with the potential of large savings over a traditional plan.
Objecting to this legislation has simply hurt the thousands of cost-minded Wisconsin citizens who have, and who will, purchase these types of plans in an effort to save money. Although SB568 did not become law, it will not change the demand for this type of consumer-driven product, and Wisconsin taxpayers will continue to benefit from the federal tax savings they will receive through HSAs.
However, it would have been nice if Wisconsin taxpayers and health care consumers could have received a break on taxes from their own state to help pay for the rising cost of health care.
This same bill is likely to come up again next session and we hope will meet a different fate from the governor. While there appeared to be only one special interest group that objected to SB568, it still seems inconceivable that anyone could object to such a pro-consumer piece of legislation.
Next year, if the Wisconsin legislature is successful in passing the HSA bill again, we are hopeful the governor’s concern for Wisconsin consumers will outweigh the objections of the few.
Dan Schwartzer is the executive vice-president of the Wisconsin Association of Health Underwriters. He can be reached at the WAHU office at 4600 American Parkway, EastPark One, Suite 208, Madison, WI 53718. He also can be contacted at (608) 268-0200. More information is available at www.eWAHU.org.
August 6, 2004, Small Business Times, Milwaukee, WI