[Congressional Record Volume 145, Number 91 (Thursday, June 24, 1999)]
[Senate]
[Pages S7593-S7595]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAMS (for himself, Mr. Roth, Mr. Abraham, Mr. Ashcroft, 
        Mr. Burns, Mr. DeWine, Mr. Frist, Mr. Gorton, Mrs. Hutchison, 
        Mr. Santorum, Mr. Thomas, Mr. Nickles, Mr. Mack, Mr. Craig, Mr. 
        Coverdell, and Mr. McConnell):
  S. 1274. A bill to amend the Internal Revenue Code of 1986 to 
increase the accessibility to and affordability of health care, and for 
other purposes; to the Committee on Finance.


               health care access and equity act of 1999

  Mr. GRAMS. Mr. President, I rise today with my colleagues Chairman 
Roth and Senator Abraham, to introduce legislation which will provide 
access to affordable health insurance for 43 million uninsured 
Americans, correct the inequities in the tax treatment of certain types 
of health insurance, and allow for the full deductibility of long term 
care insurance.
  The Health Care Accessibility and Equity Act of 1999 presents us with 
the opportunity to create the most comprehensive tax-deductible 
coverage system in our nation's history.
  One of the most discriminatory portions of the tax code is the 
disparate treatment between an employer purchasing a health plan as 
opposed to an individual purchasing health insurance on their own.
  Mr. President, when employers purchase a health plan for their 
employees, he or she can fully deduct the costs of providing that 
insurance, effectively lowering the actual costs of providing that 
coverage.
  However, when an employee purchases an individual policy on their 
own, they must do so with after tax-dollars. They don't have the 
ability or the advantage offered to employers to reduce the actual 
costs of the policy by deducting premiums from their taxes every year.
  Therefore, they usually wind up without health coverage. The Health 
Care Accessibility and Equity Act will end this discrimination within 
the tax code and make health care available for many Americans today.
  Further, the legislation offered today by Senator Roth, Senator 
Abraham, and myself would immediately allow the self-employed to fully 
deduct health insurance costs. Twenty-five million Americans are in 
families headed by a self-employed individiual--20 percent of those are 
uninsured.
  We always talk about trying to have more Americans covered by health 
care insurance. Yet, we have a tax code which discriminates against 
some, while favoring others. This results in fewer people being 
covered.
  Let's make the same tax incentives for purchasing health insurance 
available to employers apply to everyone--level the playing field and 
we will have taken the next logical step in the evolution of our health 
care system,
  Mr. President, I believe Congress should be doing all we can to lower 
the costs of health insurance.
  However, it seems most proposals before the Senate do just the 
opposite by forcing some federal definition of a quality health plan on 
consumers and sticking them with the bill.
  It's not good policy it does nothing for those who are uninsured and 
it certainly won't help those who will be forced to drop health 
insurance because they can no longer afford the premiums,.
  Mr. President, we've heard a lot of rhetoric about patient 
protections and why the Federal Government needs to step in and help 
consumers. Indeed, a better role for the Government is to help 
consumers by removing restrictions on Medical Savings Accounts as we do 
in this legislation as well.
  MSAs allow the consumers to control their costs when it comes to 
providing their families with health care. It would allow them to 
decide which provider they want to see and which services they want and 
will pay for. Certainly, empowering patients is a much more productive 
solution to a problem than simply forcing consumers to buy the 
government's definition of quality health insurance.
  When Congress created the medical savings accounts in the Kassebaum-
Kennedy Health Insurance Portability and Accountability Act, there were 
so many restrictions placed upon the program then that it was 
essentially set up to fail. Yet MSAs have managed to become 
tremendously successful.
  According to the General Accounting Office, 37 percent of all MSA 
policyholders were previously uninsured. When you gave them the option 
and the opportunity, they were then able financially to buy insurance. 
Clearly, MSAs are providing an option for those who before couldn't 
afford to buy health insurance.
  The bill we are introducing today does not force Americans into a 
government-centered health care plan, a system that they spoke so 
loudly against back in 1993, if we remember. Senator Kennedy's 
Patients' Bill of Rights legislation, I think, is another example of a 
government-centered approach which actually threatens the accessibility 
and the affordability of health care.
  Again, this morning, our legislation fosters a consumer-centered 
health care system without raising the costs, which so many of our 
constituents have favored.
  Glenn Howatt of the Minneapolis Star Tribune recently did an article 
on MSAs and spoke with several policyholders. I will read a portion of 
his article which I believe demonstrates exactly why Congress needs to 
lift the restrictions on MSAs so that everyone has the opportunity to 
purchase an affordable health insurance plan. Mr. Howatt gives an 
account of Suzanne Eisenreich Roberts.

       Last year, Roberts thought it would be a good idea to dump 
     her individual health insurance policy, which cost $330 every 
     month, because she rarely got sick.
       She switched to an MSA last year. Her premiums dropped to 
     $100 per month, but her deductible shot up to $2,250 a year.
       Two days after the new policy became effective, Roberts 
     developed a gallstone problem that required surgery. Although 
     the insurance covered the $14,000 surgery, Roberts had to pay 
     $2,250 to satisfy the deductible requirement.
       ``Financially, I can afford the deductible,'' said Roberts. 
     And, she noted, ``I was really out nothing because I would 
     have spent it in premiums anyway.''
       If Roberts had kept her old policy, her annual premiums 
     would have been $3,960.
       But her new policy's premiums are just $1,200 a year--a 
     $2,760 saving that more than makes up for the deductible 
     cost.

  Even though she went with the MSA, even though she had to have 
surgery the first year, she was far ahead by having a medical savings 
account compared to her own insurance policy.
  I ask unanimous consent to have printed the entire text of Mr. 
Howatt's article and another pertinent article in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                 [From the Star Tribune, Feb. 28, 1999]

  Medical Savings Accounts Offer Relief From High Health Care Premiums

                           (By Glenn Howatt)

       At time when health care premiums in Minnesota are up 15 to 
     20 percent over last year's rates, a growing number of small 
     businesses are turning to medical savings accounts as a way 
     to seek relief.
       Commonly known as MSAs, medical savings accounts combine a 
     high-deductible insurance policy with a tax-advantaged 
     account the consumer can use to pay the deductible. MSAs 
     represent a departure from the norm in a state serviced 
     primarily by health maintenance organizations and other forms 
     of managed care.
       Most health insurance policies in Minnesota provide 
     coverage for a wide range of medical needs--everything from 
     complex surgery to routine clinic visits.
       But under MSAs, insurance coverage doesn't kick in until 
     the individual policyholder has paid for thousands of dollars 
     worth of health care out of pocket.
       This high-deductible insurance policy is paired with the 
     medical savings account, a tax-advantaged fund that helps the 
     policyholder cope financially with the demands of the 
     deductible.
       To its advocates, the MSA is more than a one-time fix to 
     cut costs, instead representing a long-term approach to 
     buying health care.


                             The advantages

       The catastrophic insurance policy results in much lower 
     premiums, the high deductible controls costs by cutting down 
     on unnecessary visits to the doctor, and the attractive 
     savings account gives users an incentive to stay healthy so 
     they can use the money for other things, such as retirement, 
     advocates content.
       But MSAs also have critics, who say the high deductible is 
     a burden for those with chronic medical conditions. Some also 
     fear public health consequences if individuals

[[Page S7594]]

     avoid spending money to receive the kind of preventive health 
     care that is fully covered by managed care policies.
       Congress asked the General Accounting Office (GAO), the 
     investigative and research arm of the government, to gauge 
     the impact of MSAs on the health insurance market when it 
     authorized the marketing of MSAs under a four-year experiment 
     that began in 1997.

                           *   *   *   *   *

       While the policy implications of MSAs are still unclear, in 
     practical terms, MSAs are becoming an option for small 
     businesses and the self-employed, the only groups that are 
     eligible to set up MSAs.
       Under the current law, the definition of self-employed is 
     the same as the Internal Revenue Service's: a person who pays 
     self-employment tax or pays Social Security tax as a self-
     employed person. The plans are not available to people who 
     are unemployed or who have retired early and are not yet 
     covered by Medicare, but a bill proposed in the U.S. House 
     would expand the definition to include those groups.


                          small business buyer

       Eldon Kimball, owner of Edina-based Creative Systems 
     Software, happened upon the MSA option after he received a 
     general mailing from an insurance broker.
       Kimball, who provides health benefits for himself and his 
     four employees, was looking for some way to deal with 
     spiraling health care premiums.
       ``Premiums were going up and up and up and up and for a 
     small company like ours, that was becoming a terrible 
     burden,'' Kimball said.
       Small businesses such as Kimball's have few options--cut 
     benefits, ask employees to shoulder more cost, drop health 
     insurance altogether, or let health care take a bigger bite 
     out of the bottom line.
       While Kimball noted that switching to an MSA would lower 
     his total premium bill by nearly $200 a month, he was more 
     impressed with the benefits that the MSA could provide to his 
     employees.
       Kimball uses the money he saves on premiums to partially 
     fund the medical savings accounts for his employees, a move 
     that gives him a break on his taxes.
       The employees can use the money in their MSAs to pay for 
     medical costs--the annual deductibles for the insurance 
     policy are $2,250 for individuals and $4,450 for families.
       Anything that employees don't spend they keep, making the 
     MSA another way of saving for retirement. At that point, the 
     money becomes available for any purpose without penalty. 
     Withdrawals from MSAs can be made before retirement for non-
     medical purposes, but those are subject to penalties and 
     taxes.


                            retirement fund

       ``It has a long-term advantage,'' said Kimball. The MSA 
     ``becomes another benefit in the form of a retirement fund if 
     they don't use it.''
       Under the MSA regulations, employers are not required to 
     put money into employees' accounts.
       Edwrd M. Ryan, an Eden Prairie-based certified public 
     accountant who employs 10 workers, said his employees still 
     come out ahead even though he doesn't fund their MSAs.
       Before his office switched to MSAs last year, he split the 
     cost of the monthly insurance premium with his workers. Now 
     he pays the entire cost of the premium, freeing up workers' 
     money to fund their MSAs.
       But MSAs also come with high deductibles, as Suzanne 
     Eisenreich Roberts, who owns Accountant Profile Inc., a 
     Roseville-based placement agency for accountants, knows well.
       Last year, Roberts thought it would be a good idea to dump 
     her individual health insurance policy, which cost $330 every 
     month, because she rarely got sick.
       She switched to an MSA last year. Her premiums dropped to 
     $100 per month, but her deductible shot up to $2,250 a year.
       Two days after the new policy became effective, Roberts 
     developed a gallstone problem that required surgery. Although 
     the insurance covered the $14,000 surgery. Roberts had to pay 
     $2,250 to satisfy the deductible requirement.
       ``Financially I can afford the deductible,'' said Roberts. 
     And, she noted, ``I was really out nothing because I would 
     have spent it in premiums anyway.''
       If Roberts had kept her old policy, her annual premiums 
     would have been $3,960. But her new policy's premiums are 
     just $1,200 a year--a $2,760 saving that more than makes up 
     for the deductible cost.


                          targeting uninsured

       Companies that sell MSAs obviously are targeting people 
     such as Roberts who have little downside risk. But they also 
     hope to sign up people who could not afford health insurance 
     before.
       The GAO reported that of the nearly 42,000 MSA accounts 
     established in 1997, 37 percent were started by individuals 
     who previously did not have health insurance.
       ``MSAs were intended for having a lower cost mechanism to 
     attract more people without insurance,'' said Scott Krienke, 
     vice president of marketing for Fortis Insurance in 
     Milwaukee.
       The GAO report issued in December said about 40 companies 
     nationally were selling high-deductible insurance policies 
     paired with MSAs. Some insurance companies act as trustee for 
     the account, but sometimes a bank or investment company 
     serves as the trustee.
       Insurance companies responding to the GAO survey said they 
     were disappointed with sales, but hoped that growing 
     familiarity with MSAs on the part of consumers and brokers 
     would lead to greater acceptance of the product.
       Fortis, which sells MSAs nationwide, is believed to be the 
     largest seller of MSA policies in Minnesota, according to 
     state officials.
       Krienke said Fortis sold 260 individual policies in 
     Minnesota in 1997 and nearly doubled that number to 516 in 
     1998. He hopes sales will reach 700 this year.

                           *   *   *   *   *



                             new customers

       MSAs could gain a larger market presence this year through 
     Community Coordinated Health Care, a new health plan being 
     formed by a consortium of clinics and hospitals.
       The plan will offer MSAs to small and medium-sized 
     businesses that are part of the Employers Association, a 
     coalition of more than 1,700 companies.
       ``We are going to appeal to everybody,'' said Bernie 
     Mackell, of Eden Prairie-based Medical Savings Accounts Inc., 
     who is coordinating MSAs for the new health plan.
       Mackell said education will be a large component of the MSA 
     programs being offered to Employers Association companies.
       ``Having employees involved in their health care is 
     important,'' Mackell said. Health education would encourage 
     employees to seek preventive care as one way that they can 
     preserve capital in the MSA funds.
       The new health plan is expected to be operational by this 
     summer.
       And at least two large health insurers are watching the MSA 
     market closely.
       Blue Cross and Blue Shield of Minnesota said it is 
     monitoring the market, although right now it has not plans to 
     offer an MSA.
       However, HealthPartners said it is actively considering 
     offering an MSA product.
       ``We already have in our product line a $1,000 deductible 
     plan for individuals that moves in the direction that MSAs 
     go,'' said George Halvorson, HealthPartners chief executive, 
     adding that there is a ``good likelihood'' that 
     HealthPartners may add an MSA into the mix at some point.
                                  ____



                         a national experiment

       Insurance companies began selling medical savings accounts 
     (MSAs) in 1997 under a four-year trial period established by 
     Congress. Self-employed workers and small businesses with 50 
     or fewer employees are eligible for MSAs. Sales of MSAs have 
     not met expectations, and only 42,000 MSAs were opened in 
     1997, according to the General Accounting Office (GAO). MSA 
     advocates say the rules laid down by Congress are too 
     restrictive and want the accounts to be available to a wider 
     market. But critics fear that MSAs could siphon healthier 
     individuals from the traditional insurance market. A GAO 
     study on the effect of MSAs was canceled because not enough 
     MSAs have been sold.


                             how msas work

       Medical savings accounts are paired with high-deductible, 
     low-premium health insurance policies.


                      the health insurance policy

       Premiums on high-deductible policies are typically lower 
     than most other forms of insurance. Employers offering MSAs 
     can require workers to pay part of the premium.
       For individual coverage, deductibles must be at least 
     $1,500 but no more than $2,250. For family coverage, 
     deductibles range between $3,000 and $4,500.
       The policy might (but is not required to) have additional 
     out-of-pocket costs, such as copayments for office visits. 
     Maximum annual out-of-pocket expenses, including the 
     deductible, are $3,000 for individuals and $5,500 for 
     families.


                      the medical savings account

                                deposits

       Money deposited into the MSA, which is separate from the 
     premiums paid on the health policy, can come from the 
     individual or the employer, but not from both in the same 
     year.
       There's a limit to how much money can be put into an MSA 
     each year. For individual coverage, up to 65 percent of the 
     deductible amount can be contributed. For family coverage, 
     the maximum goes up to 75 percent of the deductible.
       Contributions made by individuals are tax-deductible. 
     Contributions made by employers do not count toward gross 
     income and are not subject to taxes.
       Most MSA accounts earn interest similar to passbook savings 
     accounts, but some MSA administrators offer the option to 
     transfer money into money market accounts or mutual funds 
     under certain conditions.


                              withdrawals

       MSA contributions accrue and are not ``use it or lose it'' 
     accounts. Individuals are not required to use MSA funds when 
     paying deductible amounts under the insurance policy.
       MSA dollars can be used to pay for qualified medical 
     expenses, including doctor visits, prescription drugs, vision 
     and dental care.
       Withdrawals from MSAs for non-medical expenses are subject 
     to a 15 percent tax penalty and are counted as gross income.
       After the MSA account holder turns age 65, MSA funds can be 
     used for any purpose and are not assessed the 15 percent 
     penalty.


[[Page S7595]]


  Mr. GRAMS. Clearly, Mr. President, MSAs offer many benefits for the 
uninsured. Let's lift the restrictions placed on MSAs and allow 
everyone to open a Medical Savings Account.
  The Health Care Accessibility and Equity Act begins the process of 
dealing with our nation's long term care needs.
  Mr. President, it is estimated that, in the history of the world, 
half of the people who have ever reached age 65 are alive today.
  And as the babyboom generation ages, the population of those over age 
65 will increase quicker than at any time in history.
  The increase in the aged population brings with it a number of 
complex and vexing issues, one of which is long term care.
  The Health Insurance Portability and Accountability Act tinkered 
slightly with the issue of long term care insurance, but we need to 
meet the issue head on.
  The legislation Chairman Roth, Senator Abraham, and I are introducing 
today would eliminate the questions surrounding what constitutes a 
qualified versus non-qualified long term care plan and their tax 
treatment.
  I have always believed we should encourage individuals to save for 
their retirement needs and, for a number of reasons, usually cost, long 
term care insurance is often overlooked during retirement planning.
  Unfortunately, this often leads to individuals spending themselves 
down to poverty and relying on Medicaid. By allowing individuals to 
deduct the costs of long-term care insurance, we can prevent many of 
our elderly from impoverishing themselves in order to receive long-term 
care.
  The Health Care Accessibility and Equity Act of 1999 is good policy 
and will begin to address the crisis of 43 million Americans without 
access to affordable health care insurance today. Most important, it 
levels the playing field for those who are purchasing health insurance 
individually.
  I urge my colleagues to support this legislation and to help us get 
closer to the goal of health care access for all Americans.
  Mr. ROTH. Mr. President, there is a serious inadequacy in the 
treatment of Americans who must pay for their health care on their own 
and those who receive it on a tax subsidized basis from their 
employers. In addition, our tax code restricts people from making 
health care decisions in a tax advantaged way. I am happy to join with 
my colleagues, Senator Grams of Minnesota and Senator Abraham of 
Michigan in sponsoring the Health Care Access and Equity Act of 1999. 
Our bill would rectify this situation and provide a level playing field 
for all Americans who purchase their own health insurance and those who 
receive employer subsidized insurance. It will also give people more 
tax-advantaged options in how they use their health care dollars.
  Let me explain the current unfairness of our tax code as it relates 
to health care insurance. Current law provides that any employer 
subsidy of health benefits is not included in the income of the 
employee. This means that if an employer pays the entire cost of health 
care insurance, that entire subsidy is not included in the employee's 
taxable income.
  However, if the employer does not provide health care insurance for 
its employees or if the employee has to pay the full cost of the 
insurance, they do not get the same tax benefit as those who have all 
or a portion of their health care insurance paid for by their employer. 
Those premiums that are not paid for by the employer can be deducted by 
the employee--but only to the extent that the total premium amount and 
other health care costs exceed 7.5% of the employee's adjusted gross 
income. What this effectively means is that these individuals are 
denied a tax effective way of paying for health insurance.
  Self-employed individuals don't have an employer to cover their 
health insurance needs; they must pay for their health insurance on 
their own. Self-employed individuals can only deduct 60% of the amount 
of their health care premiums. This percentage will increase over time 
until the year 2003, when health care premiums will be fully 
deductible.
  Our current tax code does not treat all taxpayers the same. Our bill 
changes this situation.
  This bill provides that all taxpayers can fully deduct the amount 
paid for health insurance--as long as the taxpayer is not eligible to 
participate in an employer subsidized medical plan. This equalizes the 
tax treatment of paying for health insurance so that all individuals 
get a tax incentive when they have health care insurance, regardless of 
whether their employer pays for the coverage.

  This amendment underscores the need to make health care more 
affordable for more Americans and to begin providing greater equity in 
the tax treatment of health insurance whether people obtain their 
coverage at their place of employment or purchase coverage in the 
individual health insurance market.
  It is a sobering fact that there are over 41 million Americans 
without health insurance.
  Largely as a result of the tax incentives I explained before, the 
number of people covered by employer-provided health insurance has 
grown from less than 12 million in 1940 to approximately 150 million 
today.
  However, those who do not have tax-subsidized health care benefits do 
not fare as well. According to the Employee Benefit Research Institute, 
individuals who must pay for health coverage with after-tax dollars are 
24 times more likely to be uninsured as those with employer-provided 
coverage.
  With this change, all individuals who do not receive the employer-
provided subsidies for health care insurance will not have the 
opportunity to have their taxes reduced because they purchased 
insurance.
  This amendment will benefit approximately 12 million taxpayers who do 
not have health insurance that is subsidized by an employer.
  Our bill also provides that more individuals will be able to have 
long term care insurance in a tax effective manner, by giving them a 
tax deduction for the payment of premiums for a long term care policy. 
Current law only allows a deduction for long term care premiums if 
those premiums, along with other medical expenses exceed 7.5% of 
adjusted gross income. With this bill, the entire amount of the long 
term care premium will be deductible. This will benefit at least 3.8 
million taxpayers. Clearly more people will be able to prepare for 
their future needs by buying long term care insurance.
  Another important provision of our bill is the expansion of the 
availability of medical Savings Accounts. MSAs gives individuals more 
choice in how they spend their health care dollars.
  Current law restricts who can participate in an MSA and clearly 
these restrictions have limited who participate in this program. Our 
bill would lift these caps on this program and give people more reason 
to choose to be in an MSA.

  Another important point to remember with MSAs is that they encourage 
those individuals who are not insured to become insured. When the 
General Accounting Office reviewed what has happened in the MSA market, 
they reported that approximately one third of those who participated in 
the MSA program had been previously uninsured. The MSA participated in 
the MSA program had been previously uninsured. The MSA program has been 
proven to increase those covered under a health plan; with this bill we 
expand the program so that more people will be insured.
  Finally, our bill provides incentives for employees to contribute to 
flexible spending accounts. With a flexible spending account, an 
employee can contribute a portion of his salary--thereby reducing his 
taxable income--to a flexible spending account and then use the money 
in that account to pay for health care benefits, whether or not they 
are covered by his medical insurance. Increasing the availability of 
these FSAs, will give employees more freedom on how to spend their 
money when purchasing health care.
  The policy behind our bill is clear--increased equity in the tax 
system for health care insurance and more choice for individuals in how 
they spend their health care dollars. I am happy to join my two 
distinguished colleagues--Senator Grams and Abraham and the other 
Senators co-sponsoring this important health care legislation.
                                 ______