[Congressional Record (Bound Edition), Volume 154 (2008), Part 9]
[Extensions of Remarks]
[Pages 12863-12864]
[From the U.S. Government Publishing Office, www.gpo.gov]




   INTRODUCTION OF THE RETIREE HEALTH ACCOUNT ACT OF 2008 (H.R. 6288)

                                 ______
                                 

                          HON. JOHN M. McHUGH

                              of new york

                    in the house of representatives

                        Wednesday, June 18, 2008

  Mr. McHUGH. Madam Speaker, I rise to discuss legislation, the Retiree 
Health Account Act of 2008 (H.R. 6288), that I introduced yesterday, 
June 17, 2008. This bill is designed to help Americans prepare for the 
medical costs they will incur in retirement.

[[Page 12864]]

  When Americans engage in retirement planning, too often they don't 
contemplate the medical expenses they will incur. If they do, they 
often make significant underestimates or mistakenly believe that such 
expenses will be entirely met through Medicare. Often, they fail to 
recognize that Medicare coverage contains numerous gaps and that 
beneficiaries must pay deductibles, coinsurance, and copayments. For 
example, the monthly Medicare Part A premium currently ranges from $233 
to $423 while Part B and average Part D premiums are $96.40 and $27.93, 
respectively. In addition, under Part B, beneficiaries must pay an 
annual deductible of $135 and 20 percent of covered services. At the 
same time, Part D beneficiaries have a $275 deductible and then must 
pay a 25 percent coinsurance levy for drug costs up to $2,510, the 
entire amount for purchases between $2,510 and $5,726, and 
approximately 5 percent of all drug costs thereafter.
  Current estimates indicate that an average American couple both aged 
65 could need as much as $295,000 to cover premiums for health 
insurance coverage and out-of-pocket expenses during retirement. 
Moreover, these costs are increasing. For example, between 1985 and 
2005, the Consumer Price Index (CPI) for medical care rose by 185 
percent compared to 82 percent for all other goods and services.
  During this time period, families headed by persons aged 55 to 64 saw 
their real expenditures on health care rise from $2,459 to $3,410 
(about 40 percent) while average spending by families headed by persons 
aged 65 to 74 likewise increased from $2,993 to $4,176. Similarly. 
families headed by persons above age 75 saw their annual health care 
spending increase from $3,006 to $4,210.
  Through all of the above, the health insurance coverage provided to 
retirees has been shrinking. From 1993 to 2004, the percentage of 
employers with 500 workers or more offering health insurance to pre-
Medicare eligible retirees fell from 46 percent to 28 percent. At the 
same time, the number of employers offering retiree health insurance to 
Medicare eligible retirees also decreased from 40 percent to 20 
percent.
  In this environment, it is important to note that, while the United 
States tax code provides incentives for the prefunding of both pension 
benefits and retirement savings, it does not provide similar incentives 
for the prefunding of retiree health benefits.
  Accordingly, the Retiree Health Account Act would provide Americans 
with tax incentives to set aside funds for health costs. It would 
accomplish this by establishing Retiree Health Accounts (RHAs), which 
would be structured very similarly to 401(k) plans. For example, RHAs 
would have, the same maximum employee inflation-indexed contribution 
and annual addition limits. In addition, individuals 50 years or older 
would be allowed to make annual catch-up deferrals of up to $5,000.
  Once a RHA account owner reaches age 55, he or she would be able to 
withdraw monies tax free, provided the funds are used to purchase 
qualifying medical care. Prior to age 55, monies could be withdrawn, 
but would be subject to a 10 percent penalty and ordinary income taxes. 
This penalty would be suspended, however, if the owner had become 
disabled or if the monies were used to cover health insurance premiums 
during periods of unemployment or to defray unreimbursed medical 
expenses. Similarly, RHA funds could be withdrawn without penalty, but 
subject to taxation, pursuant to a qualified domestic relations order. 
Finally, upon death, while a spouse could inherit a RHA without paying 
taxes, RHA funds would otherwise be subject to applicable income or 
estate taxes.
  In addition to Retiree Health Accounts, this legislation would also 
allow individuals to establish Individual Health Accounts (IHAs). These 
accounts would be similar to Individual Retirement Accounts (IRAs) in 
structure and provide for the costs of retiree health care. For 
example, like IRAs, IHAs would have an annual contribution limit of 
$5,000, indexed to inflation, with individuals age 50 or older eligible 
to make annual catch up contributions of $1,000, also indexed for 
inflation. Unlike IRAs, however, contributions to IHAs would be 
prohibited once an individual becomes Medicare eligible. In addition, 
as with RHA funds, IHA funds could be withdrawn tax free if used to 
purchase medical care by an owner age 55 or older and without penalty 
if used before age 55 to meet the special circumstances of disability, 
unemployment, and extraordinary medical expenses. Likewise, IHA funds 
would not be subject to penalty if distributed pursuant to a qualified 
domestic relations order and could be inherited tax free only by a 
spouse.
  To encourage lower-income Americans to take advantage of the 
opportunity to contribute to RHAs and IHAs, the Retiree Health Account 
Act would provide a refundable tax credit of up to $1,000 for eligible 
individuals. This tax credit would be indexed to inflation and the 
maximum lifetime credit would be $5,000.
  Health care costs continue to increase while employer-sponsored 
retiree health benefits erode. However, we can help Americans prepare 
to meet their future health care costs by giving individuals an 
incentive and mechanism to help themselves. Accordingly, I ask my 
colleagues to join with me as I work to enact legislation authorizing 
Retiree Health Accounts.

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