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House Approves New Tax-Preferred Savings Accounts for Medical Expenses

Ryan votes for these new options to make health care more affordable

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June 26, 2003 | Kate Dwyer (202-225-3031) | comments

WASHINGTON – Today the U.S. House of Representatives approved the creation of new, tax-preferred savings accounts to help people with their medical expenses.  First District Congressman Paul Ryan voted in favor of the legislation – H.R. 2596, the Health Savings and Affordability Act of 2003 – which passed the House by a vote of 237-191.    

This action follows up last week’s House vote to enable more small businesses to offer health coverage and to give self-employed people access to affordable quality health care coverage through association health plans (AHPs).  Both measures strive to make health care more affordable and accessible for families and individuals and reduce the number of uninsured Americans.        

The Health Savings and Affordability Act would give many people the option to contribute to health savings accounts – up to certain annual limits – to help pay for unreimbursed medical expenses on a tax-preferred basis.  Individuals would own these accounts, and would be able to deduct their contributions to these accounts on their taxes. Distributions from these accounts would be tax-free if used to pay for qualified medical expenses.  These expenses include the cost of prescription drugs, amounts paid for the treatment or prevention of disease, and in some cases health insurance.   

“These savings accounts, along with AHPs, will empower businesses and individuals to get access to affordable health care.  The cost increases in health care have reached a crisis level in Wisconsin.  These key reforms will give us the tools we need to address these problems that demand our immediate attention,” Ryan said. “Health savings accounts are an important part of the solution to the problem of the uninsured and underinsured.  Wisconsinites need better access to medical care, greater flexibility, and more control.  Savings accounts and AHPs will help achieve this.”   

Specifically, the Health Savings and Affordability Act creates two tax-preferred, portable savings accounts for health expenses: 

Health Savings Accounts (HSAs) may be established by any individual who is covered by a health plan with an annual deductible of at least $1,000 for self-coverage and $2,000 for family coverage. 

  • The annual contribution limit is 100% of the deductible under the health plan. This may be between $1,000 - $2,500 (self-coverage policies) and $3,350 - $6,150 (family policies).

  • Employers can make pre-tax contributions.

  • Up to $500 in unused Flexible Spending Account (FSA) funds can be rolled over into an HSA annually.

  • Savings can be used for qualified medical expenses, such as prescription drugs, long-term care insurance and services and medical services.

  • No income-related eligibility requirements. 

Health Savings Security Accounts (HSSAs) may be established by any individual who is either uninsured or is covered by a health plan with an annual deductible of at least $500 for self-coverage and $1,000 for family coverage.

  • For individuals with self-coverage policies and uninsured individuals without dependents, the annual contribution limit is $2,000 (this amount phases down if the individual’s income exceeds $75,000). For individuals with family coverage policies and uninsured individuals with dependents, the annual contribution limit is $4,000 (this amount phases down if the individual’s income exceeds $150,000). Individuals age 55 and older can make additional “catch-up contributions” to an HSSA. The additional contribution is $500 in 2004 and will gradually increase to $1,000 by 2009.

  • Employers can make pre-tax contributions.

  • Family members can make non-deductible contributions. 

  • Up to $500 rollover annually of unused FSA funds can be rolled over into an HSSA.

  • Savings can be used same as HSAs, plus purchase of qualified insurance by those without coverage, retiree health insurance for those over 65. 

The House is expected to vote today or tomorrow on H.R. 1, the Medicare Prescription Drug and Modernization Act.  If the House approves the Medicare legislation, H.R. 2596 will be joined with H.R. 1.

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