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Senators Baucus and Grassley Release Policy Options for Financing Health Care Reform | GovWatch | Advocacy | NAIFA
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NAIFA GovWatch

Senators Baucus and Grassley Release Policy Options for Financing Health Care Reform

Issue: Financing Comprehensive Health Care Reform

Date: May 18, 2009

Action Taken: On May 18, 2009, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) released policy options for financing reform of America's health care system.

Background: The document includes several policy recommendations that will affect member including the following options:

Exclusion for Employer-Provided Health Insurance--Under current law, employer-provided health insurance is not counted as income for tax purposes and the amount of health care benefits that are counted as tax free is unlimited. The policy options explore five changes including:

  1. Cap the exclusion based on the value of health insurance policy
  2. Cap the exclusion based on the income level of the employee eligible for the exclusion
  3. Cap the exclusion based on both the value of the health insurance policy and income level
  4. Convert the employer-provided health insurance exclusion to an individual tax deduction or credit
  5. Grandfather in existing plans so that benefits provided under existing collective bargaining agreements are not limited

    Modify the Itemized Deduction for Medical Expenses--Under current law, a taxpayer that itemizes deductions may take a deduction for medical expenses – including insurance premiums and out of pocket medical costs – in excess of seven and a half percent of adjusted gross income. The policy options examine elimination of the itemized deduction for medical expenses or raising the seven and a half percent floor for claiming deductions.

Modify Health Savings Accounts (HSAs)-- Individuals enrolled in high-deductible health insurance plans can set up Health Savings Accounts (HSAs) from which to withdraw for qualified medical expenses without paying taxes. Likewise, contributions made to HSAs by individuals and employers are not considered income for tax purposes and earnings on HSAs accumulate tax free as the balances rollover from year to year. The policy options explore three ways to modify HSAs:

  1. Restrict HSA contributions to the lesser of the individual’s deductible or the statutory limit
  2. Increase the penalty for withdrawing from an HSA for non-medical expenses from 10 percent to 20 percent
  3. Require certification from the employer or from an independent third party that HSA withdrawals were made for medical expenses

Modify or Eliminate Flexible Spending Accounts (FSAs) – Flexible Spending Accounts allow individuals and their employers to contribute an unlimited amount of tax free income to an FSA. Employees can withdraw from their FSA to pay out-of-pocket medical expenses besides premiums. The policy options explore limiting the amount that can be contributed to an FSA or eliminating FSAs altogether.

Standardize the Definition of Qualified Medical Expenses-- Under a health reimbursement arrangement (HRA), a health flexible spending arrangement (FSA) under a cafeteria plan, amounts paid for over-the-counter medicine are treated as medical expenses, and reimbursement for such amounts are excludible from gross income. Similarly, a distribution from an HSA used to purchase over-the-counter medicine is excludible as an amount used for qualified medical expenses.  The policy option would apply a standard definition of qualified medical expenses across the board eliminating the cost of nonprescription medicines as eligible expenses.

The document also identifies health system savings by examining policies to address spending growth in Medicare and Medicaid as well as “lifestyle” revenue raisers including a uniform alcohol excise tax and a sugar-sweetened beverage excise tax.

NAIFA’s Position: NAIFA opposes the elimination or capping of the tax exclusion for employer-sponsored health insurance. Capping the deduction promotes adverse selection and is age-discriminatory in effect.  A cap does not address the cost of care and those under the cap may find themselves “priced out” of newer, expensive, life-saving medical care.

NAIFA supports modifying the itemized deduction for medical expenses to allow more individual to take advantage of the deductions.

NAIFA believes HSAs used in conjunction with high deductible health plans have offered clients an affordable health care solution and oppose restrictions on HSA contributions. NAIFA also opposes HSA substantiation rules that would create additional complexity and cost to HSA account holders.

NAIFA also opposes eliminating or limiting the amount of salary reduction contributions to a health FSA that is excludible from gross income.  
 
Next Steps:  Senators Baucus and Grassley will hold a meeting of Finance Committee members to "walk through" the financing policy options on Wednesday, May 20, 2009. Stay tuned for more information regarding the details.

NAIFA members are encouraged to set up district meetings with their lawmakers during the Memorial Day District Work Period (May 25-28, 2009).  
 
Mark your calendars for a July 15 Fly-In to Washington, DC where agents will share their experiences with Members of Congress to ensure health care reform that allows consumers access to agent-provided services and stabilizes the insurance market without resorting to a public plan option.

AHIA/ NAIFA Staff Contact: For additional information, please contact Diane Boyle

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