A recent poll conducted by the Kaiser Foundation found that Americans are more concerned about rising health care costs than about the stock market or terrorist attacks. Health care concerns are particularly acute in the small business community, where millions of workers have no health care coverage at all, while others pay up to 17 percent more for health care benefits than workers employed by large companies. Fortunately, two new health care tools can help small businesses lower their health care costs dramatically: Health Savings Accounts and Association Health Plans.
The Medicare Bill that President Bush signed in December established Health Savings Accounts. To set up such an account, a worker or his employer must first obtain a high-deductible insurance policy to cover major medical expenses. The premiums for such high-deductible plans are much lower than traditional plans, but they provide coverage for surgery, hospital stays and other large expenses.
Having obtained coverage for major medical bills, workers can cover routine medical expenses – such as visits to the doctor, or over-the-counter drugs – by setting up a Health Savings Account (HSA) of up to $2,600 for an individual, or $5,150 for a family. HSAs are tax-free savings accounts that can be used to pay for medical expenses incurred by individuals, their spouses or their dependents. Individuals, their employers, or both can contribute funds each year to HSAs. Such contributions are tax-free. The interest and investment earnings from HSAs are tax free. When you withdraw money from your HSA to pay for routine medical expenses, the withdrawals are tax free. And in his State of the Union Address, President Bush urged Congress to allow individuals who establish HSAs to make the premiums they pay for their high-deductible insurance policies tax free, as well.
Because HSAs are tax free, they will save their owners between 10 and 35 percent in out-of-pocket medical expenses. Because healthier people will have more tax-free money left in their accounts, HSAs will encourage Americans to lead healthier lives. And because insurance premiums will be lower, HSAs will make it easier for small business owners to purchase health insurance for their employees.
Moreover, HSAs are portable, so a worker does not have to depend on a particular employer to enjoy the benefits of having an HSA. Like Individual Retirement Accounts (IRAs), HSAs are owned by the individual, not the employer. If a worker changes jobs, the HSA goes with him or her.
Another way small businesses can reduce health care costs is through Association Health Plans (AHPs) – which have aptly been described as “small business health plans.” AHPs will give America’s working families greater access to affordable health care by allowing small businesses to band together through trade groups and negotiate on behalf of their employees and their families. This will increase their bargaining power and purchasing clout – and enable them to achieve significant health care savings for their members. Indeed, studies show that AHPs would save the typical small business owner between 15 and 30 percent on health insurance.
Today, while corporations and unions are free to band together across state lines to purchase health insurance at discount rates, state rules prevent small businesses from doing likewise. Because of this legal anomaly, small businesses – in addition to paying more for their health insurance than large companies – are severely disadvantaged when it comes to hiring and retaining skilled employees. Large companies can offer these workers health care packages that are cheaper and more generous than those offered by small businesses. AHPs would help level the playing field for small businesses by giving them the purchasing power that their larger counterparts already enjoy.
In June 2003, the House passed HR 660, which gave small business employers participating in AHPs the same advantages currently enjoyed by large employers and unions. Now it is time for the Senate to pass AHP legislation, as well. As President Bush recently said, ” There’s no excuse for this bill not to go forward. It would be a major reform. It would help a lot of small business owners in the country.”
I am confident that the Senate will do the right thing and pass AHPs – because failing to pass this crucial legislation would relegate the entire small business community to permanent second-class status when it comes to health insurance. I am equally confident that once Congress acts, the combination of HSAs (which became available to Americans on January 1, 2004) on the one hand, and AHPs on the other, will inaugurate a new era in our Nation’s health care, in which small business employees and their families will be able to obtain the coverage they need at prices they can afford.
Elton W. Ringsak is the SBA’s Region VIII Administrator based in Denver. His office is responsible for SBA policy in Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming. He can be reached at (303) 844-0500 or Elton.firstname.lastname@example.org.