From the June 2006 issue of Investment Advisor • Subscribe!

The Healthcare Crisis

A raft of proposals are floated to address the issue

How dire is the healthcare and retirement planning situation in America? In early May the trustees for Social Security and Medicare reported that the Social Security trust fund will be depleted in 2040, and the Medicare trust fund will go bust in 12 years, in 2018. What to do about this sorry state of affairs?

One solution may be legislation. Senate Majority Leader Bill Frist (R-Tennessee) said last month that the Senate would "move forward" legislation sponsored by Senator Michael Enzi (R-Wyoming), "The Health Insurance Marketplace Modernization and Affordability Act of 2006" (S. 1955). The bill passed the Senate Health, Education, Labor & Pensions Committee in March, and at press time was being debated on the Senate floor.

S. 1955, co-sponsored by Senators Conrad Burns (R-Montana) and Ben Nelson (D-Nebraska), would allow small businesses to combine their negotiating power to purchase more affordable health insurance plans. By doing this, small companies "would reduce the cost of health insurance by $1,000 per employee, while reducing the number of uninsured by 8%, which is more than one million Americans," Frist said in prepared statement. "Skyrocketing health insurance costs and complicated state regulations are pricing small businesses out of the health insurance market," he added. Within the past five years, the cost of health insurance for companies has nearly doubled from $4,200 to $8,100 per family, he said, and health care costs jumped three times faster than inflation in 2005.

Small business health plans would "level the playing field and give participating small businesses the same buying power as Fortune 500 companies and unions by allowing them to join together across state lines through trade and professional associations to purchase affordable health benefits," according to The National Federation of Independent Business (NFIB).

S. 1955 differs from the Small Business Health Fairness Act of 2005 (H.R. 525), which was passed by the House last July, says Lucia Riddle, VP of federal government relations for the Principal Financial Group. "Both bills allow associations to have nationwide benefits," Riddle says, but "the House bill would eventually allow associations to be self-insured and regulated by the DOL, like single employer self-insured plans." Under the Senate bill, "associations would continue in the insurance marketplace--in other words, they would be fully insured, and be regulated by the state of domicile of the association plan." The big question with S. 1955 is whether it will get the 60 votes needed for cloture, according to Riddle. Some senators have expressed concerns that the bill "would allow associations and insurers to market plans without a lot of the state mandates," she says.

Another way to address the crisis is through tax incentives. The Bush Administration and the financial services industry, it now appears, are counting on Health Savings Accounts (HSAs) to provide some assistance to consumers. HSAs, which are accounts that consumers can contribute to tax-free to save for future medical expenses, are gaining in popularity. Just two years ago there were only one million of them, today that number has jumped to three million. To encourage more participation, Mark Warshawsky, the assistant secretary of the Treasury, told attendees at the recent "DOL Speaks" conference in Washington that the administration is proposing that the limit on annual HSA contributions be raised from the deductible to the policy's out-of-pocket maximum. Also, he said, the administration proposes full income tax deductibility of premiums on all HSA-qualified policies, whether those premiums are paid by an employer or an individual. Yet a further expansion of deductibility being proposed, he said, would allow for an income tax credit equivalent to the payroll tax on premiums for HSA-qualified plans and HSAs, whether the plan is purchased in the individual or group market.--Melanie Waddell

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