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Congressional passage of H.R. 1, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, should open up new opportunities for insurers to sell health savings accounts to holders of high-deductible health insurance coverage as well as prescription drug plans to Medicare beneficiaries.

Because taxpayers can use tax-deductible HSA contributions to pay for long term care insurance and some kinds of temporary health insurance, passage of H.R. 1 also could help insurers sell those products to workers who enroll in the new defined contribution health plans.

Most defined contribution health plans combine high-deductible health insurance with some kind of personal health account.

The House voted to approve the final version of H.R. 1 by a 220-215 vote. The Senate voted 54-44 to approve the bill, which was originally sponsored by House Speaker Dennis Hastert, R-Ill.

At press time, President Bush had not yet signed the bill but said he soon would do so.

Many members of Congress based their votes on H.R. 1 on nonpartisan considerations. In the Senate, for example, 11 Democrats crossed party lines to vote for the bill, and 9 Republicans crossed party lines to vote against it.

Two Democratic presidential candidates, Sen. John Kerry, D-Mass., and Sen. Joseph Lieberman, D-Conn., did not vote on the bill.

Karen Ignagni, president of the AAHP-HIAA, Washington, a big health insurance industry trade group, welcomed congressional passage of H.R. 1.

“Americas health plans and health insurers applaud the bipartisan work of the House and the Senate, as well as the [Bush] administration, in bringing this important goal to the doorstep of reality,” Ignagni said. “This legislation, when signed by the president, will allow for a strong partnership between the government and private health insurers.”

Legislative analysts at AAHP-HIAA and other insurance industry trade groups, producer groups and lobbying firms will be poring over H.R. 1 and related documents for weeks. The final version of the bill itself, called a conference report, is 678 pages long.

Although the title of the bill suggests it deals mainly with Medicare drug benefits, bill provisions will affect everything from reimbursement levels for rural hospitals that treat Medicare patients to coverage for “nonmedical” home health care services provided by religious institutions.

The prescription drug section of the bill calls for the government to act immediately to organize a drug discount card program for Medicare beneficiaries. By 2006, the government is supposed to organize a full-fledged prescription insurance plan program for Medicare beneficiaries. The government is hoping plans willing to accept “full risk” for the coverage will provide coverage in most communities, but it also will accept bids from “fallback” plans that will accept limited risk or no risk to provide coverage in areas where no plan is willing to accept full risk.

The program is supposed to start out costing most Medicare beneficiaries $35 per month. A program plan is supposed to start off paying 75% of a beneficiarys annual drug costs for costs between $250 and $2,250, and at least 95% of the cost for annual drug costs over $3,600.

Congress wrote H.R. 1 in such a way that most dollar amounts included in the bill will increase over time, either as a result of inflation adjustments or increases built in to the bill text.

A separate section at the end of H.R. 1 will create a new health savings account program.

The Internal Revenue Service already lets employers set up special employee health accounts called flexible spending accounts and health reimbursement arrangements.

The new HSAs will be available to any taxpayer who buys high-deductible health insurance. The minimum deductible will start at only $1,000 for individuals and only $2,000 for families.

Taxpayers will be able to make annual, tax-deductible contributions amounting to 100% of the insurance policy deductible, up to a maximum of $2,250 for individuals and $4,500 for families, according to the bill text.

Taxpayers over age 55 will be able to make additional contributions, and taxpayers can roll assets from Archer Medical Savings Accounts into HSAs.

Taxpayers can use HSA assets to pay for long term care insurance, COBRA continuation insurance and temporary health insurance while unemployed as well as the products and services workers can buy through ordinary HRAs and FSAs, according to the bill text.

Sellers of LTC insurance and temporary health insurance have been lobbying for years to help taxpayers deduct premiums for those products from taxable income.

H.R. 1 also rewards companies such as Evolution Benefits Inc., Avon, Conn., and Med-i-Bank Inc., Waltham, Mass., that have been promoting the use of debit cards to streamline administration of FSAs and HRAs.

In May, the Internal Revenue Service told users of card-based FSA and HRA administration systems that they should send 1099 tax forms to doctors, dentists, for-profit hospitals and other health care providers that do more than $600 in business a year with the FSA or HRA plans. A provision at the end of H.R. 1 frees users of the card-based administration systems from the 1099 requirement.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.