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Ways and Means Chairman Proposes Tax Deductible Medical Savings Accounts

June 13, 1995

WASHINGTON (AP) _ Workers who choose health insurance coverage with steep deductibles could make tax-deductible contributions to their own medical savings accounts under a bill offered by two senior members of House.

The legislation that Ways and Means Chairman Bill Archer, R-Texas, and Rep. Andrew Jacobs, D-Ind., are introducing today would allow tax deductions of up to $2,500 for an individual and $5,000 for a family.

To qualify, a person would have to buy a catastrophic health insurance policy with an annual deductible of at least $1,800 for an individual or $3,600 for a family.

Some business and physician groups are promoting medical savings accounts as a way to hold down health costs by making consumers more aware of what they are buying with health insurance dollars.

The catastrophic-only coverage would leave people paying most routine medical bills out of their own pockets or from their medical savings accounts _ up to the amount of the deductible.

Skeptics, including some Clinton administration officials, fear medical savings accounts will divert money from health insurance pools that would otherwise be available to cover the costs of those with serious illnesses.

But both Archer and Jacobs, another member of the Ways and Means Committee, have argued that medical savings accounts are a sensible, private-sector way to help keep health inflation in check.

The Congressional Budget Office has not yet been asked to prepare a cost estimate on the proposed Family Medical Savings and Investment Act.

Most Republican health reform bills have called for some form of medical savings accounts, and Jacobs last year got Ways and Means, then under Democratic control, to endorse a pilot program.

The Archer-Jacobs bill would work this way:

_Individuals covered by a catastrophic health plan could maintain a medical savings account. It would be held in trust by a bank, insurance company or other person certified by the treasury secretary.

_If an employer contributed to the savings account, the amount of the contribution would be excluded from the employee’s gross income.

_If the individual made contributions, they would be tax deductible.

_The deductible would have to be at least $1,800 for an individual or $3,600 for a family.

_The maximum amount that could be deducted or excluded from taxes each year would be the lesser of the insurance deductible and $2,500 for an individual or $5,000 for a family.

_Money withdrawn from an account for medical expenses would not be taxed. Funds withdrawn for non-medical expenses would be subject to regular taxes plus a penalty of 10 percent of the amount withdrawn.

The Business Coalition for Affordable Health Care was holding a news conference Tuesday with Archer and groups that back medical savings accounts.

The American Medical Association also strongly supports the idea, viewing it as a way to let patients, not insurance companies, decide which physicians they want to treat them.

The American Academy of Actuaries in a study released in May said almost three-quarters of workers would come out ahead, by $449 a year on average, if their employers switched them from a $200-deductible plan to one with a $1,500 deductible plus a medical savings account.

But those with steep medical bills, including older employees and pregnant women, would wind up losing $552, the actuaries said.

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