Test of Controversial Plan Is Set to Begin Next Year
May 12, 2011
Starting in 2012, tax-deductible medical savings accounts will be available for people who work for companies with 50 or fewer employees and for people who are self-employed. People who participate will have to be covered by high-deductible insurance policies with annual deductibles of $1,500 to $2,250 for a single person and $3,000 to $4,500 for a family. The project will set limits on the total out-of-pocket medical expenses that a person could face in a given year, with a maximum of $3,000 for a single person and $5,500 for a family. But those caps apply only to services covered by the health-insurance plan. Both employers and employees may make tax-deductible contributions to the accounts, but not both in the same year. The maximum contribution an employee may deduct -- or have excluded from income and wages if the employer makes the contribution -- is 65% of the annual deductible for a single person and 75% of the annual deductible for a family. Earnings on the money in the accounts, as well as sums withdrawn to pay medical bills, will not be taxed. Withdrawals for nonmedical bills will be subject to income tax -- plus an extra 15% penalty for people under 65. The pilot project will limit the number of medical-savings accounts to 750,000 over a four-year period. Including family members, the number of people covered could be well over a million. To expand the availability of the accounts beyond the year 2015, Congress will have to vote its approval. But, even if Congress doesn't vote to expand the program, people with accounts will be permitted to keep them and contribute to them indefinitely. Proponents of medical-savings accounts say they will give people more freedom to spend their health-care dollars as they choose and offer healthy workers the chance to take money home at year end. But many consumer advocates fear the accounts will siphon off healthy people with the result that premiums will rise for the sicker people left in the traditional insurance pool. Also, if workers don't understand how the high-deductible plan works in conjunction with the savings account, they could have to foot big bills themselves before their health insurance kicks in, consumer advocates say. If you are considering a medical-savings account, be sure you understand how the account works and study the benefits and restrictions of the accompanying health-insurance plan. --Laurine Marley
