June 24,1999

Roth Urges Support for Bill that Would Make Health Insurance More Affordable for Millions of Americans

Bill Would Extend Tax Deductibility of Health Insurance to Americans without Employer Provided Health Care

WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. today joined Senators Rod Grams and Spencer Abraham in introducing legislation that would make health insurance more affordable for Americans without employer subsidized health insurance. Roth released the following statement:

"There is a serious inadequacy in the treatment of Americans who must pay for their health care on their own and those who receive it on a tax subsidized basis from their employers. In addition, our tax code restricts people from making health care decisions in a tax advantaged way. I am happy to join with my colleagues, Senator Grams of Minnesota and Senator Abraham of Michigan in sponsoring the Health Care Access and Equity Act of 1999. Our bill would rectify this situation and provide a level playing field for all Americans who purchase their own health insurance and those who receive employer subsidized insurance. It will also give people more tax-advantaged options in how they use their health care dollars.

"Let me explain the current unfairness of our tax code as it relates to health care insurance. Current law provides that any employer subsidy of health benefits is not included in the income of the employee. This means that if an employer pays the entire cost of health care insurance, that entire subsidy is not included in the employee's taxable income.

"However, if the employer does not provide health care insurance for its employees or if the employee has to pay the full cost of the insurance, they do not get the same tax benefit as those who have all or a portion of their health care insurance paid for by their employer. Those premiums that are not paid for by the employer can be deducted by the employee - but only to the extent that the total premium amount and other health care costs exceed 7.5% of the employee's adjusted gross income. What this effectively means is that these individuals are denied a tax effective way of paying for health insurance.

"Self-employed individuals don't have an employer to cover their health insurance needs; they must pay for their health insurance on their own. Self-employed individuals can only deduct 60% of the amount of their health care premiums. This percentage will increase over time until the year 2003, when health care premiums will be fully deductible.

"Our current tax code does not treat all taxpayers the same. Our bill changes this situation.

"This bill provides that all taxpayers can fully deduct the amount paid for health insurance -- as long as the taxpayer is not eligible to participate in an employer-subsidized medical plan. This equalizes the tax treatment of paying for health insurance so that all individuals get a tax incentive when they have health care insurance, regardless of whether their employer pays for the coverage.

"This amendment underscores the need to make health care more affordable for more Americans and to begin providing greater equity in the tax treatment of health insurance whether people obtain their coverage at their place of employment or purchase coverage in the individual health insurance market.

"It is a sobering fact that there are over 41 million Americans without health insurance.

"Largely as a result of the tax incentives I explained before, the number of people covered by employer-provided health insurance has grown from less than 12 million in 1940 to approximately 150 million today.

"However, those who do not have tax-subsidized health care benefits do not fare as well. According to the Employee Benefit Research Institute, individuals who must pay for health coverage with after-tax dollars are 24 times more likely to be uninsured as those with employer-provided coverage.
"With this change, all individuals who do not receive the employer-provided subsidies for health care insurance will now have the opportunity to have their taxes reduced because they purchased insurance.

"This bill will benefit approximately 12 million taxpayers who do not health insurance that is subsidized by an employer.

"Our bill also provides that more individuals will be able to have long term care insurance in a tax effective manner, by giving them a tax deduction for the payment of premiums for a long term care policy. Current law only allows a deduction for long term care premiums if those premiums, along with other medical expenses exceed 7.5% of adjusted gross income. With this bill, the entire amount of the long term care premium will be deductible. This will benefit at least 3.8 million taxpayers. Clearly more people will be able prepare for their future needs by buying long term care insurance.

"Another important provision of our bill is the expansion of the availability of Medical Savings Accounts. MSAs gives individuals more choice in how the spend their health care dollars.

"Current law restricts who can participate in an MSA and clearly these restrictions have limited who participate in this program. Our bill would lift these caps on this program and give people more reason to choose to be in an MSA.

"Another important point to remember with MSAs is that they encourage those individuals who are not insured to become insured. When the General Accounting Office reviewed what has happened in the MSA market, they reported that approximately one third of those who participated in the MSA program had been previously uninsured. The MSA program has been proven to increase those covered under a health plan; with this bill we expand the program so that more people will be insured.

"Finally, our bill provides incentives for employees to contribute to flexible spending accounts. With a flexible spending account, an employee can contribute a portion of his salary - thereby reducing his taxable income - to a flexible spending account and then use the money in that account to pay for health care benefits, whether or not they are covered by his medical insurance. Increasing the availability of these FSAs, will give employees more freedom on how to spend their money when purchasing health care.

"The policy behind our bill is clear - increased equity in the tax system for health care insurance and more choice for individuals in how they spend their health care dollars. I am happy to join my two distinguished collegues -- Senators Grams and Abraham and the other Senators co-sponsoring this important health care legislation."