Access to Affordable Health Coverage
The NASE Position:
The National Association for the Self-Employed (NASE) strongly supports proposals such as health care tax credits, a self-employment tax deduction on health insurance premiums, expansion of both Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs), and pooling arrangements for small business as important steps to creating an equitable environment for micro-businesses and the self-employed to purchase affordable, quality health coverage.
Many micro-business owners cannot afford the expense, in time or money, to seek out and offer quality insurance plans for their employees. An employee in a firm with fewer than 10 employees pays 18% more for health insurance than a worker in a firm with 200 or more employees and, alarmingly, heath care costs are continuing to rise for micro-businesses. As a result, a significant number of the uninsured (60%) are workers or dependents of workers in small businesses.
Health Care Tax Credits:
The NASE supports proposals for health care tax credits to assist the self-employed and micro-businesses in purchasing health insurance. Tax credits would assist individuals employed in businesses that do not offer employer-sponsored health plans to access health insurance. Specifically, the NASE supports a tax credit that is refundable which would allow lower income workers who do not owe income taxes to receive the full value of the tax credit.
Health tax credits have been mentioned by both Democrats and Republicans as a way to address affordability of health coverage. Several pieces of legislation have been introduced in the 110th Congress that would offer tax credits to micro-businesses when purchasing health insurance. One such bill is the Tax Equity and Affordability Act of 2007 (S. 397/ H.R. 914), which was introduced in the Senate by Sen. Mel Martinez and in the House by Rep. Paul Ryan (R-WI). It provides an advanceable health insurance tax credit of up to $2,000 per individuals (family maximum of $4,000) for individuals with $15,000 of income and families with $30,000 in income. The amount of the tax credit is scaled down starting at income levels of $30,000 for individuals and $60,000 for families. In addition, any credit amount not used to pay plan premiums could be deposited into a tax-free Health Savings Account (HSA).
Additionally, the Affordable Health Care Expansion Act (H.R. 5784) introduced by Rep. Kay Granger (R-TX) would provide individuals with pre-payable, fully refundable tax credits toward the purchase of health insurance. The credit would provide $1,000 for individuals, $2,000 for married couples, and $500 per dependent up to $3,000 per family.
The NASE supports both of these bills and will continue to work with the Coalition for Affordable Health Coverage to gain passage of a refundable health tax credit to assist individuals and families in purchasing health coverage.
Expansion of Health Savings Accounts:
The NASE has long been a supporter of tax advantaged accounts to assist micro-business owners and the self-employed with health care costs. Health Savings Accounts (HSAs) were made into law in 2003. Currently the Administration and Congress have numerous proposals to expand Health Savings Accounts (HSAs). The NASE supports efforts for expansion and technical corrections to enhance HSAs.
The 110th Congress has not been as kind to HSAs. The House recently passed H.R. 5719, which includes a provision that requires holders of HSAs to verify that their tax-free withdrawals were used for medical purposes. This jeopardizes one of the HSA’s greatest strengths: its administrative simplicity. The President has vowed to veto the bill partly because of this provision. It is currently sitting in the Senate Finance Committee.
There has, however, been some legislation in the current Congress that supports of HSAs. The “Promoting Health for Future Generations Act” (H.R. 2639), introduced by Rep. Charles Boustany (R-LA), improves the effectiveness of HSAs by:
Increases of the tax deduction for contributions to HSAs; Adding a new tax deduction for high deductible health plan premiums; Allowing Medicare and veteran health care beneficiaries to establish HSAs; Treating Medicare supplemental insurance premiums as tax-deductible medical expense; Allows parents to bequeath HSAs to their children.
Rep. Eric Cantor (R-VA) also introduced legislation, the HSA Improvement and Expansion Act (H.R. 3234), that would do the following:
Allows HSAs to incorporate flexible spending and health reimbursement arrangements; Increases the annual HSA contribution limitation; Permits the use of HSAs to purchase health insurance and also allows the payment of certain medical expenses incurred before the establishment of an HSA; Allows veterans eligible for service-connected disability benefits to establish an HSA; Allows spouses to make increased catch-up contributions to a single HSA.
The NASE supports both of these pieces of legislation and will continue to work closely with the HSA Coalition to ensure that HSAs continue to be an option for micro-businesses who purchase high deductible health plans.
Pooling Arrangements for Micro-Businesses:
The NASE supports the creation of pooling arrangements for the self-employed and micro-business which would improve access and choice of health coverage options for themselves and their employees. These arrangements, often called Small Business Health Plans (SBHPs), would offer business owners effective and comprehensive health care coverage by allowing them to purchase health insurance as a collective, large group allowing them to better negotiate with insurance providers.
In the 110th Congress, a number of legislative proposals have been introduced creating new forms of pooling arrangements to give small business access to affordable health coverage. The NASE is supporting the soon to be introduced Small Business CHOICE Act of 2008. This proposal was drafted by House Committee on Small Business Chairwoman Nydia Velazquez (D-NY). The bill would permit small businesses to form health insurance cooperatives. The cooperatives would function similar to risk pools and provide insurance against high-cost or catastrophic claims.
The Small Business “CHOICE” Act addresses two of the most significant problems facing small businesses and the self-employed – the high cost of providing insurance and unpredictable premium increases – by:
Providing immediate relief to many small businesses that are facing the prospect of dropping coverage because they can no longer absorb double digit premium increases; Increasing the number of businesses that offer employees affordable comprehensive health insurance; Giving employers more flexibility in plan design; Encouraging the formation of small business purchasing groups; Strengthening the private insurance market.
The Small Business “CHOICE” Act also offers a key incentive in the form of a tax credit to small businesses that choose to join a cooperative. The credit would be available to small businesses with no more than 100 employees. And employers would be required to offer a small business wellness program to receive the credit. The tax credit would be 65 percent of the cost of insurance. To receive the tax credit, the employer would be required to pay for at least 65 percent of “self-only coverage” and up to 35 percent of “family coverage” for their employees. If the employer did not previously pay for health insurance for employees, an additional bonus tax credit would apply, raising the total credit to 70 percent.
The NASE is currently reviewing two additional pieces of legislation that create pooling arrangements. The Small Business Health Plans Act of 2008 (S.2818) introduced by Senator Mike Enzi (R-WY) would enable bona fide trade associations to design health plans to offer to their full membership across state lines, much like the identical plans large employers offer its employees in multiple states. The Small Business House Options Program “SHOP” Act of 2008 (S. 2795/ H.R. 6210) proposes wide spread reform of our current health care system. The bill seeks rating reforms and creates a national pool as well as a national health plan option for small business to access health insurance. Included in this legislation is a health care tax credit to assist with affordability of health coverage.
Self-Employment Tax Deduction on Health Insurance Premiums:
The self-employed are not able to deduct the cost of their health insurance premiums for the purposes of self-employment tax. The self-employed are the only business entity that does not receive a full deduction of health care costs. This inequity causes the self-employed to pay 15.3% in additional taxes. The NASE will continue our efforts with the coalition supporting Equity for Our Nation’s Self-Employed (www.setaxequity.org) to actively advocate for legislation that will bring parity to the self-employed. For more information and the legislative history of this issue, please see our detailed position paper on this issue.
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