Saying that Health Savings Accounts (HSAs) are a good way for more people to obtain health insurance coverage, the New Jersey Business & Industry Association May 12 praised legislation that would allow New Jersey employers and their employees to take advantage of federal HSAs.

"When it comes to providing health benefits to their employees, New Jersey employers are struggling with cost increases that are typically five times the rate of inflation," NJBIA Vice President Christine Stearns told members of the Assembly Financial Institutions and Insurance Committee, which released the bill, A-3440 (Cohen), by a vote of 7 to 0. "Employees are feeling the pinch of increased co-payments and deductibles and their share of the increased premiums. Health Savings Accounts offer an affordable alternative to employees and employers alike."

HSAs were created as part of recent federal Medicare legislation that was enacted on December 8, 2003. They allow individuals to contribute tax free to a savings account that is then used to pay for routine medical expenses. Federal regulations require those using HSAs to covered by a high-deductible health insurance plan to cover expensive medical treatments, but New Jersey's high-deductible health plan does not meet federal requirements. A-3440 would change New Jersey law to permit the sale of the types high deductible health insurance plans that must accompany HSAs.

The federal government has given New Jersey until December 31 to come into compliance. Unless A-3440 is enacted by the end of the year, New Jersey will not be able to take advantage of this program.

"HSAs are tailor-made for people who do not have insurance now," Stearns said. "Employers who cannot not afford traditional health insurance may be willing to make a defined tax-free contribution to an employee's HSA. Employees who may not be able to afford the premiums may find the tax savings in HSAs an attractive option."

"We believe that HSAs will also help attract more participants into New Jersey insurance system," Stearns said. "Getting more people participating in New Jersey's health insurance system would help stabilize everyone's health insurance costs."

Health Savings Accounts (continued)

An HSA can include tax-exempt deposits of up to $2,650 a year for individuals or $5,250 for families. These contributions can come from the individual, the employer or both. The funds can then be withdrawn without tax penalty to pay for "qualified medical expenses" as defined by the IRS. These include a wide range of medical services, including doctor's office visits, routine check-ups, and even over-the-counter medication. Unspent funds in an HSA can accumulate from year to year; they do not have to be spent down at the end of the year like Flexible Spending Accounts (FSAs). These funds also belong to the account holder and can be used even if the individual changes jobs.

Stearns pointed out that New Jersey employers are facing continuous hyperinflation in the cost of providing health benefits to their employees. Employers participating in NJBIA's 2005 Health Benefits Survey reported paying an 11 percent average increase in the cost of providing health insurance to their employees in 2004. Their average cost was $7,300 per employee. This came on top of a 13 percent increase in 2003 and 15 percent in 2002. They paid a 55 percent cost increase over four years. What's more, the survey indicated that double-digit rate increases were forcing a drop in the percentage of employers offering health insurance coverage for the first time in the survey's 12-year history.