President Bush is proposing changes in HSA legislation that will make it easier for small businesses to join in healthcare alliances and for individuals to pay for more of their healthcare with pre-dollars from their account while at the same time creating a nationwide HSA program.

At the same time, he is asking Congress to approve regulations to allow businesses to pay for more of a chronically ill employee’s medical expenses.

Called Association Health Plans (AHPs), they would let small businesses join together to purchase health coverage, giving them the same advantages, administrative efficiencies, and negotiating clout enjoyed by big businesses and labor unions. The administration believes that by purchasing coverage for thousands of employees at a time, association members can pay lower premiums for better coverage.

The President also wants to permit portable HSA Insurance Policies allowing employers the ability to offer workers a Portable HSA insurance policy that the employees would own, control, and be able to take wherever they went.

Under this proposal, employee premiums would be tax-free and would not increase based on their health status at the time that they changed jobs, left the labor force, or moved. Employers could contribute to new employees' Portable HSA insurance policies – no matter where the policy was originally purchased. Employers would have the ability to decide whether or how much to contribute to these plans, but whatever they contributed would be tax-free.

Nationwide HSA Insurance

More importantly, the President is seeking legislation to allow HSAs to be purchased across state lines, a major innovation sure to draw the ire of State Insurance Regulators.

The President is also seeking legislation giving individuals that purchase HSAs on their own the same tax advantages as those with employer-sponsored insurance. He is proposing that premiums for HSA-compatible insurance policies be deductible from income taxes when purchased by individuals outside of work. In addition, an income tax credit would offset payroll taxes paid on premiums paid for their HSA policies. Supporters claim this will level the playing field for those who currently do not have access to employer health care plans, including the self-employed, unemployed, and workers for companies that don’t offer health insurance. For Americans who are not working, especially early retirees, premiums for the purchase of non-group HSA plans would now be allowed tax-free from an HSA account.

The President proposes allowing Americans with HSAs and their employers to make annual contributions to their accounts to cover all out-of-pocket costs under their HSA policy, not just their deductible as provided under current law. This will allow patients to cover all their out-of-pocket expenses tax-free through their HSA. The new proposal would also provide a credit for payroll taxes paid on HSA contributions made by individuals. The President's HSA proposals are projected to increase the number of Americans with HSAs from the current 14 million to 21 million by 2010, a 50-percent rise.

To see the President's proposals, click here.