The health insurance market for entrepreneurs will take on a hurly-burly Wild West look come January 1, 1997, when The Health Insurance Portability and Accountability Act takes effect. That's when insurance companies, as well as banks and financial services firms--and who knows who else--will start offering medical savings accounts (MSAs) on a nationwide scale.
MSAs allow individuals with high-deductible health insurance plans to set aside money for out-of-pocket medical expenses and gain advantages on federal taxes. They have existed on the state level for some time: Eighteen states already allow a deduction on state income taxes for MSAs, according to Jack Strayer, director of federal affairs for The Council for Affordable Health Insurance, a trade association.
The health insurance reform bill signed by President Clinton this summer--dubbed Kassebaum-Kennedy for its two Senate sponsors--authorized federal income tax deductions for MSAs for the first time under a four-year pilot program. These MSAs will be restricted to sole proprietors and companies with fewer than 50 employees.
That's not the only restriction, however; Congress is allowing only 750,000 MSAs to be established during the four-year trial period, with the exception that all MSAs established in the first four months of the program will be honored indefinitely (even if this number surpasses the 750,000 limit, which is largely expected). Unless Congress acts to extend the program, the availability of MSAs will terminate on December 31, 2000.
"My advice is to move fast," says James Morrison, senior policy advisor to the National Association for the Self-Employed. "The 750,000 cap will be reached in a matter of months."