ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, December 23, 1996 TAG: 9612230124
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
ALTHOUGH they have been little-noticed, Medical Savings Accounts could be a blessing for self-employed workers and those at small companies.
Perhaps that's because Medical Savings Accounts - which go into effect next year - have been advertised as a pilot program limited to the first 750,000 people nationwide who sign up.
But Tenna Merchent, spokeswoman for Golden Rule Insurance Co. in Indianapolis, said anyone can enroll who meets the deadlines.
The deadlines are Sept. 1, 1997, for groups of two to 50 workers and Oct. 1, 1997, for self-employed individuals and the currently uninsured.
The pilot program will last for four years, but it has no so-called sunset provision. That means that people who set up Medical Savings Accounts in that period will be able to maintain them throughout their lifetimes.
John Schuessler of Beacon Financial Services in Salem said the law packages together a high-deduction health policy with a so-called Medical Savings Account. You sign up for both aspects as a package, filling out a single application and writing one check.
The deductions are $1,500 for individuals and $3,000 for family coverage. But Schuessler said the policyholder pays no co-insurance after that point. The policy pays 100 percent of costs after the deduction.
Anyone with a serious illness should come out just as well as they would with a policy that has a lower deduction but 20 percent co-insurance, Schuessler said.
Schuessler said the high-deduction policy might cost $85 a month compared with $150 for the average health policy, depending on who is buying it.
You take that difference in price (or $65 a month in the above example) and put the money into an accompanying Medical Savings Account. At the end of the year, your fund would be $780.
Merchent said these accounts differ radically from the flexible medical accounts that are offered as an option by many large corporations. People with those accounts set aside pre-tax money to pay medical expenses for the year. Any money that is not used within the year is lost to the participant. It goes to the government.
People with Medical Savings Accounts get to keep the money and build each year against future medical expenses. The money is never taxed if it is used for medical expenses.
Merchent said tax-free withdrawals can be made for:
*Medical expenses approved by the Internal Revenue Service, including things such as preventive care, vision and dental expenses.
*Premiums under a temporary arrangement through a former employer.
*Health insurance premiums while receiving unemployment compensation, a period when many people drop their insurance.
*And premiums for long-term care insurance.
Merchent said the impact for the self-employed is huge. Under existing law, they can deduct only 30 percent of their cost of health insurance, compared with a full deduction for larger employers.
Starting Jan. 1, Merchent said, the self-employed will be able to deduct 40 percent of the cost of the high-deductible insurance (scaling to 80 percent by 2006) and 100 percent of the contribution to the Medical Savings Account.
The tax benefits alone, Merchent said, make the accounts "the most logical choice for the self-employed."
The impact on employee groups of two to 50 people also is important, Merchent said. She said the money that goes into an account will be treated as income-tax-free.
Interest on the fund grows tax-deferred. The money is never taxed if it is used for qualified medical expenses.
Withdrawals from the fund before age 65 are taxed as income, plus a 15 percent penalty, if the money is spent for nonmedical purposes. Merchent said the fund is not intended to pay for living expenses, but for health care and health insurance.
After age 65, the money can be withdrawn without a penalty for any purpose, but it will be subject to standard income taxes if it is not used for medical costs.
The accounts are not available for companies with more than 50 employees.
Merchent said some insurance companies are accepting applications now for setting up accounts in 1997, when contributions will be deductible. You must have an account in place by Jan. 1 to deduct the full amount.
The downside is finding an insurer to write the accounts.
Kenneth Schrad, spokesman for the State Corporation Commission, said no company has submitted a medical savings plan. He said the commission sees little interest in marketing such policies in Virginia.
But Schuessler and Merchent both said that Golden Rule is selling the policy-accounts combinations in Virginia. Merchent said it already has a qualifying high-deductible plan on file with the SCC.
Merchent said Time Insurance Co. of Milwaukee is also selling plans in Virginia.
A spokeswoman for Trigon Blue Cross Blue Shield, the state's largest health insurer, said her company is looking into the possibility of offering such policies, but no decision has been made.
LENGTH: Medium: 95 lines ILLUSTRATION: GRAPHIC: Chart by staff: Medical savings accounts. color. KEYWORDS: MGRby CNB