S. 2795 (Durbin)/H.R. 5918 (Barrow) - Tax Incentives

Medical Savings Accounts (MSAs)

Overview
No provision.

Eligibility for MSAs
No provision.

Contributions to MSAs and distrubutions from HSAs
No provision.

Who can make contributions
No provision.

MSA-qualified high deductible health plans (HDHPs)
No provision.

Other MSA provisions
No provision.

Effective date
No provision.

Flexible Spending Arrangements (FSAs)

Overview
No provision.

Effective date
No provision.

Other Tax-Advantaged Accounts for Health Expenses

Overview
No provision.

Eligibility
No provision.

Contribution limits
No provision.

Deductible amounts and annual out-of-pocket limits
No provision.

Who can make contributions
No provision.

Qualified expenses
No provision.

Other provisions
No provision.

Effective date
No provision.

New Health Insurance Tax Credits or Deductions

Overview
Establishes a health insurance tax credit, payable on an advance basis, for eligible small businesses to help subsidize the cost of health insurance bought for their employees through SHOP or through the small group insurance market in states meeting certain federal minimum requirements relating to underwriting and premium rating. Requires the Secretary to establish the program for making advance payments of the tax credits by December 31, 2008. The amount of the monthly payment would be 1/12th of the amount of the credit for the tax year.

Target population(s)
Small firms and self-employed individuals. The tax credits would also be allowable for small firms that are non-profit organizations.

Eligibility
Qualified small employers are those who employed no more than an average of 50 employees during the previous taxable year or were self-employed, earning more than $5,000 in net earnings or $15,000 in gross earnings. Such qualified small employers would be eligible for the tax credit by either participating in SHOP or purchasing health insurance coverage in the small group insurance market in a state that met new federal minimum requirements as established under the legislation (see below). Such employers would also have to pay at least 60% of the premium for their employees' coverage (or be self-employed).

Amounts of credits/deduction
A qualified employer would be eligible for a tax credit of $1,000 (self-only), $1,500 (2 adults or one adult and one or more children) or $2,000 (family) coverage. The credit would be scaled to the size of the employer. An employer of 10 or fewer full-time employees (including a qualified self-employed individual) would get 100% of the credit amount; an employer with 10 to 20 employees would get 80% of the credit and so on down to $0 for employers with more than 50 full-time employees. A bonus would be added to the credit for the employer's payment of more than 60% of the premium. For each 10% increase in employer contribution over 60%, the tax credit would be increased by $200 for self-only coverage; $400 for family coverage and $300 for (two adults or one adult and one or more children). For taxable years after 2009, the dollar amounts for the credits would be increased for inflation in wages.

Payments of premiums by a participating employer in SHOP would also be considered an ordinary business expense and therefore tax deductible.

No amounts paid or incurred for health insurance coverage under a salary reduction arrangement could be taken into account in determining the tax credit.

Qualified coverage
Coverage would be qualified for the tax credit if it were purchased by a small employer through the SHOP or in a state meeting the following requirements:

In 2009-2010, the coverage would be qualified if it was purchased by a qualified small employer in a state that: (1) defined its small group market to include groups of one; (2) prohibited the use of health status-related factors and other rating factors specified in the legislation; and (3) had in effect rating rules that complied with those for SHOP (except that the rules could impose additional limits on premium variation).

In 2011 and 2012, the coverage would be qualified if it were purchased by a small employer in a state that had in place the requirements specified for 2009 and 2010 and also maintained a state-wide purchasing pool that provided purchasers in the small group market with a choice of health benefit plans and with comparative information concerning the plan offerings and their premiums.

After 2012, the coverage would be qualified if it were purchased by a small employer in a state that met the previous requirements and had in effect rating rules that complied with the rules enacted by Congress (the NAIC recommendations or an alternative) or the fallback rules, whichever were in effect for such calendar year (except that such rules could impose tighter limits on rating variation than those provided for in such section).

Effective date
Applies to amounts paid or incurred in taxable years after December 31, 2008.

Self-employed deduction for health insurance

Provide for 100% deductibility
No provision.

Other health-related provisions

Other
The bills would also establish the Small Business Health Options Program as a national health insurance purchasing pool for small businesses and the self-employed that would offer a choice of qualified private health plans (see separate side-side).