Madam Speaker, I rise to discuss legislation, the Retiree Health Account Act of 2008 (H.R. 6288), that I introduced yesterday, June 17, 2008. This bill is designed to help Americans prepare for the medical costs they will incur in…
Madam Speaker, I rise to discuss legislation, the Retiree Health Account Act of 2008 (H.R. 6288), that I introduced yesterday, June 17, 2008. This bill is designed to help Americans prepare for the medical costs they will incur in retirement.
When Americans engage in retirement planning, too often they don't contemplate the medical expenses they will incur. If they do, they often make significant underestimates or mistakenly believe that such expenses will be entirely met through Medicare. Often, they fail to recognize that Medicare coverage contains numerous gaps and that beneficiaries must pay deductibles, coinsurance, and copayments. For example, the monthly Medicare Part A premium currently ranges from $233 to $423 while Part B and average Part D premiums are $96.40 and $27.93, respectively. In addition, under Part B, beneficiaries must pay an annual deductible of $135 and 20 percent of covered services. At the same time, Part D beneficiaries have a $275 deductible and then must pay a 25 percent coinsurance levy for drug costs up to $2,510, the entire amount for purchases between $2,510 and $5,726, and approximately 5 percent of all drug costs thereafter.
Current estimates indicate that an average American couple both aged 65 could need as much as $295,000 to cover premiums for
health insurance coverage and out-of-pocket expenses during retirement. Moreover, these costs are increasing. For example, between 1985 and 2005, the Consumer Price Index (CPI) for medical care rose by 185 percent compared to 82 percent for all other goods and services.
During this time period, families headed by persons aged 55 to 64 saw their real expenditures on health care rise from $2,459 to $3,410 (about 40 percent) while average spending by families headed by persons aged 65 to 74 likewise increased from $2,993 to $4,176. Similarly. families headed by persons above age 75 saw their annual health care spending increase from $3,006 to $4,210.
Through all of the above, the health insurance coverage provided to retirees has been shrinking. From 1993 to 2004, the percentage of employers with 500 workers or more offering health insurance to pre- Medicare eligible retirees fell from 46 percent to 28 percent. At the same time, the number of employers offering retiree health insurance to Medicare eligible retirees also decreased from 40 percent to 20 percent.
In this environment, it is important to note that, while the United States tax code provides incentives for the prefunding of both pension benefits and retirement savings, it does not provide similar incentives for the prefunding of retiree health benefits.
Accordingly, the Retiree Health Account Act would provide Americans with tax incentives to set aside funds for health costs. It would accomplish this by establishing Retiree Health Accounts (RHAs), which would be structured very similarly to 401(k) plans. For example, RHAs would have, the same maximum employee inflation-indexed contribution and annual addition limits. In addition, individuals 50 years or older would be allowed to make annual catch-up deferrals of up to $5,000.
Once a RHA account owner reaches age 55, he or she would be able to withdraw monies tax free, provided the funds are used to purchase qualifying medical care. Prior to age 55, monies could be withdrawn, but would be subject to a 10 percent penalty and ordinary income taxes. This penalty would be suspended, however, if the owner had become disabled or if the monies were used to cover health insurance premiums during periods of unemployment or to defray unreimbursed medical expenses. Similarly, RHA funds could be withdrawn without penalty, but subject to taxation, pursuant to a qualified domestic relations order. Finally, upon death, while a spouse could inherit a RHA without paying taxes, RHA funds would otherwise be subject to applicable income or estate taxes.
In addition to Retiree Health Accounts, this legislation would also allow individuals to establish Individual Health Accounts (IHAs). These accounts would be similar to Individual Retirement Accounts (IRAs) in structure and provide for the costs of retiree health care. For example, like IRAs, IHAs would have an annual contribution limit of $5,000, indexed to inflation, with individuals age 50 or older eligible to make annual catch up contributions of $1,000, also indexed for inflation. Unlike IRAs, however, contributions to IHAs would be prohibited once an individual becomes Medicare eligible. In addition, as with RHA funds, IHA funds could be withdrawn tax free if used to purchase medical care by an owner age 55 or older and without penalty if used before age 55 to meet the special circumstances of disability, unemployment, and extraordinary medical expenses. Likewise, IHA funds would not be subject to penalty if distributed pursuant to a qualified domestic relations order and could be inherited tax free only by a spouse.
To encourage lower-income Americans to take advantage of the opportunity to contribute to RHAs and IHAs, the Retiree Health Account Act would provide a refundable tax credit of up to $1,000 for eligible individuals. This tax credit would be indexed to inflation and the maximum lifetime credit would be $5,000.
Health care costs continue to increase while employer-sponsored retiree health benefits erode. However, we can help Americans prepare to meet their future health care costs by giving individuals an incentive and mechanism to help themselves. Accordingly, I ask my colleagues to join with me as I work to enact legislation authorizing Retiree Health Accounts.