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Small Businesses are Saving Money and Insuring More People Today With Health Savings Accounts

Newt Gingrich, Vince Haley
November 1, 2004

As the nation narrows its focus on domestic issues in this last week before a national election, there may be no more important domestic issue than making healthcare insurance more affordable. Because the small business sector represents the single largest segment of the uninsured population, removing the obstacles that keep employers and their employees from being able to afford coverage represents the most significant opportunity to solving the problem of uninsured employees working for small businesses.

Small business is the engine of American prosperity. Small business creates seven out of ten new jobs and accounts for more than half of the output of the American economy. Developing better policies to enable small business to compete in a rapidly changing world economy is no small issue.

One of the major burdens facing small businesses has been the rising cost of healthcare coverage.

The high cost of health insurance has been the principal reason for why half of all small business owners do not offer any healthcare coverage for their employees. And those that do are struggling to maintain their coverage in the face of annual double digit increases in health insurance premiums.

Fortunately for small business, the new health savings accounts (HSAs), which were created by President Bush and the Congress as a part of last year’s Medicare drug law, are already having a dramatic impact in lowering health insurance costs for small businesses and expanding access to previously uninsured small business employees.

HSA plans have allowed small businesses to realize on average a 40-50% immediate savings on health insurance premiums in 2004. The savings are so substantial that many of these businesses will be able to make significant contributions to the HSAs of their employees.

For example:

  • A Ohio small business with 66 employees (Ohio Waste Water) is saving $207,566 (or 37%) on health insurance premiums in 2004 with a HSA Plan.
  • A New Hampshire self employed small business owner, Herve Riel, is saving $6,600 (or 66%) on his individual health insurance coverage in 2004 with a HSA plan.
  • An Iowa small business counseling service with 8 employees is saving $14,740 (or 32%) on health insurance premiums in 2004 with a HSA plan.
  • An Iowa small business OB-GYN clinic with 13 employees is saving $40,608 (or 38%) on health insurance premiums in 2004 with a HSA plan.
  • A Minnesota small business with 15 employees (Mercury Office Supply) is saving $12,000 in 2004 with a HSA plan.
  • A Minnesota small business with 18 employees is saving $20,000 (or 23%) in 2004 with a HSA Plan.
  • A Wisconsin small business owner, Dr. Jeffrey Wilder, is saving $8,400 (or 70%) on his family health insurance coverage in first year with a HSA plan.

At the Center for Health Transformation we have collected 31 examples of small businesses saving money today by adopting HSA plans. 27 of these small businesses are saving on average 44% on their health insurance premiums. Find the complete list of these examples at

By moving to a HSA plan, small business owners can realize savings of 40-50% off the cost of their current health insurance premiums and then use the savings to help fund the HSAs of their employees.

As the first completely tax-free account dedicated to health, a HSA plan permits individuals, families, small businesses, and family farms to deposit tax-free dollars that can be used to pay for qualified medical expenses. Unused dollars grow tax-free and can eventually be withdrawn in retirement and taxed as normal income.

The HSA is a tremendous savings opportunity for small business employees.

Moreover, employees with HSAs also make better healthcare decisions because HSAs reward those who make wise purchases. HSAs will therefore help lower overall health expenditures. Because the HSA allows Americans to build wealth through good health, it provides a tremendous incentive for Americans to take more responsibility for improving their health and their productivity.

To compete in a global marketplace, it is essential that the American small business sector is strengthened. By taking advantage of HSAs with their lower premiums, small businesses will be able to expand the number of employees they cover and allow them to offer more competitive compensation packages that will put them in a better position to compete for good employees.

The Bush administration has also proposed two additional steps to help small businesses buy affordable health insurance.

First, the administration has called for a federal tax credit for HSA contributions to help individuals and families who work for small business to fund their HSAs. Any small business and their employees who set up a HSA would get a tax rebate for contributions to their HSA of up to $500 per worker with family coverage and $200 per worker with individual coverage.

Second, the administration has proposed the creation of a national marketplace for health insurance that will allow residents in one state to look to other U.S. states for less expensive health insurance.

Historically, health insurance has been regulated at the state level. Consequently, many state legislatures have been pressured by providers to mandate expensive benefits for a standard health insurance plan, greatly adding to the cost of basic health coverage. Various studies estimate as much as 25 percent of the uninsured population cannot afford health coverage due to the excessive mandates imposed by the state in which they live.

A national market in health insurance would likely be the most significant pro-consumer action by the federal government since the deregulation of the airlines in 1978; since then, the average price per mile of airline travel has dropped 50% in constant dollars and opened up airline travel to millions of Americans for the first time.

Similarly, a national market for health insurance would force state legislatures in high cost states to reform their insurance regulations or otherwise see a flight of insurance business to low cost health insurers in other states.

The resulting competition among states to provide the most comprehensive coverage at the most affordable price will benefit small business with lower insurance costs and will open insurance markets to small businesses which are currently shut out by sky-high prices. Both of these changes will benefit consumers and the uninsured. To compete and win in a global business environment, America relies on a robust and vibrant small business sector, which has been threatened in recent years by unsustainably high health insurance costs. Small business can build on the momentum to drive down these costs that was initiated with the creation of HSAs by advocating for federal tax credit assistance to small businesses purchasing HSA plans and by supporting a national insurance market that will lower insurance costs for all Americans.

Former Speaker of the House Newt Gingrich is the founder of the Center for Health Transformation. Vince Haley is a Project Director at the Center for Health Transformation.

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