Improve Access to More Affordable Prescription Drugs

• Reimportation of Prescription Drugs Both bills would revise current law regarding importation of prescription drugs from Canada. Current law requires that the Department of Health and Human Services (HHS) certify that reimportation of prescription drugs from Canada is safe - something that neither the Bush or Clinton administrations were willing to do. Under the proposal, HHS would have to promulgate safeguards under which prescription drugs could be imported from Canada. The bills would set up criteria that must be met in the importation requirements and would allow HHS to suspend importation rights if there are violations.
• Generic Alternatives to Brand Name Drugs The bills would also modify current law regarding drug patents to bring generic alternatives to market sooner.

Create New Personal Savings Accounts to Pay Medical Expenses

Only the House bill contains a proposal to create two new types of tax-preferred personal savings accounts to pay medical expenses:

• Health Savings Accounts (HSAs) HSAs are effectively an expansion of Archer Medical Savings Accounts (Archer MSAs). They would permit contributions to an account by an individual or employer for individuals covered by a high-deductible health plan ($1,000 - $2,500 individual/$2,000 - $5,050 family). The plan must not exceed $3,350 individual/$6,150 family for out-of-pocket expenses. The annual contribution limit would be 100 percent of the deductible under the health plan. The limitation in Archer MSAs to small employers would be removed.
• Health Security Savings Accounts (HSSAs) HSSAs would significantly expand the amount of money that can be placed in a tax-preferred account for medical expenses. The account could be established by individuals with high-deductible health plans ($500 individual/$1000 family) or who are uninsured. The annual contribution limit would be $2,000 individual/$4,000 family (phased down for those with higher incomes). The individual, a family member or an employer may make contributions. "Catch-up" contributions for those over 55 would be permitted. In addition to qualified medical expenses under IRC Section 213(d), HSSAs could also be used to pay for health insurance for the uninsured and retiree health insurance for those over age 65 (including Medicare Part B premiums).

  Distributions for non-health expenses would be subject to income tax and a 15 percent penalty.

The Flexible Spending Arrangement "use-it-or-lose-it" rule would be modified by permitting up to $500 of unused balances to be carried forward or transferred to an HSA or HSSA. If an individual is not eligible for an HSA or HSSA, funds may be transferred to a tax-qualified plan, a §403(b) plan, a §457(b) plan or an individual retirement account (IRA).

The bill also addresses the issue of whether vendors of debit cards used by employees with a flexible spending arrangement must issue a Form 1099 to providers, pharmacies and other entities paid through the debit arrangement. The bill would clarify that no Form 1099 is necessary.

Implications for Health Plan Sponsors

Because both the fact and the shape of a final bill are still uncertain, it is premature to consider detailed changes in the design of retiree health plans and other health plans in anticipation of whatever legislation will emerge from the Conference Committee. When and if a Medicare prescription drug program is enacted, plan sponsors will want to review the details carefully to determine how it will affect their health benefit programs.

Outlook

The outlook for enactment of prescription drug legislation is less certain than it originally appeared. One of the most controversial issues making enactment questionable is whether the House's proposals for HSAs and HSSAs should be included in the Medicare legislation. Cost is a major consideration. The Congressional Budget Office estimates that the two accounts will cost $174 billion over 10 years, with most of the cost coming from HSSAs.

If Congress passes the bill that eventually emerges from the Conference Committee, President Bush has announced his intention to sign it into law. The Segal Company will report on significant developments regarding this legislation.

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