Good Medicine Medical savings accounts offer tax advantages and more--but you'd better rush to get them.

The health insurance market for BIZ Experiencess will take on ahurly-burly Wild West look come January 1, 1997, when The HealthInsurance Portability and Accountability Act takes effect.That's when insurance companies, as well as banks and financialservices firms--and who knows who else--will start offering medicalsavings accounts (MSAs) on a nationwide scale.

MSAs allow individuals with high-deductible health insuranceplans to set aside money for out-of-pocket medical expenses andgain advantages on federal taxes. They have existed on the statelevel for some time: Eighteen states already allow a deduction onstate income taxes for MSAs, according to Jack Strayer, director offederal affairs for The Council for Affordable Health Insurance, atrade association.

The health insurance reform bill signed by President Clintonthis summer--dubbed Kassebaum-Kennedy for its two Senatesponsors--authorized federal income tax deductions for MSAs for thefirst time under a four-year pilot program. These MSAs will berestricted to sole proprietors and companies with fewer than 50employees.

That's not the only restriction, however; Congress isallowing only 750,000 MSAs to be established during the four-yeartrial period, with the exception that all MSAs established in thefirst four months of the program will be honored indefinitely (evenif this number surpasses the 750,000 limit, which is largelyexpected). Unless Congress acts to extend the program, theavailability of MSAs will terminate on December 31, 2000.

"My advice is to move fast," says James Morrison,senior policy advisor to the National Association for theSelf-Employed. "The 750,000 cap will be reached in a matter ofmonths."

Taxing Matters

Many self-employed individuals already have health insuranceplans. Whether your plan has a high or low deductible, convertingto an MSA is likely to bring not only tax benefits but possiblyeven lower premiums as more and more companies compete to provideMSAs.

No one is quite sure how these policies will be set up, or bywhom. "But you can lay odds there are some very busy peopletrying to figure out how to get to market on this," says NeilTrautwein, manager of health-care policy for the U.S. Chamber ofCommerce.

What we do know is how it will work. Someone who isself-employed might buy a family policy with a deductible of$4,500. Assume premiums are $2,000 a year. Under the new law,starting in 1997, 40 percent of that $2,000 can be written offannually as a health insurance deduction. The amount that can bewritten off increases in stages, reaching 80 percent in the year2006.

The next step is to set up an MSA; this could be done throughwhomever handles your Simplified Employed Pension (SEP), Keogh orcompany pension plan, or anyone else qualified to do so. The amountyou put into the account is pre-tax. You can withdraw a maximum of$3,000 annually (for an individual) and $5,500 (for families) topay out-of-pocket medical expenses.

MSAs allow you to use the set-aside funds for medical expenseswith no tax penalty. For family policies, annual contributions arelimited to 75 percent of the plan's deductible (forindividuals, it's 65 percent); in the example above, that wouldbe $3,375 (75 percent of $4,500). Deductibles for families must bebetween $3,000 and $4,500; for individuals, between $1,500 and$2,250. Any money left over at the end of the year can remain inthe account for future medical expenses.

The Treasury Department will report to Congress at the end ofJune 1997 on how many MSAs were set up. The question everyone isasking is: What if, as expected, the number of people interested inestablishing MSAs is in the millions? Although those whoestablished accounts in the first four months of the program willbe allowed to keep them, what will happen to any others set upafterward is anyone's guess.

Guaranteed Coverage

While MSAs will be of most value to BIZ Experiencess who arehealthy (because their out-of-pocket medical expenses are lower),the Kassebaum-Kennedy bill is also beneficial to someone withhealth problems who leaves a corporate job to start a business.Under the bill, if you have a pre-existing medical condition, youcannot be denied an individual (or family) health insurance policyonce certain conditions are met.

One of those conditions is that you must pay for a corporateconversion insurance policy for a set period--generally 18 months,but sometimes up to 36 months. Once that policy ends and you havesatisfied whatever other conditions your former employer set, youcannot be denied health insurance because of a pre-existingcondition.

There's just one catch: Kassebaum-Kennedy sets no limits onwhat an insurance company can charge for that guaranteed policy.The National Association of Insurance Commissioners says many statelegislatures have enacted what are called individual market ratingreforms. These require health insurance premiums in the small groupmarket to be within a certain price range.

In states without such protection, insurance companies couldseverely jack up the price of guaranteed policies. But one healthinsurance lobbyist in Washington says, "If consumers are vocal[about their displeasure with this], state legislatures will notsit still very long." The squeaky wheel gets the grease--or,in this case, the lower insurance premiums.

SBA Update

If you think Russia's 150 million potential customers areout of your reach, think again. The Small Business Administrationhas teamed up with the Russian government's State Committee forthe Support and Development of Small Business to help U.S.entrepreneurs establish alliances with partners in Russia.

Russia has nearly 1 million small businesses eager to formalliances with U.S. BIZ Experiencess. And establishing connections inthe Russian market can give you access to 130 million moreconsumers in the other markets of the Commonwealth of IndependentStates.

But as a small-business owner, you may not have all theresources needed to take advantage of these opportunities. Finding,negotiating and communicating with foreign agents istime-consuming. Strategic alliances help bridge that gap, providingan easy, low-risk way to get involved in joint ventures, licensingagreements, subcontract manufacturing, distribution agreements andmore.

The SBA/Russia initiative can help you by:

• identifying potential partners in Russia and facilitatingcontacts to develop relationships;
• providing assistance and information; and
• offering financial assistance through the SBA's ExportWorking Capital Program, International Trade Loans and other loanguarantees.

One of the most exciting aspects of the partnership is a seriesof trade missions in which Russian and U.S. small-business ownerswill visit each other's countries to exchange ideas and formrelationships.

For more information, contact the SBA's Office ofInternational Trade at (202) 205-6720.

Eileen Cassidy-- Director, Office of InternationalTrade

Contact Sources

The Council for Affordable Health Insurance, 112 S. WestSt., #400, Alexandria, VA 22314, (703) 836-6200;

Sen. Nancy Kassebaum, c/o Labor Committee, Dirksen 428,302 Russell Senate Office Bldg., Washington, DC 20510, (202)224-6770;

National Association for the Self-Employed, P.O. Box34116, Washington, DC 20005, (202) 466-2100;

National Association of Insurance Commissioners, http://www.naic.org;

U.S. Chamber of Commerce, 1615 H St. N.W., Washington, DC20062, (202) 463-5500.