Scott Walker says that eliminating state tax on health savings accounts would increase the number of small businesses offering health insurance

Governor-elect Scott Walker promises to "open Wisconsin for business" on Jan. 3, with his first official act to be convening an emergency session of the Legislature to consider economic development measures aimed at creating jobs.

That package will include a change in state law -- sought by the business community -- that was rebuffed in the past by Gov. Jim Doyle and his fellow Democrats: a state income tax credit for contributions to health saving accounts.

Walker included a pledge to eliminate the tax as one of his campaign promises, declaring on his website that the change would "make it easier for small business owners to provide health insurance to their employees."

In other words, more health coverage -- even without a mandate from Washington.

On Dec. 9, 2010, Walker unveiled some details of his HSA plan -- and again pitched its importance. We had decided days earlier to look at the issue, and had contacted his campaign office about it. So, a special thanks to them for going out of their way to make this item extra timely.

During the campaign, as the campaign website shows, Walker positioned  the change as a boon to the employers of the state. So that’s our starting point.

Some background: Wisconsin is among only four states that do not allow employees to deduct their contributions to health savings accounts. There already is a federal tax deduction available.

Supporters see the plans as a key to keeping health care costs under control. Opponents, such as Gov. Jim Doyle, argue that such savings accounts benefit only higher income workers -- and note that the change would cost the state millions in lost tax revenue at a time of huge budget deficits.  

Health savings accounts are allowed with plans that have deductibles of at least $1,200 for individual and $2,400 for family coverage. With such plans, workers (and employers if they choose to do so) can set aside money into a spending account for employees to use on health care expenses.

Many businesses have embraced high-deductible plans, which typically mean lower premiums than on conventional insurance plans.

"They’re an important tool" toward keeping the cost of health insurance down, said Jon Rauser, a Milwaukee insurance broker who serves small businesses.

What does it mean for those with accounts?

On an account with $3,000 in annual contributions, the annual state tax credit would be about $195.

Let’s underline: That’s what the employee would receive on his or her tax return.

What about the argument, as the Walker campaign advanced, that this would help the bottom line for businesses?

Steve Baas, legislative director for the Metropolitan Milwaukee Association of Commerce, says businesses believe the current rules could discourage workers from signing up with a plan that includes a HSA.

"It’s incredibly frustrating," he said. "Why are we an outlier on this?"

In a letter to its members in spring of 2010, the MMAC in a letter called the lack of a deduction "an unwarranted tax on employees."

Walker transition spokesman Cullen Werwie argued allowing HSA contributions to be deducted would put Wisconsin on par with most other states by removing a competitive disadvantage for state businesses.

However, neither Werwie nor others involved with the issue said they were aware of any business that was holding off on high deductible plans because of the state tax issue.

"Does an employer really care about an employee’s tax situation?" said Paul Fronstin of the Washington, D.C.-based Employee Benefit Research Institute. "I don’t know if that amount of (tax savings) money makes any difference."

Fronstein said about 10 million Americans were covered by health plans that were deemed eligible for HSA accounts.

Doyle vetoed versions of the bill in 2004 and 2006.

In his 2004 veto message, the governor said he feared that expanded use of HSAs "could decrease employer-sponsored insurance coverage.

"Additionally, HSAs are only viable for healthy persons with higher incomes," Doyle wrote. "As healthy individuals with higher incomes opt out of traditional insurance pools, the risk profiles of these existing health plans will worsen, which in turn will cause insurance companies to raise rates on remaining members likely to be those without any other options."

It’s a little unclear what the exact cost to the state coffers would be if the tax break was allowed.

Doyle noted in 2004 the proposal would cost the state some $38.7 million over eight years; his 2006 veto message put the cost at $50 million but didn’t say over what period of time he was referring to. A version of the bill introduced last spring included a fiscal note that said it would cost $14.8 million in fiscal year 2011.

Walker’s announcement Dec. 9 said that under his measure "taxpayers will save $4 million to $8 million in lower taxes if HSAs are tax-exempt." However, those estimates were based on a fiscal note from the 2005 version of the bill.

The issue is bigger than the dollar impact of the tax deduction for employees, said John Torinus, retired chairman of Serigraph Corp. who has advised Walker on economic issues.

He said the change would "remove a small impediment" to getting workers into high deductible plans and "would send a signal that the state of Wisconsin wants consumer driven health plans."

Rauser said when he speaks before companies considering the plans, he has to remind workers that Wisconsin does not allow a tax deduction on the accounts. He termed it "more of a nuisance than an impediment" to getting workers to sign up for them.

But again, that’s on the side of the employee, not the employer.

State Sen. Alberta Darling (R-River Hills), a sponsor of the measures Doyle vetoed and a subsequent bill that died in the last session, said without the break, "employers have trouble convincing their employees (having high deductible plans) is an advantage."

HSA plans also lead to more prudent spending on health care because employees use health care providers more prudently, she said, because "they have skin in the game."

What’s the bottom line?

The consensus is pretty clear: State workers who have health savings accounts are getting nicked by Madison. And allowing them to take a tax deduction would bring Wisconsin in line with most other states. That may all be true. But Walker is arguing that a tax break for individuals -- not employers -- would boost the number of small businesses that provide health insurance.

He and other supporters have provided no evidence it would. We rate that statement Barely True.

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