Health Savings Bill Proposed : Congress: People with only catastrophic coverage would get a tax break for putting money aside to pay for routine care.

Americans with catastrophic-only health insurance coverage could save, tax-free, to pay routine medical bills under a proposal unveiled Tuesday by the chairman of the House Ways and Means Committee.

Medical savings accounts could help slow the rising cost of health care “by giving patients total control over where and when they spend their own money,” said Rep. Bill Archer (R-Tex.).

Archer and Rep. Andrew Jacobs (D-Ind.) signed up 50 co-sponsors for their Family Medical Savings and Investment Act, which would give people a way to save tax-free for medical bills the way they can now set aside money for retirement.

The proposal advances an idea that has been a cornerstone of Republican health care reform ideas and that is avidly backed by the American Medical Assn. and some business groups.

But skeptics, including Clinton Administration officials, fear that medical savings accounts would divert money from health insurance pools that would otherwise be available to cover the costs of the seriously ill.

The Archer-Jacobs plan would allow people to deduct up to $2,500 a year in medical savings for an individual or $5,000 for a family--if their health plan includes certain-size deductibles. To qualify for the tax break, the health plan deductibles would have to be at least $1,800 for an individual and $3,600 for a family.

Most Americans now have deductibles of just a few hundred dollars a year.

Some employees are already able to spend tax-free dollars to pay for health insurance premiums through their jobs. They are not required to have high-deductible plans, but the tax-free money cannot be used to pay for out-of-pocket expenses not covered by the insurance.

Advocates of medical savings accounts argue that Americans’ insulation from paying routine bills encourages unnecessary care and fuels inflation.

Archer said people with medical savings accounts could “spend their money wisely, shopping for the best deal in the medical marketplace and driving down costs. And what they don’t spend, they can keep” for future medical needs.

The Congressional Budget Office has not been asked to prepare a cost estimate on the Family Medical Savings and Investment Act. But Rep. Bill Thomas (R-Bakersfield), chairman of the Ways and Means health subcommittee and a co-sponsor, estimated it would cost the Treasury $2 billion over five years.

The Archer-Jacobs bill would work this way:

* Individuals covered by a catastrophic health plan could maintain a medical savings account held in trust by a bank, insurance company or other person certified by the Treasury secretary.

* Employer contributions would be excluded from the employee’s gross income.

* Individual contributions would be tax-deductible.

* The deductible on the catastrophic plan would have to be at least $1,800 for an individual or $3,600 for a family.

* The maximum amount deducted or excluded from taxes each year would be the lesser of the insurance deductible or $2,500 for an individual, or $5,000 for a family. But people may save more without deducting that money.

* Money withdrawn for medical expenses would not be taxed. Funds withdrawn for non-medical expenses would be subject to regular taxes plus a penalty of 10% of the amount withdrawn.

The Business Coalition for Affordable Health Care and Golden Rule Insurance Co. have lobbied heavily for creation of medical savings accounts. The AMA backs them as a way to let patients decide which physicians they would like to see.