President of HSA Consulting Services and author of The Common Sense Guide to Health Savings Accounts, Ro y Ramthun recently contributed this article to CDHC Solutions – the member-based networking community for the consumer-driven health care industry and audience of CDHC Solutions magazine. CDHC Solutions hosts the latest industry news, newest innovations, best practices, and recent trends in addition to supplying a platform for employers, consumers, and health care solutions providers to interact and discuss consumer-directed health care commerce (CDHC).
The article discusses the upcoming introduction of a new bill which presents several key potential changes to health savings accounts (HSAs), as well as flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs).
Hatching a Bill to Take HSAs to a New Level
By Roy Ramthun, President of HSA Consulting Services
Health Savings Accounts (HSAs) continue to grow as businesses look for ways to control employee benefit costs. While this trend should not change under the new health reform law, there have been some technical issues not addressed in the Tax Relief and Health Care Act of 2006 (P.L. 109-432).
That could change soon because Sen. Orrin Hatch (R-Utah) will be introducing a bill that will help take HSAs to another level, regardless of whether the health reform law is repealed or stays in place. This bill is significant because Sen. Hatch will be the highest ranking GOP member of the U.S. Senate Committee on Finance, which has legislative jurisdiction over the Internal Revenue Code, where HSAs were created. Sen. Hatch could also become the Committee’s next Chairman, depending on the outcome of upcoming elections in 2012.
The bill also would repeal the two most egregious provisions relating to consumer-driven health care in the new health reform law. First, the bill would repeal the limitation on tax-free reimbursement of over-the-counter medicines without a prescription for HSAs, as well as Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs). Second, the bill would repeal the limitation on deductibles imposed at $2,000 for single coverage and $4,000 for family coverage under plans offered by small businesses.
Changes to HSA Eligibility
Once a person turns 65, they usually no longer contribute to their HSA because of automatic enrollment in Medicare Part A. However, the current deductible for hospital coverage under Medicare Part A is very high, almost $1,200 per admission, nearly equal to the minimum deductible required for HSA-qualified plans. The Hatch bill would allow Medicare beneficiaries enrolled only in Part A to continue to contribute to their HSA accounts.
Great Flexibility in Using HSA Funds
Currently, people may only use their HSA account to pay for health insurance premiums when they are receiving federal or state unemployment benefits or are covered by a COBRA continuation policy from a former employer. The Hatch bill would allow HSA funds to be used to pay premiums for HSA-qualified policies under any circumstances. The Hatch bill also would allow HSA funds to be used to reimburse all qualified medical expenses incurred after HSA-qualified coverage begins as long as the account is established by April 15 of the following year. Currently, expenses incurred before one’s HSA account is established cannot be reimbursed tax-free.
To help people stay healthy, Sen. Hatch’s bill would allow HSA funds to be used for new types of expenses, including:
- Exercise and physical fitness programs (up to $1,000 per year)
- Nutritional and dietary supplements, including meal replacement products (up to $1,000 per year)
Some primary care doctors are charging patients a flat annual fee in exchange for the right to receive medical services on an “as-needed” basis through the year. Currently, the IRS does not permit HSA funds to be used to pay these fees because there is no direct billing for individual services provided by the physician and the arrangement is not considered “insurance.” The Hatch bill would allow HSA funds to be used to pay these annual fees.
Rollovers and Catch-Up Contributions
The changes made by Congress in 2006, though well-intended, make it very difficult for employees to ever be able to roll over unused funds in an FSA or an HRA to help fund their HSAs. The Hatch bill simplifies the process for rollovers in order to ease the transition to HSAs from FSAs and HRAs.
HSA-eligible individuals age 55 or older may make additional catch-up contributions of $1,000 each year. However, the contributions must be deposited into separate HSA accounts even if both spouses are eligible to make catch-up contributions. The Hatch bill would allow married couples to put their catch-up contributions into one account.
Expanded Definition of “Preventive” Drugs
HSA-qualified plans may cover preventive care services without applying the policy deductible. Although the IRS allows certain types of prescription drugs to be considered “preventive care,” it generally does not permit plans to include “maintenance drugs” taken by persons with chronic conditions. The Hatch bill would provide additional flexibility to health plans that want to provide coverage for these medications and remove a perceived barrier to HSAs for people with chronic conditions.
About the Author:
Roy Ramthun is President of HSA Consulting Services, a health care consulting practice specializing in Health Savings Accounts and consumer-driven health care issues. Prior to forming his consulting practice, Ramthun was the Special Assistant to the President for Economic Policy at the White House. As a member of the National Economic Council staff, Ramthun was the senior health policy advisor to President George W. Bush regarding health care issues involving the Internal Revenue Code (primarily HSAs), Medicare, Medicaid, and the Federal Employees Health Benefits Program.
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