Since its inception in 2003, health savings accounts have grown at a phenomenal rate. Today, there are more than 10 million accounts nationwide, a figure that’s expected to increase significantly in the next few years. Unfortunately, there are also a number of rules and regulations that, after nearly 8 years, most insurance agents are tired of explaining to their clients.
For instance, individuals enrolled in Medicare Part A, which is an automatic for people who are receiving Social Security benefits, are ineligible to contribute to an HSA. So are veterans who have used their VA benefits in the last 90 days.
And while people over the age of 55 are eligible to contribute an additional $1,000 per year in catch-up contributions, if both spouses are over 55 they must make these contributions to separate accounts, which of course usually means separate monthly account fees.
But a new bill introduced by Sen. Orrin Hatch, R-Utah, with companion legislation introduced in the House by Rep. Erik Paulsen, R-Minn., would fix all of these problems and more. They would simply make HSAs much more user-friendly. The Family and Retirement Health Investment Act of 2011 (S. 1098 and H.R. 2010), a new-and-improved version of a bill introduced by Hatch back in 2008, would, in his words, “provide American workers and retirees with a common-sense way of improving access to quality, affordable health care” by simplifying and enhancing health savings accounts and health flexible spending accounts.
Roy Ramthun, who was the chief architect of HSAs at the treasury department when they were first enacted, says, “This bill is a common-sense approach that addresses some of the lingering concerns people have had about HSAs since their inception and hopefully will make these products more attractive to employers and employees going forward.”
One of the most exciting changes in the proposed legislation is a repeal of the new restriction on the use of HSA funds for over-the-counter drugs, a provision of Affordable Care Act that took effect Jan. 1. The bill would also repeal deductible limits of $2,000 for single coverage and $4,000 for family coverage for plans offered in the small group market.
There are also plenty of long-term fixes. Hatch’s proposal would allow seniors enrolled in Medicare Part A but not Part B to continue contributing to their HSAs, a welcomed change considering the number of Americans who are working past the age of 65. The rule prohibiting veterans from contributing to an HSA if they’ve used VA benefits in the last 90 days would be removed for veterans with a service-connected disability.
And the bill would allow Native Americans who have used medical services of the Indian Health Service or a tribal organization to make HSA contributions. Spouses over the age of 55 will be able to make catch-up contributions to the same health savings account, and employers would have a greater opportunity to roll over funds from employees’ FSAs or HRAs into HSAs.
The red tape involved in the current process prevents nearly all employers from taking advantage of this rollover option. Individuals with unspent FSA funds would also have the option of carrying forward up to $500 to the following plan year.
Spending HSA money would also become easier as the bill would expand the definition of “qualified medical expenses” to include gym memberships, meal replacement products and the fees for direct-practice physicians – health care providers who charge periodic fees for the right to receive medical care on an as-needed basis.
And the bill would allow eligible expenses incurred after HSA-qualified coverage begins but before an individual establishes his health savings account to be reimbursed with HSA funds, reducing the need for people to immediately set up their account even if they’re unable to make a large initial deposit or regular contributions. Lastly, the proposed legislation would provide states with the flexibility to create health opportunity accounts – the equivalent of a state-funded HSA for the Medicaid population.
This bill is being applauded by a number of organizations, including the American Bankers Association’s HSA Council, the Employers Council on Flexible Compensation and the National Association of Health Underwriters.