Providing background for the reason health savings accounts (HSAs) were created, Shad Fagerland, of counsel at Ivins, Phillips & Barker, in Washington, D.C., told attendees of the 2018 PLANSPONSOR HSA Conference in New York City that the accounts were meant to solve the problem of overinsurance.
“Too many routine medical procedures were covered by insurance,” he explained. “Consumers were insulated from the true cost of care, and overconsumption and inefficiency led health care costs to rise rapidly.”
In 1996, legislators created the Archer Medical Savings Account, which Fagerland said were similar to HSAs but limited to small employers. HSAs as we know them today were created by legislation passed in 2003.
To be eligible for HSA ownership, an individual must be covered by a high-deductible health plan (HDHP) and must not have other disqualifying coverage. Distributions from HSAs are tax-free if used for qualified medical expenses (QMEs), but are taxable—including a 20% penalty—if used for something other than qualified medical expenses. The 20% penalty no longer applies after the HSA holder reaches age 65.
Fagerland said there are pivot points for potential legislative or regulatory changes for HSAs to be expanded and made more beneficial. What constitutes an HDHP and/or what constitutes disqualifying coverage can be changed to expand who can contribute to an HSA. The maximum contribution amount allowed for HSAs can be increased. Rollover provisions can be expanded. Fagerland said now rollovers are allowed from an individual retirement account (IRA) to an HSA, but only once per individual and only up to the maximum contribution limit. Finally, the definition of QMEs could be expanded, and the penalty for non-QME distributions could be reduced or eliminated.
According to Fagerland, last year, as Congress was trying to repeal the Affordable Care Act (ACA), many bills had HSA provisions addressing some of these pivot points, but these all failed.
This year, Congress is actively taking up HSA legislation. Fagerland said the bills are popular and mostly bipartisan.
Fagerland discussed H.R. 6199, the Restoring Access to Medication and Modernizing HSAs Act, which passed the House in July, but has not yet been taken up by the Senate. The bill allows for over-the-counter medications to be considered QMEs without prescriptions, provides for rollovers of flexible spending account (FSA) and health reimbursement account (HRA) balances into HSAs, allows HDHPs to cover up to $250 (self-only) and $500 (family) annually for non-preventive services that currently may not be covered pre-deductible, and modifies the treatment of direct primary care (DPC) service arrangements so that such arrangements are not treated as a health plan that would disqualify an individual from contributing to an HSA. This is not an exhaustive list of H.R. 6199’s provisions.
Also passed by the House in July was H.R. 6311, the Increasing Access to Lower Premium Plans and Expanding HSAs Act. According to Fagerland, changes in that bill include:
- Maximum contributions of $6,550 for self-only and $13,100 for family. Fagerland said he doesn’t feel this will be passed or thinks it will have to be negotiated because Congressmen think HSAs are a bucket only for the rich;
- Both spouses can make catch-up contributions to HSAs;
- Individuals can carry forward FSA balances up to three times the annual limit; and
- Medicare Part A is not disqualifying coverage.
Again, this is not an exhaustive list of H.R. 6311’s provisions.
Fagerland also said H.R. 6813, introduced in September, would treat qualified home care expenses as QMEs.
Regarding regulatory changes, Fagerland said there is not a lot out recently and not a lot on the horizon. However, he reminded conference attendees that a change in tax legislation earlier this year modified the way the IRS calculates cost-of-living adjustments (COLA) for HSA limits.