US House Approves Compromise Bill with HSA Revisions

December 8, 2006 ( - The US House on Friday approved a tax package hammered out with Senate negotiators that would enhance the appeal of health savings accounts (HSA) through a variety of improvements.

The measure got the House’s nod by a vote of 367-45, according to late news reports.

Business Insurance reported that those enhancements include a boost to contribution amounts, opening the door for employers to replace first-generation consumer driven health care plans with HSA-based plans and removing certain administrative problems associated with HSAs.

According to the Business Insurance  report, the measure would unlink HSA contributions from health insurance plan deductibles. Under current law, the maximum annual deductible that can be made to an HSA is the lesser of the deductible in the health insurance plan to which the HSA is linked, or an indexed amount set by law. In 2007, that amount will be $2,850 for single coverage and $5,650 for family coverage.

Instead, the legislation would set the contribution limits at the indexed amounts, with the deductible levels in the health insurance plan disregarded. That could mean, in some cases, that hundreds of additional dollars could be contributed each year to employees’ HSAs.

Additionally, the measure would allow employers on a one-time basis to roll over unused flexible spending account and health reimbursement arrangement balances to HSAs.

The report also said that the bill also would allow employees covered in “grace period” FSAs to contribute to HSAs during the grace period so long as their FSA balance was zero at the end of the prior plan year or the unused balance was transferred at the end of the prior year to the HSA. Current IRS rules bar HSA contributions during an FSA grace period.

Another change in the bill would allow full HSA contributions for employees regardless of when during the year they became covered in the plan. Current law requires that contributions be pro-rated to reflect when during the year an employee became covered.

Finally, the measure would allow employees on a one-time basis to make a tax-free transfer of money in their individual retirement accounts to their HSAs.

The news report said that while the bill is expected to clear the House, it faces considerable opposition over unrelated provisions in the Senate, where its fate might not be decided until this weekend as the congressional session comes to an end.