Legislation Aims to Ease the Burden of Rising Health Care Costs*

Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee member, Erik Paulsen (R-MN) recently introduced the Health Savings Act of 2016, which seeks to simplify and expand HSAs and FSAs.

Created to give Americans control over their personal health care spending, these plans have grown in popularity despite needing critical updates to match our changing health care system. For example, when HSAs were first made available back in 2003, these plans only covered 454,000 lives. Today, 19.7 million individuals are covered under a health plan that is HSA-eligible.

Among other things, the comprehensive legislation clarifies that individual employees’ contributions to HSAs and FSAs should not be counted toward the calculation of the Cadillac Excise Tax. Some additional highlights include:

HSA catch-up contributions (spouses)                                                             Current law allows HSA-eligible individuals age 55 or older to make additional catch-up contributions each year. However, the contributions must be deposited into separate HSA accounts even if both spouses are eligible to make catch-up contributions. This section would allow the spouse who is the HSA account holder to double their catch-up contribution to account for their eligible spouse. 

Prescription and Over-the-Counter Med. Allowance                                              The bill stipulates that a reimbursement of expenses incurred for any prescription or over-the-counter medicine or drug shall be treated as a reasonable medical expense. 

HSA Interaction                                                                                                      The HOPE Act of 2006** allowed employers that offered FSAs or HRAs to roll over unused funds to an HSA. However, unused FSA funds could not be rolled over to a HSA unless the employer offered a “grace period” (instead of the usual Dec. 31 “use or lose”). Furthermore, the amount to be rolled over was prohibited from exceeding the amount in said account as of Sept. 21, 2006 – effectively limiting most employees from accessing/utilizing these unused funds in order to help seed their HSAs. This section provides employers greater opportunity to roll-over funds from employees’ FSAs or HRAs to their HSAs in a future year in order to ease the transition.

TASC is dedicated to maintaining/expanding employee benefit programs on a tax-advantaged basis, and we applaud Congress’ recognition of the importance of enhancing access to health-based accounts. These tools provide a means of financing evolving health care needs and services, helping American families save for and manage their medical expenses. (Note: On average, FSA and HSA Participants are middle class families…meaning, they earn roughly $57,000 per year, which is less than 300% of the federal poverty level).

Full text of S. 2499 / H.R. 4469:                      https://www.congress.gov/114/bills/s2499/BILLS-114s2499is.pdf

*Health care costs are expected to rise by an average of 5.8% annually between now and 2024.

**Public Law 109-432