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News...

President Bush Signs Bill
to Make Health Care more Affordable, Accessible

Washington, DC- President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006 on December 20, 2006 enhancing Americans' access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants' to build their funds.

"Health savings accounts are improving the way Americans obtain the care they need. This bill makes HSAs more flexible and makes it easier for participants to put money aside for their personal health care," said Treasury Assistant Secretary for Tax Policy Eric Solomon.

HSA provisions of the Act include:

Allow rollovers from health FSAs and HRAs into HSAs through 2011. Employers can transfer funds from Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) to an HSA for employees switching to coverage under an HSA-compatible health plan. The amounts rolled over to HSAs from FSAs or HRAs are over and above the amounts allowed as annual contributions. The maximum contribution is the balance in the FSA or HRA as of September 21, 2006, or if less, the balance as of the date of the transfer. The provision is limited to one distribution with respect to each health FSA or HRA of the individual. If an individual does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.

Increase in annual HSA contribution. Previously, the maximum HSA contribution was the lesser of the deductible of the individual's HSA-eligible plan or a statutory maximum. The new rules make the limit the statutory maximum contribution, regardless of the individual's deductible. For 2007, the maximum contribution for an eligible individual with self-only coverage is $2,850, and the maximum contribution for an eligible individual with family coverage is $5,650. These limits are indexed for inflation.

Full HSA contribution regardless of month individual becomes eligible. Normally, the HSA contribution is pro rated based on the number of months that an individual during the year a person was an eligible individual. The new provisions provide an exception to this rule that will allow individuals who become covered under an HSA-eligible plan in a month other than January to make the maximum HSA contribution for the year based on their coverage in the last month of the year. This eliminates a common barrier to switching to HSA-eligible coverage. If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed except for this provision will be included in income and subject to a 10 percent additional tax.

One-time transfer from IRAs to HSAs. The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA). The contribution must be made in a direct trustee-to-trustee transfer. The IRA transfer will not be included in income or subject to the early withdrawal additional tax. The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction. Generally, only one transfer may be made during the lifetime of an individual. If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.

Certain FSA coverage treated as disregarded coverage. Under previous law, if an FSA had a grace period following the end of the plan year allowing participants to incur additional reimbursable expenses, participants were treated as having disqualifying coverage, reducing their HSA contribution for that year, even though they had switched to HSA-eligible coverage at the first of the year. The new rules treat certain FSA coverage during a grace period as disregarded coverage, eliminating any resulting reduction in the HSA contribution for the year. First, the coverage is disregarded if the balance in the health FSA at the end of the plan year is zero. Second, the coverage is disregarded if the year-end balance is transferred directly to an HSA fom the FSA, as noted above.

Earlier indexing of cost of living adjustments. Previously, indexing was based on a 12-month period ending on August 31. The new rules change the base period to the 12-month period ending on March 31 and require that adjusted amounts for a year be published by June 1 of the preceding year. This change will provide employers and health plans with more time to design qualifying HSA-eligible plans and individuals with more time to make decisions about their health care for the next year.

Allow greater employer contributions for lower-paid employees. Previously, employer contributions under the comparability rules had to be the same amount or percentage of the deductible for all employees with the same category of coverage. Consequently, employers could not contribute higher amounts to lower-paid employees. The new rules provide an exception to the comparability rules allowing employers to contribute more to the HSAs of non-highly compensated individuals. For this purpose, the definition of "highly compensated employee" is based on same definition used for qualified retirement plans.

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Nearly $1 Billion Held in Health Savings Accounts, ICDC Reports
Friday March 3, 2006 10:31 am ET

WASHINGTON, March 3 /PRNewswire/ -- In just two years, Americans have banked nearly $1 billion in tax-advantaged health savings accounts (HSAs), according to data gathered by Inside Consumer-Directed Care (ICDC) newsletter and reported in its Feb. 24 issue. Inside Consumer-Directed Care is a biweekly subscription newsletter published by Atlantic Information Services (AIS) in Washington, D.C. The estimates are based on financial data provided by more than 60 financial firms including JPMorgan Chase, Wells Fargo and The Principal Financial Group.

A provision in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 -- signed by President Bush in December 2003 -- gave birth to HSAs. The accounts are similar to 401(k) retirement plans in their portability, and can be opened by virtually anyone who has a high-deductible health plan (at least $1,050 annually for single coverage and $2,100 for couples and families).

HSA administrators and custodians have collectively opened more than 820,000 accounts and say they are adding about 60,000 new accounts each month, ICDC found. The average balance is $1,181. ACS/Mellon HSA Solution, a division of Mellon Financial Corp., says the number of accounts it administers quadrupled over the past year from 20,000 to about 80,000.

"Now that HSA assets are pushing $1 billion, we're going to see competition really heat up as more national firms, small community banks and local credit unions enter this space," says ICDC Managing Editor Steve Davis. "We could even see some large health insurers launch their own financial firms, or acquire existing ones, to capture a bigger slice of this emerging market. Last December, the BlueCross BlueShield Association said it would open its own Blue Healthcare Bank in early 2007."

ICDC estimates that at least 300 firms are qualified to serve as an HSA administrator or custodian. That number is expected to grow to at least 400 by the end of 2006. UnitedHealth Group, the nation's second-largest health insurer, says about 60% of members who have HSA-qualified insurance coverage have opened an account. Exante Bank, a financial firm owned by United, has opened 115,000 HSAs, which hold an estimated $75 million in assets.

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A new study from Assurant Health showed encouraging new statistics on HSA buyers:

70% of HSA purchasers are families with children
61% of HSA purchasers are over age 40
29% of HSA purchasers are from households of four or more people
31% of all HSA purchasers have high school or technical school training as their highest level of education
44% of HSA applicants did not indicate having prior health insurance coverage on their application
29% of HSA purchasers have family incomes of less than $50,000
20% of HSA purchasers have family incomes of less than $40,000
19% of HSA purchasers have a net worth of less than $25,000

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As of January 2006, 3.2 million people were covered by HSA plans based on a report by The Center for Policy and Research. Click here to see full report.