Health Accounts

Grace-Marie has asked me to brief you on two provisions that were added to the House version of the Medicare bill which are designed to empower younger consumers in the health insurance and health care marketplace. I follow these issues closely in Consumer Choice Matters, the companion Galen Institute newsletter that I produce each week and to which you are welcome to subscribe by sending an e-mail to galen@galen.org.

The new bill, spearheaded by Ways and Means Chairman Bill Thomas, contains a plain vanilla expansion of medical savings accounts, which are now named Health Savings Accounts (HSAs). It also creates a new program called Health Savings Security Accounts (HSSA) that I’ll describe below.

The new Health Savings Accounts provide more flexibility than MSAs. For example:



  • Prior limits on employer size and total enrollment are removed.
  • The allowable deductible for the new HSAs is lowered to $1,000/$2,000 (individual and family).
  • The maximum deductible is $2,250/$4,500.
  • Total out-of-pocket may not exceed $3,000/$5,500 for in-network services.
  • Contributions may equal 100% of the deductible and may come from both employers and account holders.

HSA funds may be used for any qualified medical expense except insurance premiums, with an exception. HSA funds may be used to pay long-term care premiums, COBRA premiums, or other health insurance premiums while the account holder is receiving unemployment benefits.

In addition, up to $500 in unspent balances in Flexible Spending Accounts may be deposited to the HSA every year and will be treated as employer contributions (and therefore excluded from income.) This would be the beginning of the end of the use-it-or-lose-it-provision of monies that employees deposit into their company cafeteria plans for health expenses.

The second part of the legislation creates a new Health Savings Security Account (HSSA). Anyone who is uninsured or has insurance with deductibles of at least $500/$1,000 (which is virtually everybody) may set up an HSSA. They may deposit up to $2,000/$4,000 into the account every year, provided their adjusted gross income is $75K/$150K or less. (The contribution phases down for incomes above those limits. Additional ?catch-up? contributions are allowed for people aged 55 or older.)

In addition to the other medical expenses, regular insurance premiums may be paid from the HSSA (if they meet the deductible requirements). This would enable people who do not get coverage from their employer to pay for insurance coverage on a tax-favored basis.

The Ways and Means Committee estimates that 40 million people would take advantage of one or the other of these provisions within 10 years, and the Joint Tax Committee estimates a revenue loss of $174 billion over that time. Of this total, $163 billion is attributed to the HSSA, only $5.7 billion to the HSA, and $8.6 billion to the FSA rollover. (The numbers don’t add up because there is an overlap in eligibility)

Prospects? Who knows? Bill Thomas will probably be chairing the Medicare conference committee, and he can be a pretty persuasive fellow. On the other hand, the price tag of the HSSA is a serious problem. Plus there isn’t the organized support for the HSSA that there is for the HSA (MSA expansion). If nothing else, the presence of the HSSA provision makes the HSA expansion seem tame and moderate in comparison.

— Greg Scandlen

SOURCES: Go to: thomas.loc.gov and search for HR 2596.
Also see: waysandmeans.house.gov

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About the author

Grace-Marie has asked me to brief you on two provisions that were added to the House version of the Medicare bill which are designed to empower younger consumers in the health insurance and health care marketplace. I follow these issues closely in Consumer Choice Matters, the companion Galen Institute newsletter that I produce each week and to which you are welcome to subscribe by sending an e-mail to galen@galen.org.

The new bill, spearheaded by Ways and Means Chairman Bill Thomas, contains a plain vanilla expansion of medical savings accounts, which are now named Health Savings Accounts (HSAs). It also creates a new program called Health Savings Security Accounts (HSSA) that I’ll describe below.

The new Health Savings Accounts provide more flexibility than MSAs. For example:



  • Prior limits on employer size and total enrollment are removed.
  • The allowable deductible for the new HSAs is lowered to $1,000/$2,000 (individual and family).
  • The maximum deductible is $2,250/$4,500.
  • Total out-of-pocket may not exceed $3,000/$5,500 for in-network services.
  • Contributions may equal 100% of the deductible and may come from both employers and account holders.

HSA funds may be used for any qualified medical expense except insurance premiums, with an exception. HSA funds may be used to pay long-term care premiums, COBRA premiums, or other health insurance premiums while the account holder is receiving unemployment benefits.

In addition, up to $500 in unspent balances in Flexible Spending Accounts may be deposited to the HSA every year and will be treated as employer contributions (and therefore excluded from income.) This would be the beginning of the end of the use-it-or-lose-it-provision of monies that employees deposit into their company cafeteria plans for health expenses.

The second part of the legislation creates a new Health Savings Security Account (HSSA). Anyone who is uninsured or has insurance with deductibles of at least $500/$1,000 (which is virtually everybody) may set up an HSSA. They may deposit up to $2,000/$4,000 into the account every year, provided their adjusted gross income is $75K/$150K or less. (The contribution phases down for incomes above those limits. Additional ?catch-up? contributions are allowed for people aged 55 or older.)

In addition to the other medical expenses, regular insurance premiums may be paid from the HSSA (if they meet the deductible requirements). This would enable people who do not get coverage from their employer to pay for insurance coverage on a tax-favored basis.

The Ways and Means Committee estimates that 40 million people would take advantage of one or the other of these provisions within 10 years, and the Joint Tax Committee estimates a revenue loss of $174 billion over that time. Of this total, $163 billion is attributed to the HSSA, only $5.7 billion to the HSA, and $8.6 billion to the FSA rollover. (The numbers don’t add up because there is an overlap in eligibility)

Prospects? Who knows? Bill Thomas will probably be chairing the Medicare conference committee, and he can be a pretty persuasive fellow. On the other hand, the price tag of the HSSA is a serious problem. Plus there isn’t the organized support for the HSSA that there is for the HSA (MSA expansion). If nothing else, the presence of the HSSA provision makes the HSA expansion seem tame and moderate in comparison.

— Greg Scandlen

SOURCES: Go to: thomas.loc.gov and search for HR 2596.
Also see: waysandmeans.house.gov

SHARE THIS ARTICLE

About the author