IN THIS ISSUE:
? Happy New Year
? Initial HSA Guidance From IRS
? Remaining HSA Issues
? Knight-Ridder on HSAs
? Newhouse News on HSAs
? Bloomberg News on HSAs
? Chicago Tribune on HSAs
? Associated Press on HSAs
? Dallas Morning News on HSAs
Here’s just a quick note to thank you for your encouragement and feedback over the past year. I joined Galen exactly a year ago and it has been a wonderful collaboration. I think Grace-Marie and I have managed to have a real impact on the direction of public policy and the market in the past twelve months. But our work has been amplified many times over by all the knowledge, insights, and experience of our many friends and supporters. We are not just a little think tank — we are part of a much broader community of dedicated professionals and activists who work hard every day to transform and improve health care in the United States and abroad. Thank you for all that you do. And here’s looking forward to a new year that will be even better than the last.
INITIAL HSA GUIDANCE FROM IRS
The IRS has issued its preliminary guidance on Health Savings Accounts (HSAs), and there are no great surprises, though there remain some lingering issues that will need to be resolved in the future. The guidance was issued on December 22 in the form of Notice 2004-2. Here are some of the more interesting developments:
Family Deductibles. Family deductibles are required to be whole deductibles for HSAs. In other words, if a family of three has a $3,000 deductible but only one person is sick and using medical care, that one person must incur $3,000 in expenses before the insurance coverage kicks in for him or her. Then, the family deductible also is satisfied and other family members would have no additional deductible obligations to meet. This is consistent with Archer MSA rules, though unusual in the insurance market. It is more common in the insurance market to have stacked or multiple deductibles in which each family member has his or her own $1,000 deductible and receives benefits once that obligation is met, leaving the other family members to satisfy their own deductibles, up to the $3,000 maximum. (Q & A #3)
Independent Substantiation. HSA withdrawals do not have to be independently substantiated as being qualified withdrawals. Individual account holders are expected to “maintain records of their medical expenses sufficient to show that the distributions have been made exclusively for qualified medical expenses?.” (Q & A #29)
Non-Discrimination Rules. Employers are required to make “comparable contributions” on behalf of participating employees. A contribution will be considered comparable if it is the same dollar amount or the same percentage of the deductible. The employer is not in violation of discrimination rules if it fails to make a like contribution to employees who have chosen not to participate in the HSA. (Q & A #32)
Reporting Requirements. Employers are required to report contributions on a worker’s W-2 form. The IRS will release additional forms similar to those required by Archer MSAs. (Q & A #34)
COBRA Continuation. HSAs are not subject to COBRA.
REMAINING HSA ISSUES
Notice 2004-2 did not answer every question, and the IRS is inviting comments on these remaining issues. Some of the lingering issues include:
Preventive Care. The law apparently has a faulty reference in defining what is “preventive care” and therefore not subject to the deductible. It is not clear if correcting this requires a technical amendment to be passed by Congress, or if the Service has enough authority to do it on its own.
Cafeteria Plans. The relationship between HSAs and Section 125 cafeteria plans is very confusing and needs clarification, especially the non-discrimination rules of Section 125.
Coordination With Other Coverage. Clarification of Coordination of Benefits (COB) rules will be needed. It is likely that COB plan documents will need to be revised to make it clear that secondary coverage may not fill-in the deductible of a HDHP.
HRAs, FSAs, and HSAs. The Service is seeking comment on whether and how these programs can work together.
Excessive Employer Contributions. Whether made in good faith or not, how can excessive contributions be corrected?
Lifetime Maximums. The law limits out-of-pocket maximums, but is silent on unreasonably low lifetime maximums.
Comments should be mailed to: CC:DOM:CORP:R (Notice 2004-2), Room 5226, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, DC 20044.
Or e-mailed to: Notice.2004-2.Comments@irscounsel.treas.gov
KNIGHT-RIDDER ON HSAs
Meanwhile, HSAs have been one of the hottest topics in the press. It’s a real contrast to when MSAs were first enacted and it was nearly impossible to get the media to pay attention. This exposure is laying the groundwork for the marketing push that is sure to follow. For instance, just about every Knight-Ridder paper has run an article by Amy Baldwin that quotes Helen Darling of the Washington Business Group on Health as saying that “20% of employers are (already) offering or thinking of offering high-deductible insurance plans?.” Darling “expects this number to increase to about 30% when HSAs are introduced next year.” The writer also cites Golden Rule and Aetna as two vendors who will offer the product right out of the box.
NEWHOUSE NEWS ON HSAs
Robert Cohen of the Newhouse News Service also had an article picked up across the country, including the “Newark Star Ledger” and the “Cleveland Plain Dealer.” He says, “Starting next month, millions of people under the age of 65 will be eligible to set aside some pre-tax income in new Health Savings Accounts, then use those funds for health expenses either in the short term or in years to come.” He quotes Heritage’s Bob Moffitt as saying, “This is a radically new approach to health care financing,” and me as saying, “The HSAs are the latest chapter in an ongoing movement to transform health care from a system in which third-party payers control all the money and make all the decisions to one in which individual consumers can control their own funds.” Of course, he also dips into the wacko side of the ledger and quotes Consumers Union’s Gail Shearer as saying, “This is bad tax policy and horrendous health policy all wrapped into one.” The Urban Institute’s Len Burman is more dispassionate, saying, “If large employers believe it is a good thing, it could really jump start the market.”
BLOOMBERG NEWS ON HSAs
Bloomberg News also had a story run across the country, including in the “LA Times.” The article reports on the IRS ruling and quotes Treasury Secretary John Snow as saying, “We want Americans to be able to take advantage of HSAs as soon as possible.” The story likens HSAs to FSAs, but notes that “unspent money in health savings accounts rolls over, while unused funds in an annual flexible spending account are forfeited.”
CHICAGO TRIBUNE ON HSAs
Writing in the business section of the “Chicago Tribune,” Rob Kaiser simply reports that the IRS has issued “guidance to help businesses and individuals take advantage of the new Health Savings Accounts ? Legislators and small-business lobbyists have said the accounts could help small firms counteract several years of double-digit increases in health insurance premiums.”
ASSOCIATED PRESS ON HSAs
Associated Press reporter Mark Sherman writes, “Millions of Americans next week can begin to save money tax-free to be used to cover their health expenses.” He quotes White House spokesman Scott McClellan as saying, “This account is a good option?. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA.”
DALLAS MORNING NEWS ON HSAs
In the “Dallas Morning News,” Pamela Yip reports, “Health savings accounts will change the landscape of medical finances, experts say.” She quotes NCPA’s John Goodman as saying, “HSAs will revolutionize the U.S. health care and health insurance industries.” The Center on Budget and Policy Priorities’ Edwin Park replies, “We’re opposed to the concept of it.” But Susan Relland of the American Benefits Council says, “Many more employers than we had expected are very interested in the health savings accounts. We’re seeing general trends toward consumer-directed health plans, and this is the perfect vehicle to do that.”
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The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.