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House
Passes Ryan’s Legislation to Expand Health Savings Accounts
WASHINGTON – The House of Representatives today passed the
Tax Relief and Health Care Act of 2006, which contains legislation coauthored by First District Congressman Paul Ryan to expand opportunities for both workers and employers to contribute to health savings accounts
(HSAs).
In September, the Ways and Means Committee had approved Ryan’s HSA legislation that builds on HSAs’ potential and enables patients and businesses to make the most of this new tool to manage health care expenses. This HSA expansion legislation was included in a larger package of tax and health care provisions that the House approved today by a vote of 367-45. It awaits a vote in the Senate.
HSAs have been a health coverage option since the Medicare prescription drug law took effect in January 2004. Congressman Ryan coauthored the provision in that law that allowed HSAs as a vehicle for health care savings. Health savings account holders or their employers purchase a high-deductible insurance plan that covers large hospital bills and major expenses due to serious illness, while the patient’s routine medical expenses are paid for out of their health savings account – an account where they set aside tax-free savings for lifetime health care needs. Individuals, employers, or even family members can contribute money to an
HSA, and these accounts are portable from job to job.
Reliance on HSAs has grown dramatically since they became a viable option for health coverage. In November 2004, about 438,000 individuals were covered by
HSA-type insurance plans. Today, roughly 3.2 million people are covered by HSA-type plans. Many of the new HSA holders were previously uninsured. For example, forty-one percent of eHealthInsurance’s HSA plan purchasers in 2005 reported being uninsured prior to buying their HSA plan.
“By putting consumers in the driver’s seat, HSAs are beginning to help control medical costs and put health insurance within reach for many self-employed individuals and small businesses seeking viable coverage options. By making them more accessible and fixing glitches in tax law that limit their usefulness, we can ensure that HSAs live up to their potential,” Ryan said. “We need to pave the way for more patient-centered reforms like this to help lower the cost of quality health care.”
Once enacted, Ryan’s HSA legislation will make it easier for individuals and small businesses to contribute to HSAs and effectively use this savings option to pay for health care costs.
Specifically, Ryan’s HSA legislation:
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Repeals the annual deduction limitation on HSA contributions.
Currently, taxpayers with a high-deductible health plan are permitted to make deductible contributions to an HSA equal to the lesser of the amount of the high deductible or an indexed amount (currently $2,700 for a single coverage and $5,450 for family coverage.) The bill simplifies compliance with the contribution limits by setting the limits at indexed amounts (currently $2,700 for single coverage and $5,450 for family coverage.)
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Improves notification regarding the cost of living adjustment.
Under current law, the deductible requirements and contribution limits are indexed against inflation. This bill requires the Secretary of the Treasury to announce adjustments to the amounts by June 1st of each year – simplifying planning decisions for both employees and employers.
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Expands the contribution limit for part-year coverage.
Current law limits taxpayers creating an HSA during the year outside the enrollment window to a deduction of no more than one-twelfth of the annual limit for each month the taxpayer is eligible for an HSA (in effect, prorating the amount they can contribute tax-free to an HSA that year), but subjects taxpayers to the full non-prorated high deductible amount – effectively discouraging HSA adoption. This bill would permit taxpayers starting an HSA during the year to contribute an amount up to the full annual limit.
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Permits employers to contribute more to the HSAs of lower-paid employees. Current law requires employers to make comparable contributions to an HSA for all employees. Under this bill, an employer may make higher contributions for non-highly compensated employees, enabling employers to provide additional resources to employees who are neither owners of 5 percent or more of the business nor among the most highly-paid in the company.
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Allows the transfer of funds from Individual Retirement Accounts (IRAs) to HSAs.
Under present law, a taxpayer cannot withdraw funds from an IRA prior to age 59 ½ without paying a penalty in addition to income tax (if any) on IRA funds. This bill allows taxpayers to make a one-time distribution (tax-free) from an IRA to an
HSA, so HSA funds are immediately available to meet family health needs. The “roll-over” cannot exceed the HSA contribution limit for the year.
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Allows employees to fund HSAs with Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) funds.
Today, unused FSA benefits expire two and a half months after the end of a year. HRAs are employer arrangements which allow employees to draw against employer resources. Under current law, neither account may be used to fund an HSA, nor do FSAs and HRAs belong to the employee as HSAs do. As a result, employees may lose FSA and HRA benefits. Under this bill, employees would have the ability to start an HSA by making a one-time tax-free transfer of FSA and HRA amounts in their accounts as of September 21, 2006 to an HSA which would belong to the employee. The transfer must be made before January 1, 2012.
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Contact: Kate
Matus (202) 226-7326
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