Congress adopts measures to boost health savings accounts

Washington -- Congress passed legislation in December authorizing larger and different types of contributions to health savings accounts.

The Tax Relief and Health Care Act of 2006 increased contribution limits to $2,850 for individual plans and $5,650 for families. Previously, contributions could not exceed the lesser of the deductible or $2,700 for an individual and $5,450 for families.

High-deductible health plan enrollees contribute tax-free to HSAs and use the money to pay for medical expenses that count toward their deductible. The new rules allow one-time HSA contributions from flexible spending accounts, health reimbursement arrangements and individual retirement accounts. Enrollees also can contribute the annual maximum to their HSA even if they enter a plan in the middle of a year.

The changes are designed to fix quirks in health savings account rules and to make it easier for employers to offer the products, according to Devon Herrick, PhD, senior fellow at the National Center for Policy Analysis, which supports HSAs.

"A lot of this is just clarifying things that became problems after the fact," Dr. Herrick said. "Nobody really thought about them in 2003 and 2004 until the [U.S.] Treasury began to make rulings."

For example, it wasn't possible for a husband to contribute to a flexible spending account and his wife to contribute to an HSA, or vice versa. That is no longer the case, Dr. Herrick said.

Helping those who need it?

Another new HSA rule allows employers to contribute different amounts to employees. Previously, employers had to contribute the same amount to all employees.

Dr. Herrick sees this as a way for employers to contribute more to lower-paid employees' HSAs. "That's really a way of alleviating some of the complaints the critics have," he said.

The head of one HSA critic, the consumer group Families USA, was unimpressed. "It's naïve to believe that flexibility is going to benefit people who need it the most," said Ron Pollack, the group's executive director. Higher-paid employees typically get better benefits than lower-paid employees, he said. "Expansion of health savings accounts is a step in the wrong direction," Pollack said.

HSAs are a bad idea because they give tax shelters to wealthy people who don't need them and attract healthy people who would belong to regular health plans, Pollack said. This will lead to higher insurance premiums for the less healthy, he added.

According to a Kaiser Family Foundation survey released in November 2006, 64% of consumer-directed health care enrollees -- which include HSA users -- rated their physical health as either excellent or very good, compared with 52% of people enrolled in other plans.

In the same survey, 64% of people in consumer-directed health plans said low premiums were a "major reason" they were attracted to the plans, and 37% said low premiums were the "most important" reason for enrolling.

Kaiser surveyed a nationally representative sample of 22,560 people ages 18 to 64, including 1.2% enrolled in consumer-directed health plans.

American Medical Association policy supports health savings accounts and liberalizing the rules for HSAs and flexible spending accounts.

More HSA fixes are needed, according to America's Health Insurance Plans, which represents more than 1,200 insurers. For example, they should cover preventive and maintenance drugs before the deductible is met. Also, family policies should allow lower deductibles for family members in the same HSA.

Future legislation should allow the market, instead of Congress, to design health plans, Dr. Herrick said. He added that he isn't optimistic that the Democratic Congress would work on HSAs. The HSA provisions were co-authored by Reps. Paul Ryan (R, Wis.) and Eric Cantor (R, Va.).