Baltimore — Dec. 27
ConnectYourCare, a provider of health account administration solutions for employers, recognizes the positive effect H.R. 6111 has on the future of consumer-directed health care (CDH) and has prepared solutions to work with existing and prospective customers to adapt their CDH strategy to reap the benefits of these new guidelines.
The bill, which was signed by President Bush on Dec. 20, makes many of the health savings account (HSA) provisions effective for taxable years beginning Jan. 1.
“The law has added fuel to CDH by making HSAs more palatable to employers who have been on the fence about offering or proliferating them,” said Jamie Spriggs, ConnectYourCare president and COO. “We anticipate that most of our clients will want to take full advantage of this new law, and we see no problems in supporting transition strategies effective Jan. 1, 2007.”
Some of the more significant provisions that will affect HSA enrollees are:
Individuals with existing flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs) now can transfer funds from these accounts into an HSA. It is considered to be a rollover that does not count toward the annual maximum HSA contribution level. This enables an individual to save money in an interest-bearing account or investment vehicle that has the opportunity to grow exponentially rather than in an account that does not earn interest.
Before this bill was passed, individuals had a limited maximum contribution level — the lesser of the high-deductible health plan (HDHP) deductible amount or the statutory annual maximum dollar contribution amount. Now, contributions will be limited only by the maximum yearly contribution amount, which, in 2007, will be $2,850 for self-only coverage and $5,650 for family coverage. These amounts are reviewed and adjusted annually for inflation. New amounts will be announced no later than June 1 for the next year. Effectively, consumers can substantially increase the amount of savings over time by contributing the maximum yearly amount and continuing to participate in a compatible health plan with the lowest premium allowable.
Individuals now will have the ability to make a one-time transfer of funds from an individual retirement account (IRA) to an HSA. The amount of funds transferred cannot exceed the annual maximum HSA contribution limit. Although the philosophy behind this provision is to enable individuals to save more money for future health care expenditures tax-free, it does allow them to use the money they transfer into an HSA for approved health care expenditures they incur today or in the future. Because this money is rolled over from trustee to trustee and not withdrawn from an IRA, the individual will not be taxed for using it for qualified health care expenditures before they reach retirement age.
Before this bill was passed, employer contributions to highly compensated employees (HCEs) had to be equitable to the contributions paid to nonhighly compensated employees (NHCE). Now, employers can make different HSA contributions to HCEs and NHCEs and still comply with comparability regulations. This provision gives an employer greater flexibility to make higher HSA contributions to lower-paid employees’ HSA accounts.
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Many industry experts agree this legislation will open the door to HSAs and retirement health savings for many more individuals, including Nav Ranajee, LaSalle Bank vice president of health care strategy.
“The new legislation will make it easier for individuals to steadily increase the amount of money they have invested in their HSAs by being able to roll over their FSAs, HRAs or IRAs and fully fund it every year at the maximum indexed amount regardless of the time of year,” Ranajee said.
Others view the bill favorably but think more needs to be done to help employees save for their future, including Jay Savan, Towers Perrin principal.
“The legislation helps, but we are projecting that HSAs won’t be enough for most employees’ post-retirement health care costs, even if they never spend a dime during their active employment,” he said. “We also advise that employers consider supplementing HSAs with Retirement accounts that are ‘vestible’ by employees to ensure something is left for retirement years.”