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Bill Could Jack Up the Costs of HSAs

April 15, 2008
Related Topics: Medical Benefits Law, Benefit Design and Communication, Workforce Planning, Latest News
Tax legislation approved April 9, by the House Ways and Means Committee could significantly increase the costs of administering health savings accounts.

H.R. 5719, approved on a 23-17 vote, includes a provision that would effectively require HSA administrators—which often are banks—to put new systems in place to substantiate that HSA distributions are used to pay for health care-related expenses.

That would be a big change from the current low-overhead system, in which employees with HSAs pay their uncovered health care expenses, such as those falling under a deductible, from their accounts with a bank-issued debit card or bank-issued checks. No substantiation is required that the distributions are, in fact, used for payment of health care expenses.

HSA advocates say banks now lack such substantiation systems, which would require them to make significant investments to develop them—a cost that would be passed on to account holders or those employers that now pay HSA administrative fees.

“Because most community banks and credit unions simply do not have the resources to put such costly technology into production, they would have to buy from vendors and pass on the cost to their accountholders,” said a memorandum prepared by the HSA Coalition, an HSA advocacy group in Washington.

Under current law, funds can be withdrawn tax-free from HSAs if used to pay for health care-related expenses. Funds withdrawn for other purposes are taxed, with an additional 10 percent penalty tax imposed.

The provision is expected to generate about $308 million in additional tax revenue for the federal government over the next 10 years, according to the congressional Joint Committee on Taxation.

The bill could be taken up by the full House as soon as next week.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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