In a statement of policy released Monday, April 14, administration senior advisors said they would recommend that President Bush veto the measure if it is passed by Congress. H.R. 5719 was approved last week by the House Ways and Means Committee and is scheduled for a vote by the full House.

The requirement for HSA trustees, generally banks, is “unnecessary for efficient tax administration, inconsistent with the flexibility purposely afforded HSAs at their inception and could undermine efforts by employers, individuals and insurers to reduce health care costs and improve health outcomes by empowering consumers to take greater control of health care decision-making,” according to the statement of administration policy.

The veto threat comes in the wake of warnings by benefit experts that the new requirement likely would double fees banks charge HSA enrollees. The costs to upgrade administration systems to substantiate claims would be more than many banks would be willing to pay for what is now a low-margin business, and experts say some banks would withdraw from the HSA market, leaving account holders with fewer choices.

Under current law, HSA distributions can be taken tax-free if used to pay for health care-related expenses. Other withdrawals are included in enrollees’ taxable income, with an additional 10 percent penalty tax imposed.

Individuals are required to report HSA distributions on Tax Form 8889, indicating the total distributions, as well as the amount used to pay for health care expenses and distributions that are subject to taxes.

The HSA provision would go into effect in 2011 and would raise more than $300 million in federal revenue through 2018, according to the Joint Committee on Taxation. Critics of the provision say the bill is a ploy by House Democrats who dislike HSAs to undermine the accounts.

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