The House of Representatives on Tuesday, April 15, approved tax legislation
that would require trustees of health savings accounts to substantiate that
distributions from the accounts are for health care-related expenses.
The 238-179 vote came after intense debate on the House floor in which
opponents of the HSA provision—which is part of a broader tax bill, H.R.
5719—warned that such a requirement could cripple HSAs.
In a statement of policy on Monday, senior administration advisors said they
would recommend that President Bush veto the measure if it is passed by
Congress.
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 their
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 tax revenue through 2018, according to the Joint Committee on
Taxation. Some critics of the provision say the bill is a ploy by House
Democrats who dislike HSAs to undermine the accounts.
It isn’t known when the Senate will take up the measure.
Filed by Jerry Geisel of Business Insurance, a sister publication of
Workforce Management. To comment, e-mail editors@workforce.com.
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