"HSAs are still relatively new, but we are already seeing them quickly grow in popularity in the early stages of their existence," said Ways and Means Chairman Bill Thomas (R-CA). "The adjustments in this bill will make HSAs more attractive as Americans consider their health insurance options."

SUMMARY: Health Opportunity Patient Empowerment Act of 2006

•     Allows an employee to fund Health Savings Accounts (HSA) with Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) Funds: Under this bill, employees would have the ability to start an HSA by making a one-time tax-free transfer of FSA and HRA amounts in their accounts as of September 21, 2006 to an HSA which would belong to the employee. The transfer must be made before January 1, 2012.

•     Repeal of Annual Deductible Limitation on HSA Contributions: The bill simplifies compliance with the contribution limits by setting the limits at indexed amounts (currently $2,700 for single coverage and $5,450 for family coverage), regardless of the individual’s deductible (as long as it is an HSA-qualified plan).

•     Earlier Notification of Cost of Living Adjustment: Under current law, the deductible requirements and contribution limits are indexed against inflation. The bill requires the Secretary of the Treasury to announce adjustments to the amounts by June 1st of each year – simplifying planning decisions for both employees and employers.

•     Expanded Contribution Limit for Part-Year Coverage: The bill would permit taxpayers starting an HSA during the year to contribute an amount up to the full annual limit. Taxpayers would be required to maintain a high deductible plan for a full year beginning in the month the HSA begins or pay tax on the contribution and a 10 percent penalty. This would help people who begin their HSA-qualified coverage part way through the year and are subject to the entire calendar-year deductible by allowing them to make a full annual contribution, rather than pro-rating the contribution for the number of months of HSA-qualified coverage.

•     Additional Employer Contributions for Non-Highly Compensated Employees: Under the bill, an employer may make higher contributions for non-highly compensated employees, thus permitting employers to provide additional resources to employees who are neither owners of 5 percent or more of the business nor among the most highly-paid in the company. This will provide employers with additional flexibility to help fund the accounts of lower-paid workers.

•     Transfers from Retirement Accounts to Health Savings Accounts: The bill allows taxpayers to make a one-time distribution from an IRA or other retirement plan [I think it includes 401(k)s] to an HSA so HSA funds are immediately available to meet family health needs. The “roll-over” cannot exceed the HSA contribution limit for the year and is subject to the recapture taxes applicable to the part year coverage provision described above.

HSA Clearing Corp applauds the Committee and urges passage of this important legislation. “HSAs have helped many Americans find affordable health insurance for the first time,” says Tim Morales, President of HSA Clearing Corp. “These provisions are simple, common-sense improvements to HSAs that will help more Americans take advantage of the great benefits that HSAs offer. We urge the Congress and the Administration to complete work on this proposal before the Congress adjourns this year.”

About HSA Clearing Corp
HSA Clearing offers turnkey solutions for financial institutions nationwide to initiate and administrate HSA accounts. For more information on this program, or the other benefits of using HSA Clearing Corp, please call 262-348-1300 or visit the website at www.hsaclearing.com.