109th Congress Expands Health Savings Accounts in Final Days : Insurance News Onlypunjab.com- Insurance News

109th Congress Expands Health Savings Accounts in Final Days
Publish Date : 12/10/2006 9:33:00 AM Source : Insurance News Onlypunjab.com

The U.S. Congress gave final approval today to H.R. 6111, the "Tax Relief and Health Care Act of 2006" which included provisions expanding Health Savings Accounts (HSAs). The legislation incorporates provisions from H.R. 6134, the "Health Opportunity Patient Empowerment Act of 2006", introduced by Reps. Eric Cantor (R-VA) and Paul Ryan (R-WI), and approved on September 27, 2006 by the House Ways and Means Committee.
"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) on September 27, 2006. "The adjustments in this bill will make HSAs more attractive as Americans consider their health insurance options."
The newly enacted provisions would make several improvements to the already-successful HSA program. A summary of the provisions is provided below.

Summary of HSA Provisions in the Tax Relief and Health Care Act of 2006

Expands Funding Sources for HSAs

* Allows an employee a one-time opportunity to roll over unused funds from an existing Flexible Spending Account (FSA) and/or Health Reimbursement Arrangement (HRA) to deposit in their Health Savings Account. 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.

* Allows one-time transfers from Individual Retirement Accounts (IRAs) to Health Savings Accounts. The bill allows taxpayers to make a one-time distribution from an IRA 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 below.

Expands the Annual Limits on HSA Contributions

* Repeals the annual deductible limitation on HSA contributions. The bill allows individuals with HSA-qualified policies that have deductibles below the annual contribution limits (currently $2,700 for self-only coverage and $5,450 for family coverage) to contribute up to these maximum amounts each year. Currently, contributions are limited to the policy deductible if below the annual contribution limits.

* Allows full-year contributions for part-year coverage. The bill would permit taxpayers whose HSA-qualified coverage begins mid-year to make a contribution equal to their policy deductible for the year (or the annual contribution limit, if higher (see above). This will help people who begin their HSA-qualified coverage part way through the year and who are subject to the entire calendar-year deductible by allowing them to make a full annual contribution, rather than pro-rating their contribution for the number of months of HSA-qualified coverage. 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.

Additional Flexibility for Employers to Help Lower Paid Workers

* Allows employers to make additional contributions for lower-paid workers. The bill provides an exception to the current "comparability rules" that require companies to make equal dollar contributions to all HSA-eligible employees with similar coverage (single or family) and work status (full-time or part-time). This provision will give employers flexibility to provide greater assistance to their lower-paid workers in the form of contributions to their HSA accounts.
Earlier Notification of Cost of Living Adjustment

* Under current law, the minimum deductible and out-of-pocket limits for HSA-qualified policies, as well as the annual contribution limits are indexed for inflation. The bill requires the Secretary of the Treasury to announce adjustments to the amounts by June 1st of each year. Currently, the adjustments are not announced until November each year. Earlier notification will simplify planning decisions for insurance companies, banks, credit unions, employers, and taxpayers.

HSA Clearing Corp applauds the House and Senate and urges President Bush to sign 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 thank the 109th Congress for completing work on this proposal before it 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.

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