Health Care Reform’s Effect on Health Savings Accounts
After 12/31/10, over-the-counter items will not be Health Savings Account (HSA) eligible expenses.
An excerpt from “Legislative Digest”, as it relates to H.R. 4872, posted on http://gop.gov
HR 4872 Full Text, VERSION APPROVED BY THE HOUSE ON MARCH 21, 2010. “ENGROSSED IN THE HOUSE”
Taxes on Health Plans: The [H.R. 4872] bill prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), and increases the penalties for non-qualified HSA withdrawals from 10 percent to 20 percent, effective in 2011. Because these savings vehicles are tax-preferred, adopting these provisions would raise taxes by $6.3 billion over ten years, according to the Joint Committee on Taxation.
The bill would place a cap on FSA contributions, beginning in 2012; contributions could only total $2,500 per year, subject to annual adjustments linked to the growth in general (not medical) inflation. Members may be concerned that these provisions would first raise taxes by $13.3 billion, and second-by imposing additional restrictions on health savings vehicles popular with tens of millions of Americans-undermine the promise that “If you like your current coverage, you can keep it.” At least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs. All these individuals would be subject to additional coverage restrictions-and tax increases-under this provision.
The bill raises the threshold to itemize health expenses from 7.5 percent to 10 percent of adjusted gross income, beginning in 2013; seniors over age 65 would receive a four-year extension of the 7.5 percent income threshold for four additional years (i.e. until 2017). This provision would raise taxes by $15.2 billion. The bill also repeals the current-law tax deductibility of subsidies provided to companies offering prescription drug coverage to retirees, raising taxes by $5.4 billion. Many may be concerned that this provision would lead to companies dropping their current coverage as a result.
Health Savings Accounts – HSA’s – Video Diagram
Video courtesy of Humana. Source: YouTube page of StaySmartStayHea1thy.
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Are HDHP Monthly Costs Fixed? How Can I Get the Best Deal?
Prices are fixed by law. Unless a plan is marked up by a service provider or broker (this is unusual), the price of an insurance plan is the price of the plan regardless of the source. Identical plans will have identical rates down to the penny.
Now what can drastically fluctuate is the cost of the Health Savings Account that accompanies your HDHP (why should I have an HSA with my HDHP?)
The major components of a Health Savings Account that have varying prices from bank to bank are:
- Account Setup Fees
- Account Maintenance Fees (monthly or annually)
- Account Balance Fees (if it’s below a certain amount for example)
What also needs to be taken into consideration when picking a bank for your HSA is the interest rate. While this should not be the only determining factor when picking a bank, interest rates can fluctuate quite a bit from bank to bank, especially if you are planning on carrying a large balance. For example many banks pay a higher interest rate if you carry a balance over a certain threshold, $5000 for example.
