See also Health Savings Account (HSA) Resources

Health savings accounts were passed as part of The Medicare Prescription Drug and Modernization Act of 2003, and became available for the first time as of January 1, 2004 to all citizens who are covered by qualified health plans.

Conceptually HSAs are very similar to the old "Archer MSAs" (originally enacted as part of the HIPAA legislation in 1996), which first became available @ January 1, 1997, but there are a number of key differences (mostly improvements).

At the very end of 2003 and throughout 2004 - 2006 there was a great deal of activity with the Treasury Department and Internal Revenue Service concerning the provision of technical guidance for such accounts. The following is a chronologically arranged summary (with appropriate links) of the key HSA-related events during 2003-2006:

• On December 22, 2003 the initial guidance was issued under Notice 2004-2.
• On March 30, 2004 the Treasury Department and the IRS issued additional guidance on Health Savings Accounts (HSAs)
• On May 10, 2004 the Department of the Treasury and the IRS issued Revenue Ruling 2004-45 which clarifies how health Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs) interact with Health Savings Accounts (HSAs). The guidance provides a number of ways that individuals may have access to benefits from FSAs and HRAs and remain eligible to contribute to an HSA.
• Treasury and IRS issued Notice 2004-43 on June 21st. Notice 2004-43 provides transition relief for health insurance that fails to be a high deductible health plan (HDHP) because of state mandates that require benefits to be paid before the deductible is satisfied. If the only reason that this health insurance fails to qualify as an HDHP is the requirement (pursuant to a state law that was in effect on January 1, 2004) to provide certain coverage before the deductible is satisfied, this health insurance will be treated as a qualifying HDHP through December 31, 2005. Click here to view Notice 2004-43.
• On July 23, 2004 the Treasury Department and the IRS issued comprehensive guidance (HSA Notice 2004-50) on Health Savings Accounts that will help providers to establish HSAs and consumers to enjoy their benefits. The guidance answers questions on a wide range of issues that the public has brought to the Treasury Department since the creation of HSAs. The guidance (HSA Notice 2004-50) is in an easy-to-use question and answer format.
• On November 19, 2004, the Treasury Department announced new maximum contribution levels for health savings accounts (HSAs) and out-of-pocket spending limits for HSA-compatible high-deductible health plans (HDHPs) for 2005.
• On January 12, 2005, Treasury issued guidance clarifying the tax treatment of a partnership's contributions to a partner's Health Savings Account (HSA) and an S corporation's contributions to a 2-percent (or greater) shareholder-employee's HSA. Generally, in such cases, the HSA contributions are treated as payments to the partner or shareholder and are not treated as excludable employer contributions. The contributions will be treated as the individual partner’s or shareholder's contribution and allowed as above-the-line deductions on their individual income tax returns, similar to the treatment for any eligible individual who makes a contribution to an HSA directly with after-tax funds. Notice 2005-8 also addresses the employment tax treatment of the contributions.
• On April 13, 2005 the Treasury and IRS issued Revenue Ruling 2005-25 concerning contributions of spouses to HSAs. This revenue ruling confirms that an individual can be eligible to contribute to a Health Savings Account even if his or her spouse has nonqualifying family coverage, provided the spouse's coverage does not cover the individual. In addition, the ruling clarifies how much the eligible spouse can contribute to an HSA in such a situation.
• August 26, 2005 - Proposed regulations are issued concerning the comparability requirement for employer contributions.
• November 17, 2005 - Notice 2005-83 provides relief for certain non-calendar-year plans with nonconforming state-mandated benefits.
• July 28, 2006 - The IRS released the final regulations under Code Section 4980G (54.4980G-1,-2,-3, -4 and -5).
  These regulations provide guidance on employer contributions to employees' HSAs. The IRS had released proposed regulations on August 25, 2005. The final regulations apply to employer contributions made on or after January 1, 2007. For more, read on…

HSAs - Point-of-enrollment option under the FEHBP (Federal Employees' Health Benefit Plan)

HSAs became a point-of-enrollment option for federal workers as of January 1, 2005. The Office of Personnel Management's page for HSAs may be found at http://www.opm.gov/hsa/. Even President Bush signed up for his own HSA.during the open enrollment for federal workers during December, 2004 (a fact that he announced on December 16th during the White House Conference on the Economy).

Health Opportunity Patient Empowerment Act of 2006

The U.S. Congress gave final approval on December 8, 2006 to H.R. 6111, the "Tax Relief and Health Care Act of 2006" which includes 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.  The bill was approved by the Senate on December 9th by a vote of 79 to 9 following a filibuster attempt, and President Bush signed the bill into law on December 20th.

Be sure to view the December 20, 2006 Department of Treasury press release documenting key provisions of the Health Opportunity Patient Empowerment Act of 2006, the HSA expansion portion of the Tax Relief and Health Care Act of 2006, by going to http://www.treas.gov/press/releases/hp209.htm.   

Treasury guidance for the Health Opportunity Patient Empowerment Act of 2006

The Treasury Department issued Notice 2007-22 on February 15, 2007 regarding health FSA and HRA rollovers into HSAs.

As stated in the Treasury Department press release for Notice 2007-22, “The Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, enacted December 20, 2006, allowed employers to amend their health FSAs or HRAs, with balances on September 21, 2006, for a one-time roll over to an HSAs by 2012. The guidance clarifies the requirements for making these rollovers, which must be made directly to the custodian or trustee of the HSA.”  Click here to view Notice 2007-22.

Comments

While we don’t think that HSAs are some kind of “panacea” or “silver bullet”, nevertheless they are clearly helping move folks over from an entitlement mind set which has served to create overutilization (a major driver in health benefit cost trend) to more of a consumer focus. Point is, when people have their own money at stake, they tend to be more judicious in the way they spend it.

We also believe that HSAs have the potential, more than any other tax-favored arrangement, to effect a greater degree of consumerism into health insurance while at the same time providing opportunities for plan participants to accumulate assets that may be used for funding health insurance costs in retirement. And, speaking to the problem we have in this country with the uninsured, one of our firm's health insurance markets, Assurant Health (formerly known as Fortis Insurance Company), is reporting that since 1/1/2004, 40% of its new applicants for individual health insurance are individuals/families who previously had NO health insurance! In other words, apparently the young and invincible (Gen X and Y) are beginning to see some value in having health insurance because of the tax-favored savings opportunity that is now being afforded with HSAs.

Click here to view additional Health Savings Account (HSA) resources (recommended for site visitors who want to know more about HSAs).