Benefits & Compensation News

New bill would add big changes to HSAs, FSAs

The popularity of tax-advantaged accounts like FSAs and HSAs has surged in recent years. But many feel the rules governing these accounts could use a makeover, and now there’s a new bill being considered that would do just that.

The Family and Retirement Health Investment Act of 2013 was introduced by Senate Finance Committee Ranking Member Orrin Hatch (R-UT) and Sen. Marco Rubio (R-FL), and the bill aims to strengthen HSAs and FSAs and expand the accounts to cover more individuals.

There’s no doubt the popularity of these health accounts has been steadily increasing.

In fact, when Congress first made HSAs available, only 454,000 individuals were covered by this option. Today, 13.5 million individuals are covered under a plan that is eligible for an HSA. These findings come from a recent PriceWaterhouseCoopers Health Research Institute Study.

But as these plans continue to grow, several lawmakers feel like the various components of them need some adjustments. As Sen. Hatch put it: “Over the years, these plans have grown in popularity and it’s well past time Congress act to improve them.”

Catch-up contributions, OTC changes & more

So what type of changes are included in the bill? A press release by the United States Senate Committee Finance said the bill would make the following changes:

  • allow a husband and wife to make catch-up contributions to the same HSA
  • remove the onerous new restrictions on the use of HSA and FSA dollars for the purchase of over-the-counter drugs
  • clarify the use of prescription drugs as preventive care that will not be subject to an HSA-eligible plan deductible
  • reauthorize the use of Medicaid health opportunity accounts
  • promote wellness by expanding the definition of qualified medical expenses to encourage more exercise and better nutrition
  • allow seniors enrolled in Medicare Part A to continue contributing to their HSAs, and
  • allow for the purchase of low-premium health insurance and long-term care insurance with HSA dollars.

 Impact of 2014 HSA limits

Another problem with HSAs. Because the out-of-pocket maximums and contribution limits increase at the same percentage — despite the out-of-pocket max being significantly higher — it’s creating a sizeable gap between the two amounts.

As HR Benefits Alert reported previously, HSA out-of-pocket maximums have been steadily outpacing HSA contribution limits in recent years, which could spell trouble down the line for HSA account-holders. Reason: Some individuals may be asked to cover larger chunks of out-of-pocket costs without the benefit of the tax break provided by HSAs.

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