NCPA - National Center for Policy Analysis

CHANGES TO HSA BILL WILL HAVE "NEGLIBLE EFFECT" ON UNINSURED

October 12, 2006

The House Ways and Means Committee approved changes to the HSA Act prior to the break for mid-elections. The prospects for House and Senate passage of the bill are uncertain, as the changes made have caused some conflict among interest groups.

This latest iteration of the Cantor bill repeals the current limits on HSA contributions (currently capped at the amount of the insurance policy deductible), allowing contributions up to $2,700 for an individual and $5,450 for families in 2006.  It would also allow the tax-free transfer of funds from other medical plans (HRAs and FSAs) to an HSA, as well as a one-time transfer from an IRA. 

But the Joint Committee on Taxation wrote a memo to the Ways and Means Committee evaluating the latest proposal, saying it would have a "negligible effect" on the number of people with insurance or with HSAs.  It would add about 300,000 new HSA holders by 2016, but almost half of those would have previously had health insurance.  And it would cost the treasury about $1 billion over 10 years.  Not the greatest outlook.

By contrast, other groups argue that different changes would have a more desirable outcome, such as increasing the number of HSA holders.  For instance, Senators DeMint and Ensign have each introduced legislation to allow HSA funds to be used to pay the premium for a high deductible health insurance policy.  

The Bush Administration has proposed changes in the tax code that would make premiums for HSA-related insurance policies deductible from income taxes, as well as an elimination of taxes on out-of-pocket spending through HSAs.  There is also Bush's recent Executive Order on transparency, which some think should form the basis for a broader transparency policy from Congress to promote HSAs.

 

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