NCPA - National Center for Policy Analysis


July 5, 2005

Congress created health savings accounts (HSAs) to help people cover medical costs but some state regulations are keeping them from consumers, says the Wall Street Journal.

These accounts allow people to save or invest money to pay for medical expenses not covered by insurance, all free from federal taxes. And while consumers in most places have been able to set them up, some states have yet to get with the program. For example:

  • By law, an HSA must be paired with a high-deductible insurance policy, but six states require coverage of certain benefits below the deductible amounts specified in the HSA rules.
  • Five states, including Ohio and Missouri, limit the amount of copayments or deductibles insurers can charge in ways that conflict with HSAs.
  • Several states, including Alabama, California, Wisconsin and Massachusetts, still have not passed specific legislation to exempt the money in HSAs from state taxes.

The Treasury Department is cutting some consumers a break by allowing high-deductible plans that do not exactly meet the specifications of federal law to be paired with HSAs until January 1, 2006.

But another major challenge remains, particularly for individuals who want to set up HSAs without the help of an employer: finding a financial institution to handle the account. Insurers and government officials say smaller banks and credit unions tend to be conservative about getting into the business and many consumers want to deal with a familiar institution.

Despite regulatory and other barriers, HSAs are growing in popularity, says the Journal. America's Health Insurance Plans, an industry group based in Washington, says the number of people covered by HSA plans has increased from 438,000 in September 2004, to more than one million as of March, clearly meeting a demand on the part of people who were previously uninsured.

Source: Sarah Lueck, "Legal Conflict," Wall Street Journal, June 20, 2005.

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