Rulings On HSAs, HRAs

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The Internal Revenue Service has come out with two rulings of interest to insurance agents and brokers with an interest in the new personal health accounts.

One of the rulings, IRS Revenue Ruling 2005-25, applies to married men and women who want to set up health savings accounts.

To qualify to set up an HSA, a taxpayer must buy high-deductible health insurance.

Elizabeth Purcell, an IRS tax-exempt entities specialist, has held in 2005-25 that a taxpayer can own an HSA even if a spouse has the wrong kind of health insurance or no health insurance, as long as the taxpayer who sets up the HSA is not covered by the wrong kind of health insurance.

The second personal health account ruling, IRS Revenue Ruling 2005-24, applies to employers who contribute funds to employee health reimbursement arrangements. Employees can roll unused HRA funds over from year to year, but Section 105 of the Internal Revenue Code restricts use of HRA funds to paying qualified medical expenses.

Barbara Pie, an IRS tax-exempt entities specialist, says in Revenue Ruling 2005-24 that employers and employees can exclude HRA contributions only if HRA programs stick to the Section 105 restrictions.

HRA programs that give unused HRA funds to the beneficiaries of dead employees or let employees shift unused HRA funds into retirement plans “do not meet the requirements for tax-favored treatment,” Pie warns in the revenue ruling.

Americas Health Insurance Plans, Washington, is happy to see continuing IRS efforts to clarify the HSA rules and unsurprised by the HRA ruling, says AHIP spokesman Mohit Ghose.

The HRA ruling “is simply restating the law,” Ghose says.


Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.