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House Panel OKs HSA Expansion Bill

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The House Ways and Means Committee reported out legislation on Sept. 27 that expands the attractiveness of Health Savings Accounts, although the outlook for final passage this year looks dim.

One of the reasons the bill faces a tough climb through Congress this year–as clearly emerged during questioning of Treasury Department officials before the vote–is that no one has a precise handle on the number of people who have opened and use HSAs.

Specifically, Treasury officials at the hearing said the latest information they have is that 113,000 taxpayers reported using HSAs on their 2004 tax returns, and that 2005 data will not be available for several months.

This contrasts with industry claims that approximately 3 million people use HSAs. Rep. Bill Thomas, R-Calif., chairman of the committee, voiced skepticism of the numbers at this point, noting that the Joint Tax Committee projection when the legislation creating HSAs was enacted in 2003 was that the number of people using HSAs wouldn’t reach 3 million until 2014.

“The industry data is not comparable with the IRS data,” Thomas said in response to repeated questions to Treasury officials Robert Carroll, deputy assistant secretary, Office of Tax Policy, and Tom Reeder, benefits tax counsel in the Treasury’s Office of Tax Policy.

Thomas had stepped in after Rep. Pete Stark, D-Calif., a ranking minority member of the committee, had failed through intensive questioning to get a handle on who is using HSAs.

The wide disparities in usage projections come about because industry numbers include contributions to HSAs by employers, something personal tax returns don’t disclose, Carroll and Reeder noted.

“We want those numbers as quickly as they can be developed,” Thomas said, “even if several different models have to be created to provide them.”

The information is necessary, Thomas said, “because based on the data, we may decide to use HSAs to deal with healthcare costs rather than tax benefits.” After Reeder explained that the data on 2005 returns won’t be available until November, Thomas said he wants it available as soon as possible after Congress returns in November.

Rep. Richard Neal, D-Mass., touched on the issue a few minutes later when he said, “Democrats are concerned that HSAs are being used as a tax shelter.”

That was supported by a Government Accountability Office report released at a hearing on HSAs Sept. 26 before the Healthcare Subcommittee of the Senate Finance Committee. The GAO said at the hearing that it found that the average deductible was nearly 6 times higher in the HSAs than in typical plans.

The GAO also found that more than half of those who had signed up for the accounts made more than $75,000 a year as of 2004. The average income was $133,000.

HSAs are a key point of the Bush administration’s healthcare cost containment plan.

At the Senate hearing, Carroll had testified that consumers will make the most responsible healthcare choices when they have “more skin in the game.”

The 3.2 million number is the estimate of America’s Health Insurance Plans, Washington. But in a report released Sept. 26, the Kaiser Family Foundation said the percentage of U.S. workers enrolled in high-deductible health insurance plans, including those eligible for health savings accounts, is stagnant.

About 4% of workers with job-related health coverage, or about 2.7 million, are enrolled in high-deductible insurance plans eligible for the HSA accounts, a KFF poll found–about the same as last year.

The bill considered by Ways and Means – H.R. 6134, the Health Opportunity Patient Empowerment Act of 2006 – was passed on a party-line vote of 24-14. It was introduced by Reps. Eric Cantor, R-Va., and Paul Ryan, R-Wis.

“HSAs are still relatively new, but we are already seeing them quickly grow in popularity in the early stages of their existence,” said Thomas in a statement after the vote. “The adjustments in this bill will make HSAs more attractive as Americans consider their health insurance options.”

The Joint Tax Committee estimated the cost to federal revenues at $1.04 billion over 10 years.

Thomas responded to jibes by Democrats on the committee that there is little time to act on the bill because Congress wants to leave town by Sept. 30 in order to campaign, and is likely to confine its work in a lame-duck session scheduled to be held one week in November, starting Nov. 13, and to finish up with only must-do legislation in mid-December.

Thomas responded to comments by Rep. Charles Rangel, D-N.Y., a ranking minority member, by countering that the “Senate is excited about this, and is just waiting for us to act.

“There is a very great possibility the Senate will act on this,” Thomas said.

Sen. Orrin Hatch, R-Utah, who chaired the Senate hearing, is the primary sponsor of similar legislation in that body.

Kevin McKechnie, staff director of the American Bankers Association/American Bankers Insurance Association HSA Council, acknowledged the grim prognosis of the bill in comments before the vote. “But it signals progress,” he said, “and gives us something to carry forward into the next Congress.”

He also said the proposed legislation “addresses a number of concerns that are critical to accelerating HSA adoption nationwide.”

He explained that the “ability to fully fund an HSA–no matter when an individual becomes eligible during the year–is one of the most important provisions of the legislation.”

While Democrats and many policy analysts criticize HSAs, the American Benefits Council, the National Association of Manufacturers and the National Association of Health Underwriters voiced support.

NAHU Executive Vice President and CEO Janet Trautwein said HSAs are a cost-effective option for employers and their employees, “and they satisfy growing consumer preference for greater choice, control, and flexibility in managing their health care needs.”

Trautwein said, “Consumers often have concerns about how to pay for their out-of-pocket health care expenses if insufficient amounts are available in their HSA.”

She explained that by permitting the coordination of FSAs and HRAs with HSAs, “employees will have more avenues to pay for their out-of-pocket expenses because these new options would allow you to put money aside on a tax-deferred basis to pay for health care expenses.”


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