The legislation signed into law by President Bush Wednesday expanding the sales market for health savings accounts has given HSAs “a major opportunity,” according to officials at America’s Health Insurance Plans.
The legislation, H.R. 6111, is called the Tax Relief and Health Care Act of 2006.
After it was passed by Congress, Karen Ignagni, president and CEO of AHIP, said that the new law will help “millions of consumers who are enrolled in HSA-eligible plans to go into the New Year with more flexibility in their plans.”
The increased contribution limits can equip consumers with the additional tax-free resources they need to meet their current and long-term health care needs, Ignagni said.
“If you want consumers to prepare for long term care, they need to develop a long term strategy,” she said. “With higher contribution limits that are indexed to inflation, HSAs will offer new opportunities for consumers to plan for their long term care expenses.”
The reforms are expected to help increase use of these plans by small business owners, self-employed individuals and workers who currently do not receive health care coverage on the job.
The legislation increases the contribution limits for all individuals, eliminates contribution penalties for mid-year enrollees and allows consumers to convert existing health reimbursement arrangements and flexible spending arrangements into HSAs.
Most provisions, including the rollover and increased cap, are effective as of the date of enactment.
The IRA rollover to HSA provision is effective for tax years beginning “on or after Dec. 31, 2006,” the law says.
HSA funding is tax-deductible, tax-deferred while growing and available for tax-free usage for medical expenses. Annual contributions in 2007 will be capped at $2,850 per individual and $5,650 per family.
According to AHIP officials, the reforms will also:
o Allow HSAs to cover preventive and maintenance drugs before the deductible is met;
o Allow HSA dollars to be used to purchase Medigap coverage;
o Allow family policies to have lower individual deductibles for each family member within their HSA plan; and
o Provide for greater coordination of HSAs, FSAs and HRAs.