A little discussed provision of health care reform announced by the Senate Finance Committee would negatively impact the tax benefits of HSA accounts.
Currently an HSA (Health Savings Account) is the most cost efficient health plan for the majority of people. Unfortunately, many do not want to take the time to understand and appreciate the health and tax benefits associated with an HSA account. Under the present rules, a person who is enrolled in a qualified high deductible health plan can set up a Health Savings Account.
Money deposited into an HSA can be used to pay qualified medical costs without paying taxes on the money. If the money in the HSA is not spent in one year, it rolls over and also earns tax free interest. Money deposited in an HSA is not considered income and is not taxed.
Now the Finance Committee is considering restricting HSA contributions to the lesser of the deductible the individual has selected or the statutory limit.
In addition, the Committee is considering increasing the penalty for early or non-medical withdrawals. Currently, an individual who withdraws money from an HSA for something other than a qualified medical expense, will pay the taxes on that as earned income and also pay a 10% penalty. The committee is suggesting that the penalty for non-medical withdrawals be increased to 20%.
Finally, the Committee is considering a option that would require an employer with group sponsored HSA’s to certify that the withdrawal was qualified. For individuals, the committee is suggesting requiring certification of withdrawals from an independent third party administrator.
The need for health care reform is obvious. Reducing the benefits associated with HSAs and adding another layer of bureaucracy may not be the best approach.
Comments
Good article. The public needs to keep on top of this issue as congress is moving away from the promises of the administration- taking the single payer option off the table and even the option to buy into a public plan like Medicare. Members of congress and their families have this public option, why shouldn't the rest of us?To paraphrase the words of Sally (from the movie When Harry Met Sally), "I'd like to have what they're having." Start writing your representatives before they knuckle under to special interests and reject Obama's promise of real healthcare reform.
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