Senate Finance Committee Ranking Member Orrin Hatch (R-Utah) and Senator Marco Rubio (R-Fla.) have introduced the Family and Retirement Health Investment Act of 2013. This bill is designed to broaden the scope of both health savings accounts (HSAs) and health flexible spending arrangements (FSAs) and to make these types of accounts more consumer friendly as Patient Protection and Affordable Care Act (PPACA) implementation proceeds. U.S. Representative Erik Paulsen (R-Minn.) introduced companion legislation in the U.S. House of Representatives.
Senator Hatch states, “Congress created Health Savings Accounts and Flexible Spending Accounts to help Americans pay for health care. Over the years, these plans have grown in popularity and it’s well past time Congress act to improve them.” A press release published by the United States Senate Committee on Finance notes that although only 454,000 people were covered by HSA plans when Congress first introduced them, 13.5 million people are now covered by an HSA-eligible plan. The press release states that the legislation will:
- allow a husband and wife to make catch-up contributions to the same HSA;
- remove the onerous new restrictions on the use of HSA and FSA dollars for the purchase of over-the-counter drugs;
- clarify the use of prescription drugs as preventive care that will not be subject to an HSA-eligible plan deductible;
- reauthorize the use of Medicaid health opportunity accounts;
- promote wellness by expanding the definition of qualified medical expenses to encourage more exercise and better nutrition;
- allow seniors enrolled in Medicare Part A to continue contributing to their HSAs; and
- allow for the purchase of low-premium health insurance and long-term care insurance with HSA dollars.
This legislation comes about a year after the IRS solicited comments with regard to changes to the Use It or Lose It rule in Notice 2012-40 concerning the new $2,500 FSA maximum employee contribution under PPACA. The Use It or Lose It Rule is a rather unpopular feature that can deter individuals from contributing money to an FSA to pay for qualified medical expenses because that money is forfeited at the end of the plan year if it has not been used. Other legislative activity has indicated the marketplace may see modifications to this rule now that the $2,500 cap is in place. Interestingly, the bill appears to provide an additional exception to the prohibition on deferred compensation plans in Code Section 125(d)(2), not mentioned in the press release, that provides the following:
‘(c) FSA Balances at Year End Shall Not Forfeit- Paragraph (2) of section 125(d) is amended by adding at the end the following new subparagraph:
‘(E) EXCEPTION FOR QUALIFIED HSA DISTRIBUTIONS- Subparagraph (A) shall not apply to the extent that there is an amount remaining in a health flexible spending account at the end of a plan year that an individual elects to contribute to a health savings account pursuant to a qualified HSA distribution (as defined in section 106(e)(2)).’
Another interesting provision of the bill, also not mentioned in the press release, provides an exception for certain HRAs from the prohibition on annual and lifetime limits contained in Section 2711 of the Public Health Service Act. Under the current language of the bill, this exception would exempt a stand-alone HRA “which permits the purchase of a qualified health plan through an Exchange established under section 1311 of the Patient Protection and Affordable Care Act” from the prohibition on annual and lifetime limits. This could be a welcome legislative change for employers seeking to provide tax-favored funding for their employees to purchase individual or family policies through a health insurance marketplace. However, this strategy may not work for applicable large employers subject to the employer shared responsibility provisions under Section 4980H.
It remains to be seen how Congress and federal regulatory agencies will continue to address healthcare reform issues that rise to the surface in the process of implementation. For more information, see the United States Senate Committee on Finance Press Release. To read the text of the proposed Senate bill, click here.
