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House committee approves HSA reform measure


WASHINGTON--The House Ways and Means Committee on Wednesday approved legislation increasing contributions that employers and employees can make to health savings accounts, as well as other changes intended to boost the appeal of HSAs.

The legislation, H.R. 6134, would allow employees and employers to contribute up to $2,700 for single coverage and $5,450 for family coverage, with those amounts being indexed each year for inflation.

That would be a change from current law, in which the maximum contribution is the lesser of the deductible in the high-deductible plan to which the HSA is linked, or $2,700 for single coverage and $5,450 for family coverage.

Such a change, committee Republicans said, would allow employees to build up bigger account balances to help them meet future, unexpected health care expenses.

The measure, approved on a 24-14 vote, also would allow employers and employees to make the maximum permitted contribution to an HSA regardless of when in the year an employee became covered under the arrangement. Currently, the contribution amount is prorated to reflect when in the year the employee became eligible for coverage. This change would allow employees who join a company late in the year, for example, to make the maximum contribution to their HSAs.

Additionally, the bill would give employees a one-time opportunity to make tax-free rollovers of unused flexible spending account and health reimbursement arrangement balances to their HSAs. The rollover would have to be completed by the end of 2011. This new flexibility is intended to make it easier for employers to phase out HRAs and start HSAs.

The measure also would give employees a one-time opportunity to roll over individual retirement account balances to their HSAs. Such transfers would be attractive to employees since they could withdraw the transferred funds tax-free from the HSA to pay for health care expenses. By contrast, IRA distributions are taxed as ordinary income, regardless of how the money is used.

HSA advocates say their strategy is to get the bill attached to "must-pass" legislation that Congress will consider in November when legislators return after the elections for a special lame-duck session.

Committee Chairman William Thomas, R-Calif., said there is significant interest in the Senate in taking up the legislation.