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House passes HSA contribution changes


WASHINGTON--The House of Representatives Friday passed a tax package that would enhance the appeal of health savings accounts by boosting contribution amounts, open the door for employers to replace first-generation consumer-driven health care plans with HSA-based plans, and remove certain administrative problems associated with HSAs.

The measure is now being considered in the Senate, where it faces considerable opposition over provisions unrelated to the HSA changes.

The House-passed bill would unlink HSA contributions from health insurance plan deductibles.

Under current law, the maximum annual deductible that can be made to an HSA is the lesser of the deductible in the health insurance plan to which the HSA is linked, or an indexed amount--set by law--which next year will be $2,850 for single coverage and $5,650 for family coverage.

Instead, the legislation would set the contribution limits at the indexed amounts, with the deductible levels in the health insurance plan disregarded. That could mean, in some cases, that hundreds of additional dollars could be contributed each year to employees' HSAs.

Additionally, the measure would allow employers--on a one-time basis--to roll over unused flexible spending account and health reimbursement arrangement balances to HSAs.

The rollover provision is aimed at employers who established HRAs, which the Internal Revenue Service gave the green light to in 2002, but now want to scrap those arrangements in favor of HSAs, which under a 2003 law first became available in 2004.

The bill also would allow employees covered in "grace period" FSAs to contribute to HSAs during the grace period so long as their FSA balance was zero at the end of the prior plan year or the unused balance was transferred at the end of the prior year to the HSA. Current IRS rules bar HSA contributions during an FSA grace period.

Another change in the bill would allow full HSA contributions for employees--regardless of when during the year they became covered in the plan. Current law requires that contributions be pro-rated to reflect when during the year an employee became covered.

Finally, the measure would allow employees--on a one-time basis--to make a tax-free transfer of money in their individual retirement accounts to their HSAs.