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President expected to sign HSA bill


WASHINGTON--President Bush is expected to sign tax legislation that will 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, given final congressional approval over the weekend, will detach 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 will 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, H.R. 6111, will allow employers--on a one-time basis--to rollover 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 approved in 2002, but who now want to scrap those arrangements in favor of HSAs, which first became available in 2004 under a 2003 law.

The bill also will allow employees covered in so-called 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 will allow full HSA contributions for employees--regardless of when during the year they became covered in the plan. Current law requires that contributions be prorated to reflect when during the year an employee became covered.

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

Unrelated to the HSA provisions, the measure extends through Dec. 31, 2007, a 1996 federal law that requires employers to offer the same annual and lifetime dollar limits for mental health care expenses and they do for other medical conditions.