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Dramatic Events On Tax Day Show Strength, Vulnerability of HSAs

While the House of Representatives was passing a bill that could slow down adoption of Health Savings Accounts (HSAs), a man blamed by one Republican congressman for providing House Democrats with the justification defended himself and his company to his peers.

On Tax Day, April 15th, the House Ways & Means Committee Democrats used data from Evolution Health to justify an onerous provision that would require verification by individuals for all expenditures made using HSA dollars.

At the same time, executives from 80 of the nation’s top banks and insurance companies involved with HSAs were meeting in Washington.

At the Fourth Annual White House HSA Briefing, Robert Patricelli, Evolution Health’s Chairman & CEO explained the reasoning behind his letter to the committee. In his original communication, it was argued that a significant percentage of claims analyzed by his company did not meet the liberal rules under which HSA users are allowed to claim deductions for expenditures.

Evolution Health subsequently sent a clarification letter but by that time, the House committee had already acted.

The proposed law would insert a third party administrator (TPA) into the transaction, by requiring that TPAs substantiate every distribution from a HSA before it is made.

“We looked at the data involving millions of transactions and saw that a percentage, 5-12%, did not fall into any category remotely related to IRS-approved transactions,” Invited to speak, after Rep. Paul Ryan, (R) WI attacked the letter without naming the company, Patricelli asserted his position from the dais to an audience that was clearly hostile to the views expressed.  The luncheon was held at the JW Marriott in Washington.

Patricelli was in the audience as, Ryan, a leader in the fight against the bill’s provisions blamed “one company with a patent for the verification process giving Democrats a weapon to severely hamper the growth of HSAs if approved and put into law.”

“This substantiation proposal mimics that of those in Flexible Spending Accounts (FSAs) which have proven difficult and burdensome to all parties,” Ryan added. “HSAs are a solution that puts the individual in charge and makes him or her responsible for managing his or her affairs,” Ryan added.

“What is missing in this discussion is the fact that HSAs given individuals and companies the ability to manage their own healthcare usage and is a step towards saving a system that right now is headed for disaster.”

Ryan also pointed out that the law would require banks to spend millions of dollars putting in the systems necessary to monitor transactions.  At the present time, banks and individuals are only responsible for reporting the net contributions and disbursements.

Ryan told the audience that had earlier heard from government officials charged with HSA administration that in many ways the initiative was working and healthcare costs for both users and insurance providers were declining.

But the human drama of Patricelli facing fellow executives and the discussions that followed provided the highlight of a day filled with information exchange and networking.

In the morning, Julie Goon, the President’s Special Assistant For Economic Policy with an focus on healthcare, and Steve Preston, Administrator of the U.S. Small Business Administration, and W. Thomas Reeder, Benefits Tax Counsel, U.S. Treasury.

Administrator Preston pointed out the critical nature of healthcare to small business viability and told the audience that HSAs were working as a method of reducing costs to smaller enterprises.

Reeder said clarifications and additions to HSA regulations would be forthcoming, answering some of the questions raised during the first years of HSA implementation.

JoAnn Laing, President & CEO of Information Strategies, Inc., the program host offered her annual predictions on future healthcare trends.

“Based on our studies of nearly 10,000 companies, employers are increasingly altering their hiring plans to attract the healthy and avoid the sick,” she said.  “At the same time they are imposing spousal surcharges if coverage is available elsewhere.

Laing also predicted that by 2012, all employees will be paying half of their health insurance if they participate in a company plan.

According to Roy Ramthun, with HSA Consulting Services, “The effect of this bill will be to force the 90% of HSA transactions that are now electronic to become paper transactions by way of submitting your receipts to be reviewed by a third party, so you can spend your own money in your HSA.”

Ramthun also said the data used to promote this bill suggest that HSA funds are being used inappropriately.  However, one cannot make that determination just by looking at how and where funds were withdrawn from the HSA.  For example, as long as someone has incurred $250 of qualified medical expenses, it does not matter whether the individual withdraws $250 cash from an ATM or "spends" $250 at a casino.

Unlike Flexible Spending Arrangements (FSAs), where the employer owns and controls the funds in the account, HSA funds are owned and controlled by the individual/employee.  Thus it is the individual's decision how their HSA funds are used.  Funds used for non-medical expenses are not "illegal" or "fraud" -- just taxable and subject to penalties.

The event was co-sponsored by the three major back office bank providers, Fiserv, Open Solutions and Metavante.

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