Ahead of key healthcare choice periods in the fall, the IRS issued its long-awaited HSA clarifications. On the whole, they clearly point to the continued desire of officials to encourage HSA adoptions and to insure that all levels of workers shared equally in any employer benefits attached to these accounts.

Among the key clarifications offered:

1. Certain preventative drug usage is being permitted, including those associated with heart disease, diabetes and chlorosterol.
   
2. Employer contributions are being leveled so they cannot be done on the basis of age, longevity or other factors, but must be equal for all. In short, contributions from an employer may not be based on age, salary, work longevity or other factors but must be equal for all employees.
   
3. Drug cards can be issued and certain condition specific policies are being permitted along with HSA accounts. These include long-term care and eye problems
   
4. Individuals who are above age 65 but not enrolled in Medicaid or medicare can continue to contribute to HSA accounts.
   
5. Wellness programs for obesity and smoking cessation will continue to be covered under HSAs. However, participation in wellness programs can not constitute a factor in determining how much the employer contributes to the individual’s HSA.
   
6. The rules have been loosened to allow anyone to fund an HSA without penalty. This rule has also been extended to governmental bodies, clearing the way for state, federal and local entities to offer HSAs.
   
7. Distributions made for any qualified medical expense of the acoount beneficiary, the account beneficiary’s spouse and dependents (regardless of their status as eligible individuals) can be excluded from income.
   
8. An account beneficiary may defer to later taxable years, distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as expenses were incurred after the HSA was established.

According to Susan M. Nash, a partner with McDermitt, Will & Emery, a prominent Chicago law firm, the new initiatives clarify many questions raised in earlier rulings. She said, "Clearly, the IRS is trying to help solidify various issues that were unclear. All in all, they look very good."

HSAfinder’s Terry MacAvery concurred, saying the new regulations will enable company managers to feel more comfortable about adopting HSA plans with these clarifications in place, including employer provided wellness programs.
Nash spoke at the Consumer-Directed Health 2004 Conference, as the clarifications appeared on Friday.
Employers may not match contributions to the plan except under predetermined amounts or through a carefully constructed cafeteria plan.

There were some help for insurance companies, including the right to set lifetime limits on benefits. In addition, amounts paid by covered individuals in excess of usual, customeray and reasonable amounts are not included in determining maximum out-of-pocket expenses. A health plan which otherwise qualifies as an HDHP imposes a flat dollar penalty on a participant who fails to obtain pre-certification for a specific provider or for certain medical procedure need not apply I as an out-of-pocket expense.

Nash indicated that many employers can take advantage of the contribution programs through the use of cafeteria plans to offer benefits.