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Senate Reform Proposal Targets HSA Spending Limits, Reporting Requirements

In an ominous portend of the future, the Senate Finance Committee is looking at significant changes in healthcare practices for all three major Consumer Directed Healthcare (CDH) offerings.

Among the changes being seriously considered is the scaling back or elimination of Flexible Spending Acounts (FSAs). and Health Reimbursement Accounts (HRA).

Health Savings Accounts will also be affected if Senate Finance Committee staffers have their say, according to industry lobbyists. "The only reason they are not being as heavily attacked as the other forms of CDH programs is their popularity," said one lobbyist.

While not unexpected given the Democratic-controlled Congress' apathy towards these programs, this is the first time in over a year any changes to CDH have been floated, according to Health Plan Wire.

"Similar to HSAs, FSAs allow individuals and the employers to contribute an unlimited amount of tax free income to a Flexible Spending Account," a committee white paper says. "Employees can withdraw from their FSA to pay out of pocket medical expenses besides premiums. But unlike HSAs, FSAs do not roll over from year to year and operate on a ‘use it or lose’ it principle.

The Senate policy options explore limiting the amount that can be contributed to an FSA or eliminating FSAs altogether." No further justification is cited.

For HSAs, the paper suggests returning to the previous contribution scheme where HSA contributions were limited to the amount of the deductible. Two years ago this was scrapped so that people can now contribute up to the ceiling that year, regardless of their deductible. Again, no further justification is cited for the change.

The paper also mandates "substantiation" of HSA expenses by either the employer or an "independent third party," and increases the penalties for early withdrawals from 10% to 20%. Finally, the document proposes to have one single definition of qualified medical expenses, rather than separate definitions for HSA, FSAs and medical expense deductions. Presumably, the richer HSA standard would be dropped.

According to Health Plan Wire, it is not clear whether this is the end of the debate in the Senate. The process so far is that groups can submit comments to the committee similar to a proposed regulation. What nobody knows yet is whether the final bill in June will respond to those comments. The changes in CDH accounts are only a small part of the larger reform blueprint, and many of the other changes are much more controversial.

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