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The New Health Savings Account Rules Let's take a look at the plan before and after the changes before we discuss the merits of these improvements.
Prior to the changes recently legislated, policyholders could not save any more than their deductible. If your employer's policy had a thousand dollar deductible that was the maximum you were allowed to save tax-free in an HSA. Health insurance policies do not take effect until the deductible has been used. And it should be noted, HSA are still not aswidely available as the administration would like.
Another stipulation, which made the plans less attractive was the required employer participation. In order for the plans to work under the old guidelines, employers needed to contribute equally to the employee's HSA plan. IRAs could not be used to fund these plans without tax and early withdrawal penalties.
Under the new law, those restrictive contribution levels change. Now, single policyholders can save $2,850 in their accounts while families can save $5650 starting in 2007.
Congress approved some very costly changes to the plans as well. Employers can now contribute more to these plans if their employees make less than $100,000. But the biggest and most expensive change comes with the treatment of IRA accounts.
There is now a one-time roll over exemption for IRA accounts into an HSA. This could be a potential win-win situation for a wealthy retiree. In many instances, an IRA, with it's ceiling on contributions, would have been taxed at a higher rate than less well-to-do retirees. Allowing these retirement plans to rollover tax free into a plan that can offset medical bills could cost taxpayers over $700 million over the next 10 years.
Why, if so few people are using these kinds of plans, did Congress make changes to benefit so few? The Employee Benefit Research Institute along with a private research group, the Commonwealth Fund reported recently that only 37% of the people who are eligible for such plans actually use them.
Critics have been quick to point out that those enrolled tended to make poor decisions on when to use the plans, often deferring medical assistance. The high deductible will often discourage basic use of services.
While the use of these plans is limited currently only 7% of employers offer these consumer driven types of savings accounts for insurance, the belief that expanding these programs will widen the coverage of those currently uninsured is not well founded.
There is little likelihood that these changes will, as Rep. Eric Cantor (R-VA) who sponsored the bill suggests, create more health choices. Instead, it may actually force those who cannot afford to make the contribution from moving further away from coverage.
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