Clarity on the Future of HSAs (and Demise of FSAs)?

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26 May 2009
Last week, the U.S. Senate Finance Committee (the senatorial committee playing the lead role in healthcare reform), published a number of options that are being considered as ways to pay for healthcare reform. Very interestingly, the committee provided an insightful glimpse of how HSAs (health savings accounts) and FSAs (Flexible Spending Accounts) may fare in a reformed U.S. health care system. The really big news for the healthcare banking industry is that HSAs don't appear to be targeted for elimination. In fact, this is huge news -- many banks I speak with have been concerned about investing more resources in HSAs if Congress were to eliminate them . This is also an indication that HSA-compliant health plans may fit under a future definition of "sufficient coverage" (see my previous blog post). Having said that, some HSA restrictions are being considered, including contribution limits, higher penalties for non-healthcare distributions and independent adjudication of HSA transactions (i.e., the IRS would no longer "trust" account holders to self-adjudicate appropriate use of HSA funds). Just as interesting to me was the Committee's suggestion that the tax benefits of FSAs (and HRAs, health reimbursement arrangements) could be restricted. An even more drastic option would be to elminate the tax benefits of FSAs, effectively killing them as a viable offering. At Celent, we have been long predicting a growth in HSAs and a decline of FSAs. If enacted, the Senate Finance Committee's suggestions would likely accelerate our forecasts, as well as serve as disruptive force in the FSA space. Again, this is really big news.

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