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.


  • Red,
    I agree completely that this is big news! The fact that the committee is putting out proposals for paying for a program that has yet to be announced seems backward. It may lead to some deductions about what healthcare reform policy decisions might be made, from what was intended to simply be a list of (artificially limited to healthcare tax credits) potential tax revenue options.

    I vehemently oppose the elimination of HSAs (and FSAs for that matter), and removal of the employer tax benefits for providing health insurance only exacerbates the uninsured problem. However, if the reform plan is paid for by removing employer tax benefits of health insurance premiums, it stands to reason that all tax-advantaged reimbursement plans would be impacted in some fashion.

    Another important factor here is the widespread use of FSAs and more recently HRAs in the union sector, making this a much more difficult area for current political leaders to tamper with.

  • Jeff,

    Your comment draws out the fact that the Senate Finance Committee's suggestions were likely very much of a theoretical "dialing for dollars" exercise, unencumbered by political realities.

    If FSAs (and HRAs) were to be severely limited or even eliminated, some employers, unions and companies in congress persons' home districts would be negatively impacted. I'm sure many of them wouldn't go down quietly.

    That aside, I think many people in the healthcare banking industry a breathing a collective sigh of relief that HSAs aren't on the chopping block...

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