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Health Savings Accounts (HSAs)

Why Employers Care

As health care costs escalate and consumerism becomes increasingly important, health savings accounts (HSAs), paired with high deductible health plans, are becoming an increasingly popular health plan option for employers. Offering a triple tax advantage — tax-free employer and employee contributions, investment earnings and disbursements for eligible medical expenses — and full portability, HSAs encourage smart, cost-effective health care spending while providing employees with a potential retiree health savings vehicle. In January of 2013 America's Health Insurance Plans (AHIP) estimated that 15.5 million Americans are covered by HSA qualified high-deductible health plans. In addition, according to the 18th Annual Towers Watson/National Business Group on Health Survey on Purchasing Value in Health Care, two-thirds (66%) of employers with 1,000 or more employees offered CDHPs in 2013, and more than 80% of large employers are expected to do so in 2014.

While HSAs have become the health plan of choice for many employers, current limits on contributions and eligibility, restrictions of reimbursable services and complex administrative requirements hinder their overall effectiveness. Rules governing HSAs' coordination with other types of health accounts (health flexible spending accounts and health reimbursement arrangements) also present obstacles for employers and employees wishing to maximize the benefits of all three types of accounts.

Rep. Ron Kind (D-WI) and Kevin Brady (R-TX) in March of 2013 re-introduced a bill that would allow people to use their health accounts to pay for fitness center fees, to buy equipment or pay for physical exercise programs.

The Patient Protection and Affordable Care Act includes a provision that bans the use of health accounts, including HSAs, to pay for over the counter medicines unless a physician prescribes them. Beginning January 1st, 2011 people may only use health flexible spending accounts (FSAs), health savings accounts (HSAs), or health reimbursement arrangements (HRAs) to pay for OTC medicines like those in the following categories if they have prescriptions for them:

Allergy Medicines
Antibiotic Ointments
Anti-Itch Medicines
Anti-Inflammatory Drugs
Anti-Fungal Treatments
Cold Remedies
Cough Medicines
Digestive Aids
Heartburn Medicines
Pain Relievers
Respiratory Treatments
Sinus Medications
Sleeping Aids
Stomach Remedies

People can still submit claims for reimbursement for these OTC products with appropriate documentation (copy of the prescription and the receipts). Since the law passed, Congress has considered legislation multiple times that would repeal the provision in the Affordable Care Act which bans people from using health accounts to purchase OTC products. Unfortunately, Congress has so far failed to remove this onerous requirement. The Business Group sent support letters in favor of the legislation.

What Can Employers Do?

While IRS rules on coordination of health accounts can be complex, employers can design health accounts so that employees can enjoy the benefits of HSAs and health FSAs and/or HRAs:

  • HSA-compatible health FSAs and HRAs can reimburse only permitted expenses (such as preventive care, dental and vision expenses);
  • Post-deductible health FSAs or HRAs only reimburse health expenses after the health plan's deductible is met.

As members of the National Business Group on Health, employers can voice their concerns while shaping and influencing public policy on HSA regulations and legislation to the Business Group's public policy team and by responding to public policy opportunities to comment on proposed regulations, contact Congress and/or the Administration, testify, or participate in related activities.

Relevant Tools and Resources Include:

Page last updated: September 29, 2014

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