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Treasury Issues Guidance To Encourage Use Of New
Innovative Health Savings Accounts ("HSAs")
December 22, 2003
JS-1061
The Treasury Department and the Internal Revenue
Service today issued guidance regarding the new and innovative Health
Savings Accounts (HSAs). HSAs were created by the Medicare bill signed
by President Bush on December 8th and are designed to help
individuals save for qualified medical and retiree health expenses on
a tax-free basis.
"Starting January 1, 2004, new innovative Health
Savings Accounts will change the way millions can save to meet their
health care needs," said Treasury Secretary John Snow. "We want
Americans to be able to take advantage of HSAs as soon as possible,"
stated Treasury Secretary John Snow. "An HSA is a good deal, and all
Americans should consider it. HSAs will help consumers have more
choice in meeting their health care needs, and we are acting today to
clear the way."
Any individual who is covered by a high-deductible
health plan may establish an HSA. Amounts contributed to an HSA belong
to individuals and are completely portable. Every year the money not
spent would stay in the account and gain interest tax-free, just like
an IRA. Unused amounts remain available for later years (unlike
amounts in Flexible Spending Arrangements that are forfeited if not
used by the end of the year). Tax-advantaged contributions can be made
in three ways: the individual and family members can make tax
deductible contributions to the HSA even if the individual does not
itemize deductions, the individual’s employer can make contributions
that are not taxed to either the employer or the employee, and
employers with cafeteria plans can allow employees to contribute
untaxed salary through a salary reduction plan. Funds distributed from
the HSA are not taxed if they are used to pay qualifying medical
expenses. To encourage saving for health expenses after retirement,
HSA owners between age 55 and 65 are allowed to make additional
catch-up contributions ($500 in 2004) to their HSAs.
HSAs are more flexible and are available to many
more individuals than Archer MSAs. The minimum required deductible of
the high-deductible plan is lower, both employees and employers can
contribute, and the maximum contribution is now the full amount of the
deductible. Employees of large companies are now eligible. Individuals
with existing MSAs can either retain them or roll the amounts over
into a new HSA.
Today’s guidance (Notice 2004-2) provides, in a
question and answer format, information about what HSAs are, who can
have HSAs, how to establish them and the basic rules for contributions
and withdrawals from HSAs. While many of the rules follow previous
guidance issued for Archer MSAs, they also address new issues specific
to HSAs. In addition to the basic information about HSAs, the guidance
provides the following clarifications:
Treasury and the IRS intend to issue additional
guidance in the summer of 2004. To that end, today’s Notice requests
comments concerning HSAs, including –
 | What kinds of preventive care can be offered
without a deductible in a high-deductible health plan? |
| What is the relationship of HSAs to Flexible
Spending Arrangements and Health Reimbursement Arrangements?
|
| Are high-deductible plans used in conjunction
with an HSA allowed to impose a lifetime limit on benefits? |
Treasury Assistant Secretary for Tax Policy Pam
Olson stated, "We look forward to receiving comments from the public
on the issues that need to be resolved in order to make HSAs a
success."
Separately, the Federal Office of Personnel
Management has already begun a review of HSAs and their role within
the FEHB. OPM will identify opportunities to extend this new benefit
to the 3.1 million members of the Federal team as they make decisions
on how to spend their hard-earned dollars on healthcare. |
