Wisconsin's 1st District   U.S. Congressman 
 
Paul Ryan
     
Serving Wisconsin's 1st District
U.S. Congressman Paul Ryan
U.S. Congressman Paul Ryan - Serving Wisconsin's 1st District

 

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September 27, 2006


Committee Approves Ryan Bill to Expand Health Savings Account Options

WASHINGTON – The House Committee on Ways and Means today approved legislation coauthored by First District Congressman Paul Ryan that would expand opportunities for both workers and employers to contribute to health savings accounts (HSAs). Together with Congressman Eric Cantor (R.-Va.), Ryan sponsored this bill – H.R. 6134, the Health Opportunity Patient Empowerment Act – to build on the promise that HSAs have already shown and allow patients and businesses to make the most of this new tool to manage health care expenses. The next step for this legislation is consideration by the full House of Representatives. 

HSAs have been a health coverage option since the Medicare Prescription Drug law took effect in January 2004. Congressman Ryan coauthored the provision in that law that allowed HSAs as a vehicle for health care savings. Health savings account holders or their employers purchase a high-deductible insurance plan that covers large hospital bills and major expenses due to serious illness, while the patient’s routine medical expenses are paid for out of their health savings account – an account where they set aside tax-free savings for lifetime health care needs. Individuals, employers, or even family members can contribute money to an HSA, and these accounts are portable from job to job. 

Reliance on HSAs has grown dramatically since they became a viable option for health coverage. In November 2004, about 438,000 individuals were covered by HSA-type insurance plans. Today, roughly 3.2 million people are covered by HSA-type plans. Many of the new HSA holders were previously uninsured. For example, forty-one percent of eHealthInsurance’s HSA plan purchasers in 2005 reported being uninsured prior to buying their HSA plan. 

“For many small businesses and individuals, HSAs make it possible to afford health-care coverage, while setting aside tax-free savings for future medical expenses. This consumer-driven approach is already beginning to help rein in medical costs. It’s making a difference for Wisconsin employers and families, and we need to make sure that HSAs are accessible to those interested in this coverage option,” Ryan said. 

Ryan’s new legislation, the Health Opportunity Patient Empowerment Act, would make it easier for individuals and small businesses to contribute to HSAs and effectively use this savings option to pay for health care costs. 

Specifically, H.R. 6134 would:

  • Repeal the annual deduction limitation on HSA contributions. Currently, taxpayers with a high-deductible health plan are permitted to make deductible contributions to an HSA equal to the lesser of the amount of the high deductible or an indexed amount (currently $2,700 for single coverage and $5,450 for family coverage.) The bill simplifies compliance with the contribution limits by setting the limits at indexed amounts (currently $2,700 for single coverage and $5,450 for family coverage.)

  • Improve notification regarding the cost of living adjustment. Under current law, the deductible requirements and contribution limits are indexed against inflation. This bill requires the Secretary of the Treasury to announce adjustments to the amounts by June 1st of each year – simplifying planning decisions for both employees and employers.

  • Expand the contribution limit for part-year coverage. Current law limits taxpayers creating an HSA during the year outside the enrollment window to a deduction of no more than one-twelfth of the annual limit for each month the taxpayer is eligible for an HSA (in effect, prorating the amount they can contribute tax-free to an HSA that year), but subjects taxpayers to the full non-prorated high deductible amount – effectively discouraging HSA adoption. This bill would permit taxpayers starting an HSA during the year to contribute an amount up to the full annual limit. 

  • Permit employers to contribute more to the HSAs of lower-paid employees. Current law requires employers to make comparable contributions to an HSA for all employees. Under this bill, an employer may make higher contributions for non-highly compensated employees, enabling employers to provide additional resources to employees who are neither owners of 5 percent or more of the business nor among the most highly-paid in the company.

  • Allow the transfer of funds from Individual Retirement Accounts (IRAs) to HSAs. Under present law, a taxpayer cannot withdraw funds from an IRA prior to age 59 ˝ without paying a penalty in addition to income tax (if any) on IRA funds. This bill allows taxpayers to make a one-time distribution (tax-free) from an IRA to an HSA, so HSA funds are immediately available to meet family health needs. The “roll-over” cannot exceed the HSA contribution limit for the year. 

  • Allow employees to fund HSAs with Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) funds. Today, unused FSA benefits expire two and a half months after the end of a year. HRAs are employer arrangements which allow employees to draw against employer resources. Under current law, neither account may be used to fund an HSA, nor do FSAs and HRAs belong to the employee as HSAs do. As a result, employees may lose FSA and HRA benefits. Under this bill, employees would have the ability to start an HSA by making a one-time tax-free transfer of FSA and HRA amounts in their accounts as of September 21, 2006 to an HSA which would belong to the employee. The transfer must be made before January 1, 2012. 

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Contact: Kate Matus (202) 226-7326