RPC Reg Spotlight July 6, 2011

 

Regulatory Action in the Spotlight:

 

Changes to Health Savings Accounts (HSAs)

 

Adverse Effects:

 

  • Higher costs
  • Limits health care choices

 

 

Response of the Obama Administration:

 

Health Savings Accounts (HSAs) were created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003.   Any adult who is covered by a high-deductible health plan, with no first-dollar coverage, may establish an HSA.  The funds contributed to an account are not subject to federal income tax at the time of deposit and, unlike a flexible spending account (FSA), funds roll over and accumulate year to year if not spent.  HSAs encourage saving for future health care expenses and make consumers more responsible for their own health care choices.

 

As part of the Patient Protection and Affordable Care Act of 2010 (PPACA) and the Health Care and Education Reconciliation Act of 2010 changes were made as to how consumers may use HSA funds, to the detriment of the consumer.   IRS Notice 2010-59 was issued on September 3, 2010, and became effective on January 1, 2011, and governed changes to HSAs.  It revised the definition of qualified medical expenses eligible for purchase with HSA funds, and thereby restricted the purchase of certain over-the-counter items.  Tax penalties were increased for purchasing the unqualified items. 

 

 

Impact on the United States:

 

PPACA impacts these consumer-controlled accounts by prohibiting the purchase of previously eligible over-the-counter drugs and health care items with HSA funds without a prescription.  This increases costs to consumers as they now have to utilize after tax funds to purchase these items.  Either that or call their physician for a prescription each time they want a bottle of Tylenol.  Further, the tax penalty for withdrawing such funds to cover non-medical expenses increased from 10 percent to a whopping 20 percent. 

 

Products that will now require a doctor’s prescription to be purchased with pre-tax HSA funds include:

 

  • Acetaminophen
  • Aspirin
  • Allergy products
  • Antacid remedies
  • Antibiotic creams
  • Baby care products
  • Cold remedies
  • Cough syrup
  • Eye & ear drops
  • Migraine remedies
  • Motion sickness
  • Nasal sprays
  • Pain relievers
  • Topical creams

 

 

In Closing:

 

Health Savings Accounts are perfect vehicles to control costs when coupled with a High Deductable Health Plan, turning patients into cost-conscious consumers.  According to a study conducted by America’s Health Insurance Plans (AHIP) released on June 14, 2011, 11.4 million Americans are covered by HSA-eligible insurance plans, a 14 percent increase since 2010 and up from just over one million in 2005.   These plans are proving popular with companies and individuals alike.  However, by effectively penalizing these accounts, patients lose an important tool to control costs while maintaining control over their health care choices. 

 

 

Relevant Legislation:

 

Rep. Paulsen introduced H.R. 605, the Patient’s Freedom to Choose Act, and H.R. 2010, the Family and Retirement Health Investment Act of 2011.  Both bills specifically repeal restrictions on the use of HSA dollars for the purchase of over-the-counter medications without a prescription.  Furthermore, the bills also repeal provisions of the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 constraining utilization of HSAs, and further expand their availability.