HSA Evolution Could Drive Adviser Opportunity

Since the new Congress began in January, there have been more than 20 bills proposed that impact consumer-driven health plans, and more specifically HSAs.

During a recent conversation with PLANADVISER, Chad Wilkins, president of HSA Bank, and Kevin Robertson, senior vice president, outlined their expectations for health care reform and other hot-button items on the policy agenda in Washington.

According to the pair, while much of the media attention around healthcare reform has centered on the more politically charged components of the Affordable Care Act (ACA)—coverage mandates, subsidies, penalties, preexisting conditions coverage requirements, etc.—less attention has been paid to the GOP healthcare proposals regarding Health Savings Accounts (HSAs) and consumer-directed health (CDH) plans.

“Prior to the election, HSAs played an important and prominent role in the U.S. healthcare landscape and in legislative efforts of the last several Congresses,” Wilkins observes. “Driven by their popularity with employers and employees as a cost reduction device and powerful healthcare spending tool, HSAs have emerged as one of the fastest growing elements in health plan design today.”

Numerous bills impacting HSA regulation and expansion ideas have been introduced in the past, the pair explain. However, this is the “first time we’ve seen a clear picture of the Republicans’ vision for HSAs and CDH plans.”

As passed by the House, the GOP health care proposal has six specific impacts on HSAs and CDH plans, most of which will take effect at the beginning of 2018. These include an increase in HSA contribution limits to the high deductible health plan (HDHP) out-of-pocket maximum; repeal of the ACA contribution limit on Flexible Spending Accounts (FSAs); permission for spouses to make catch-up contributions to the same HSA; repeal of the prescription requirement for over-the-counter medications as qualified medical expense distributions from HSAs, FSAs, and health reimbursement arrangements (HRAs); lessening of the penalty for non-qualified HSA distributions made prior to age 65 from 20% to 10%; and finally, permission for qualified distributions to reimburse medical expenses incurred within 60 days of HDHP coverage but before HSA account is established.

Robertson says these changes are collectively “substantial” and “designed to simplify how individuals are able to save with an HSA or CDH plan. The changes “expand the ability to contribute to these tax-advantaged programs,” Wilkins agrees.

NEXT: How significant a change? 

The HSA Bank executives suggested each of these changes, which are somewhat minor considered individually, collectively could prove to be very significant for retirees and could dramatically increase the attractiveness of HSAs.

For example on the point of reducing the tax penalty for unqualified non-medical withdrawals from 20% to 10%, Wilkins and Robertson suggest the larger penalty amount has prevented some people from fully embracing HSAs.

“Should someone need to access their HSA funds for a non-medical emergency, the 20% penalty appears confiscatory,” Robertson says. “The American Health Care Act reduces the 20% penalty, which was actually set as part of the ACA, back to the original 10% it had always been. The end result makes HSAs more attractive since the fear of a 20% penalty may have been a detractor in individuals using HSAs as a savings account.”

Both HSA experts are also strongly in favor of the spousal contribution provisions: “The most significant obstacle to maximizing spousal contributions has been the aggravation of having to open a second account,” Wilkins explains. “This change will make it easier for seniors to maximize their savings for retirement years, both in terms of lower administration costs, and simplification of the contribution process.”

On the question of how likely it is for the American Health Care Act to actually become law, the executives noted that the bill is currently the subject of no small amount of debate in the Senate, “where it will likely see changes, especially with regard to some of the more politically charged provisions, such as subsidies and tax credits.” 

Because of the Senate structure and the narrow majority the Republicans hold, they may attempt to use the budget reconciliation process to pass the bill, the pair speculates. Practically speaking, reconciliation matters only require 51 votes to pass, and the approach prevents the opposition from filibustering the Senate.

NEXT: Multiple proposals would impact HSAs 

“While there are significant limitations to the types of legislation that can be passed using this process, the bottom line is that the Democrats may be unable to prevent the bill in reconciliation,” Wilkins says. “Provisions considered under reconciliation are essentially limited to items with budgetary impacts, and even then, are held to certain restrictions by the Byrd Rule. This rule sets forth specific provisions that must be met for any changes to be considered as a part of reconciliation; meaning that the types of changes in this health care bill are heavily influenced by what can be passed in reconciliation. Any major policy changes or more significant bills would require a 60-vote measure in the Senate. In order to get these more significant changes passed, the GOP will have to find eight Democratic senators to vote in support of the bill—not an easy task.”

On HSA Bank’s analysis, beyond reconciliation, there are “other obstacles that have to be navigated such as avoiding a conference committee.” Going to conference occurs when there are discrepancies between bills passed in the House and the Senate, and if this occurs, both bodies must take an up or down vote on the final, compromise version.

“While this is the first of other GOP health care changes to come in the next few years, it may be the only chance to pass legislation repealing ACA in 2017, and the final bill that gets passed will be heavily influenced by the mechanics of the political process,” Robertson adds.

The executives go on to observe that, since the new Congress began in January, there have been more than 20 bills proposed that impact CDHPs, and more specifically HSAs.

“These proposals range from small procedural or regulatory tweaks to full decoupling of HSAs from the underlying HDHP coverage and rolling out HSAs to all Americans,” Robertson and Wilkins state. “The most significant of these bills is the Health Savings Act of 2017 (S. 403, H.R.1175), introduced in February 2017 by Senator Hatch (R-Utah) and Representative Paulsen (R-Minnessota). This bill was the reintroduction of legislation from past Congresses, and has directly resulted in many of the favorable changes regarding health accounts (HSAs, FSAs, HRAs) over the last few years. In fact, most of the changes [we have discussed] are provisions taken directly from the Hatch/Paulsen Bill.”