A Bad HSA Idea
More than 10 million people have a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) and these are the fastest growing products in the financial marketplace. Withdrawals for nonhealth purposes are subject to taxes and penalties. In order to encourage HSA growth, Congress explicitly made individual account holders responsible for accurately reporting taxable withdrawals on their income tax returns – just as they are responsible for reporting all other taxable transactions. This is not the legal responsibility of the employer or bank issuing the HSA debit card.
A proposal before the Ways and Means Committee would change all this. It would force employers and financial institutions to collect paper receipts to verify the purpose of HSA expenditures – basically ending the paperless, electronic systems that are now in place. See Roy Ramthun's analysis, attached as a comment.
Next week, the Ways and Means Committee of the House of Representatives will markup a bill that is reported to include language forcing substantiation of every withdrawal from HSAs. The genesis of this effort is anecdotal evidence provided by Evolution Benefits suggesting that 245,000 of the 1 million HSA transactions EB recorded in the last 11 months in their HSA book were for non-healthcare expenses (e.g., 6 transactions for rental cars, 4 for cruise lines, several withdrawals at the Bellagio in Vegas, etc.).
Now, you and I know that how people use their debit card is not evidence of anything. The only evidence that matters is if the accountholders have medical receipts to justify taking the withdrawals and tax deduction. Additionally, since the debit card can pull from multiple accounts, how do we know which accounts these transactions are pulling from? EB’s multi-purse “Benny card” can pull from an HSA or FSA or any other account attached to it depending on the nature of the expense. Evolution Benefits has one of the larger TPA administration systems for Flexible Spending Accounts. Growth in use of HSAs puts their business at risk because without auto-adjudication they are relegated to nothing more than an expensive card processor front end. They do not have an HSA product of their own and have traditionally referred their TPA customers to a few select partners who provide HSAs and allow the balances to be stored along with FSA and/or HRA information when necessary on a single multi-walleted card. Apparently they think every bank in the country would enjoy contracting with them to provide substantiation services for their HSA accounts.
Right now, 90% of HSA withdrawals are done electronically through a debit card, ATM, or checks. Ninety percent of withdrawals from an FSA are done by paper – manually – fill out the form – include the receipt – send to TPA. This provision will bring HSAs back into the world of paper/manual transactions. We are taking away from the customer experience. They are also two inherently different products – one is an employer provided product – one is an individual product. They should not have to live under the same rules.
My understanding is that some banks/CUs’ debit cards already place restrictions on use at certain types of merchants (e.g., liquor stores, jewelry stores, etc.). If EB’s “Benny card” does not place those restrictions, then their own systems are letting more things through than they should.
IF this bill were to be enacted, banks and credit unions could no longer offer a basic debit card. A majority of the financial institutions would be immediately taken out of this market place. EB’s profits would more than double and financial institutions would take a tremendous hit, especially those that have invested in the HSA market. It takes away deposit growth opportunities at a time when the financial institutions are hurting. The cost would double for banks and CUs that would want to offer this and the cost most likely would need to be passed back to the employer, thereby deterring from what Consumer Driven Healthcare (CDH) is trying to do — reduce health care costs to the employer and employee.
I am told this provision on HSAs will supposedly “save the government money” and thus will be used to “pay for” other tax provisions in the main bill. I am working with others to find out what bill is coming with this language and ways to remove the offending provisions. As you know, if there is going to be a Democratic effort to harm HSAs, it will not be an effort at outright repeal but rather the more practical “death by a thousand cuts” approach. Substantiation would be a major “cut” so I ask you to please call any members of the House Ways & Means Committee that you know or represent your district (especially Democrats) and urge them to vote against any proposal to force substantiation on HSAs. You can also reach members by calling the U.S. Capitol Switchboard at (202) 224-3121 and ask for the member’s office.
Thanks for your assistance.
Roy Ramthun
HSA Consulting Services, LLC
Typical govt for you.
Let’s take the one tiny aspect of the health care financing universe that is actually working well and see if we can’t add a little needless bureacracy to it and screw it up.
Ugh!
Hello,
In terms of income is there an income level where having an HSA is not advisable?
Thank you
I do not think there is an income level where HSAs are not advisable. One suggestion, however… If you get one fund the account.
Other advantages: The high-deductible health plan that must accompany an HSA has a out-of-pocket maximum that is lower than most traditional PPO plans. That would benefit moderate-income families.
I would argue that moderate income people have the most to gain from a health plan that allows them to benefit financially from prudent decisions.
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