Hoping for HSA Reform

More and more Americans who get their healthcare insurance where they work are choosing to enroll in high-deductible plans, according to a new report from the Centers for Disease Control and Prevention.

(Related: More People Under 65 Have HSAs: CDC)

The most obvious driver of this trend is that high-deductible plans mean lower premiums for both the worker and the plan sponsor.

But when someone in such a plan has an accident or a serious illness it's good to have a backup. That's certainly why a growing number of financial professionals are educating their clients about the advantages of health savings accounts (HSAs).

HSA Primer

To be eligible to open an HSA, the individual must already be covered under a qualified high-deductible health plan. They won't work for everyone, but for those who qualify, an HSA can provide both savings and tax-advantaged investment opportunities.

In a lot of ways HSAs are analogous to 401(k)s in that the money goes into the account before taxes, and earnings on those contributions (through whatever investment vehicles an individual may select) are not taxable.

Like a retirement account, withdrawals made before the age of 65 for non-qualified expenses are subject to a penalty in addition to regular income tax. But HSA withdrawals made for qualified expenses (which include a variety of routine health care products and services, as well as long-term care insurance premiums) are always tax and penalty-free.

What Could Change

If some version of the language in two House bills, H.R. 6199 and H.R. 6311, becomes law, the range of health-related items that an HSA can be used for could be greatly expanded.

Both bills passed the House this summer, with bipartisan support,

H.R. 6199, the "Restoring Access to Medication and Modernizing Health Savings Accounts Act" bill, would:

Allow the accounts to pay for certain over-the-counter medical products that were previously not considered qualified expenses (including menstrual products).
Would eliminate the current requirement that an individual obtain a prescription in order to use HSA funds to pay for over-the-counter medications.
Provide that up to $500 in spending per individual, or $1,000 per family, for certain sports and fitness expenses, such as gym memberships and physical exercise programs would be treated as amounts paid for medical care.

Direct primary care (DPC) arrangements are becoming an increasing popular alternative to fee-for-service practices.

A DPC program is an arrangement in which a primary care practice charges patients a monthly, quarterly or annual retainer for most or all routine primary care services provided, rather than billing the patients for each service separately.

One change proposed in H.R. 6199 would let an HSA account holder join a DPC program and use HSA funds to pay the DPC membership fees. Under the current regulatory language, participating in such a program disqualifies an individual from contributing to an HSA.

H.R. 6311 would raise HSA contribution levels to match the annual limit on out-of-pocket and deductible expenses.

These changes to the governing regulations would likely make HSAs more attractive to a wider spectrum of eligible individuals. But before that can happen, they have to get through the Senate, and some stakeholders in the health care debate fear those bills just won't come up in the Senate before the end of the year.

With midterm elections coming up along, these important pieces of legislation may not get the attention they deserve on an already crowded legislative calendar.

If the HSA Rules Stay the Same

But, even if advocates for HSA reform are disappointed this time around, these tax-advantaged accounts can still be an excellent solution for eligible high-income clients.

Clients covered under a qualified health plan may contribute, before taxes, up to $3,450 for an individual or $6,900 for a family in 2018.

If clients need to access those funds to cover an unexpected medical need, they can do so without incurring any taxes or penalties.

If they are fortunate enough to never have to withdraw from the account while they are working, the money will roll over and accumulate year to year, and their contributions, along with any investment returns, will be there to help cover their health care expenses in retirement.

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Anne Richter is president of Accresa, a company that helps employers add direct primary care practices to self-insured plan provider networks. She is also chief strategy officer at Accresa's parent company, Ameriflex. , a company that administers health savings account (HSA) programs and other personal benefit account programs. Earlier, she launched the HSA product line at First Horizon Msaver in Overland Park, Kansas.