Monday, April 07, 2008

HSA's in Jeopardy?

As a member of the National Assocation of Alternative Benefits Counselors, I receive periodic updates on legislation, pending and otherwise, regarding HSA's, HRA's, etc. Mostly, it's routine stuff, and merely confirms information I've already received from other sources.
Today, though, I learned for the first time about a move in Congress to further complicate HSA (Health Savings Account) distribution requirements. Although the email did not mention the name, number or sponsor of the bill (nor, indeed, much of anything else), a quick search of gave me the information necessary to write an informed post about it.
[PARA REDACTED: Thanks to a tip from a detail-oriented reader, I've been reliably informed (and confirmed) that the bill originally referenced here is NOT ABOUT HSA's, substantiated or otherwise. This makes it even more frustrating, since the NAABC "alert" made no mention of which bill is involved. I'll keep digging, and update as necessary. My apologies to Congressman McNerney. HGS]
Let's take a step back and talk about a detail of HSA's which we don't much discuss here. When one makes a withdrawal (or "distribution") from almost any "qualified" (i.e. tax-favored) account, there are certain rules and requirements. With Health Reimbursement Arrangements (HRA's) and Flexible Spending Accounts (FSA's), one is required to "substantiate" or prove that the expense is eligible for that favorable treatment. This is really a pretty simple hoop through which to jump: the receipt is going to say "allergy med" (so it's okay) or "Snicker's bar" (which is not) [ed: Dang! Are you sure about that?]. Under Section 105 of the Internal Revenue Code, only folks participating in HRA's and FSA's are required to provide that proof; HSA participants are pretty much "on their own." That is, unless and until one is audited.
Until now.
The (as yet unidentified) bill would change that, and require HSA participants to substantiate each of their withdrawals, as well. Is this a big deal? Maybe, maybe not. According to the NAABC email:
"The proposed solution to this undiagnosed problem is to require that expenditures from an HSA be substantiated as a qualified medical expense. This would surely lead to higher administrative costs and more hassles for consumers."
I'm not convinced that that conclusion necessarily obtains. After all, many carriers offer HRA and FSA administration gratis, or for a nominal fee. Admin costs for the HSA loss-funds (the actual "accounts" in "HSA") are already all over the board; as their popularity (and marketshare) continues to grow, more admin's will come into the market, and competition will help to rein in costs. Based on this fact alone, I doubt that substantiation will be much more than a minor nuisance.
UPDATE, NAABC Responds: I sent a link to this post to the NAABC, and Harvey Randecker, its president, sent me this helpful reply:
"My only point in circulating this "Alert" was to indicate exactly how consumer-driven health plans can be destroyed...incrementally.
After The Clinton Reform Plan [ed: "HillaryCare"] was defeated in the early 90's, Bill Clinton was quoted as saying that the lesson they learned was that, in order to get what they wanted, they would need to proceed "incrementally," passing small legislation that will chip away at the system and, gradually, force a more socialized system on the American public.
Now, due to the expansion of HSAs and HRAs, the only way to halt their growth is to make them less desireable to the public. Admittedly, I thought that [the recent Medicare] legislation...made HSA provsions too liberal and that it was bound to incite anti-CDHP legislators, once they assumed control, to do whatever necessary to reverse the trend and, to me, it looks like this is just the first small step.
We are so small staffed at NAABC that all we can do is pass along Alerts like this that we receive that we feel would begin to adversely affect the CDHP market in one way or another. Unfortunately, having a tiny staff means that we really don't have anyone with the time to really digest what we receive. Nevertheless, if we ignored the alarm bells being sent us, we would not be doing a service to our members.
I appreciate your comments."
Thank you, Harvey, we appreciate both your prompt response and your insights. The point about staffing problems is, of course, spot on: it's one of the banes of such associations. It seems to me, however, that this may be one of the key benefits of blogs (such as IB): the ability to do "distributed computing" type analysis on these issues. The appeal of this method would be financial (i.e. free to the organization) as well as comprehensive (i.e. lots of folks working on pieces of the puzzle).
UPDATE 2: I received a phone call from Congressman McNerney's office this afternoon, after I'd already corrected the post. Although I was happy to have given the Congressman free publicity for his bill, I still wanted to know the name and number of the correct bill, since I still couldn't find it at Thomas. So I emailed the NAABC (again) to ask for this information, and their spokescritter had no idea what it was, or any other relevant and important details.
This is outragous: you don't send out an "Alert" about legislation when you don't even know the name or number of the bill. Regardless of the staffing issues, this is just inexcusable. I no longer consider the NAABC as a credible source for legislative information, and won't be troubling our readers with its "Alerts" in the future.
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