President Bush Signs Bill
to Make Health Care more Affordable, Accessible
Washington, DC- President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006 today, enhancing Americans' access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants' to build their funds.
"Health savings accounts are improving the way Americans obtain the care they need. This bill makes HSAs more flexible and makes it easier for participants to put money aside for their personal health care," said Treasury Assistant Secretary for Tax Policy Eric Solomon.
HSA provisions of the Act include:
Allow rollovers from health FSAs and HRAs into HSAs through 2011. Employers can transfer funds from Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs) to an HSA for employees switching to coverage under an HSA-compatible health plan. The amounts rolled over to HSAs from FSAs or HRAs are over and above the amounts allowed as annual contributions. The maximum contribution is the balance in the FSA or HRA as of September 21, 2006, or if less, the balance as of the date of the transfer. The provision is limited to one distribution with respect to each health FSA or HRA of the individual. If an individual does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.
Increase in annual HSA contribution. Previously, the maximum HSA contribution was the lesser of the deductible of the individual's HSA-eligible plan or a statutory maximum. The new rules make the limit the statutory maximum contribution, regardless of the individual's deductible. For 2007, the maximum contribution for an eligible individual with self-only coverage is $2,850, and the maximum contribution for an eligible individual with family coverage is $5,650. These limits are indexed for inflation.
Full HSA contribution regardless of month individual becomes eligible. Normally, the HSA contribution is pro rated based on the number of months that an individual during the year a person was an eligible individual. The new provisions provide an exception to this rule that will allow individuals who become covered under an HSA-eligible plan in a month other than January to make the maximum HSA contribution for the year based on their coverage in the last month of the year. This eliminates a common barrier to switching to HSA-eligible coverage. If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which could not have been contributed except for this provision will be included in income and subject to a 10 percent additional tax.
One-time transfer from IRAs to HSAs. The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA). The contribution must be made in a direct trustee-to-trustee transfer. The IRA transfer will not be included in income or subject to the early withdrawal additional tax. The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction. Generally, only one transfer may be made during the lifetime of an individual. If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.
Certain FSA coverage treated as disregarded coverage. Under previous law, if an FSA had a grace period following the end of the plan year allowing participants to incur additional reimbursable expenses, participants were treated as having disqualifying coverage, reducing their HSA contribution for that year, even though they had switched to HSA-eligible coverage at the first of the year. The new rules treat certain FSA coverage during a grace period as disregarded coverage, eliminating any resulting reduction in the HSA contribution for the year. First, the coverage is disregarded if the balance in the health FSA at the end of the plan year is zero. Second, the coverage is disregarded if the year-end balance is transferred directly to an HSA fom the FSA, as noted above.
Earlier indexing of cost of living adjustments. Previously, indexing was based on a 12-month period ending on August 31. The new rules change the base period to the 12-month period ending on March 31 and require that adjusted amounts for a year be published by June 1 of the preceding year. This change will provide employers and health plans with more time to design qualifying HSA-eligible plans and individuals with more time to make decisions about their health care for the next year.
Allow greater employer contributions for lower-paid employees. Previously, employer contributions under the comparability rules had to be the same amount or percentage of the deductible for all employees with the same category of coverage. Consequently, employers could not contribute higher amounts to lower-paid employees. The new rules provide an exception to the comparability rules allowing employers to contribute more to the HSAs of non-highly compensated individuals. For this purpose, the definition of "highly compensated employee" is based on same definition used for qualified retirement plans.
Public supports lower premiums for healthy lifestyles
A majority of Americans support higher health insurance premiums, deductibles and copayments for people engaged in unhealthy behaviors, such as smoking, overeating and being sedentary, reveals a recent survey from the Wall Street Journal and Harris Interactive. The new numbers reveal a shift in attitudes among health-conscious adults towards individuals with unhealthy habits.
Roughly 53% of U.S. adults feel it's fair to ask people with unhealthy lifestyles to pay higher premiums than people with healthier lifestyles, up from 37% in 2003, while 32% consider that unfair, down from 46% in 2003. Similarly, 53% of U.S. adults agree it's fair to charge people with unhealthy lifestyles higher deductibles and copays, up from 36% in 2003, while 30% state that is unfair, down from 47% in 2003. A healthy lifestyle was described as exercising regularly, eating healthy foods and not smoking.
"As health care costs continue to rise, more consumers can see the
logic of giving employees who make healthier choices a break," says
John Shull, chief executive of Tennessee-based Gordian Health Solutions,
a disease management firm. "Most chronic illnesses are tied to lifestyle-driven
choices, such as poor diet, lack of exercise or smoking. When offered a
choice of lower health care premiums, along with the programs and health
coaching to help them succeed in living a healthier life, employees have
all the right reasons to make changes."
Employers talk, don't walk when it comes to retirement education
New research shows that while the majority of employers know that retirement education is important and they know their workers could sorely use it, only the tiniest fraction of companies actually offer it regularly.Aon Consulting's survey or more than 1,000 U.S. companies earlier this year shows that 76% say retirement education is important, but just 1% actually offer it on a regular basis. What's more, just 19% of employers think their workers fully understand how to invest. The bulk of employers, 63%, say their employees have some understanding of investment principles. The remainder think their plan participants have little or very little knowledge about how to invest.
"Companies need to ensure [their retirement information] answers the basic questions all employees ask," Crawford says. Questions such as, how much do I need? How much will I have? Am I on track? And, if I am off track, what do I need to do to get on again?
The survey also shows that 85% of employers offer 10 or more investment options in their defined contributions plans. The same percentage allows workers to borrow from their plans. Slightly more, 90%, offer participants web-based retirement planning tools, while 58% offer participants personalized advisor-based tools.
Despite recognizing the mounting challenges facing their workforces on retirement, 80% of employers surveyed foresee no modification of their plan in the near future.