Coalition Addresses Lingering HSA Issues With Treasury

From: Ramthun, Roy

Sent: Friday, January 16, 2004 7:15 PM

To: Sweetnam, Bill Jr; Reeder, W Thomas; Knopf, Kevin

Subject: FW: HSA Coalition Memo: Lingering Treasury Issues

[1] FYI. I'm sure we'll hear more on these issues next week.

1. The appropriate standard for preventive care in section 223(c)(2)(C).

[3] The definition of preventative care is difficult to define, and as such, we recommend that what is or is not considered preventative care (and Treasury has the authority to do so) be decided by the IRS on a case by case basis, beginning from a baseline of immunizations and mammograms, or alternatively to use the American Medical Association's CPT codes which are designated as 'preventative.'

2. The relationship between section 223 and the rules governing health FSAs in cafeteria plans under section 125 and the proposed and final regulations under section 125 (in particular, Prop. Treas. Reg. § 1.125-2 Q & A 7).

[4] HSAs should be a menu item which can be offered among other cafeteria plans. There should be no ability to mix parts of an FSA, HSA, or HRA with each other, as they are each distinct entities.

3. Whether transition relief should be provided in cases of inappropriate coordination of an HDHP with other coverage.

[5] Carving out benefits to be paid by the high deductible insurance policy, when the policy holder has not met their deductible, should not be allowed.

[6] When Congress passed this legislation, the tax free funds in the Health Savings Account were given this preferential treatment to pay for uninsured health care expenses below the deductible.

[7] If some type of benefit were carved out, to be paid by the insurance below the deductible, then the insured will be using tax free funds to pay for an insured benefit. This is specifically counter to the intent of the Health Savings Account concept.

[8] Further, once the wall is breached in terms of carving out benefits, a domino effect could result, creating pressure to allow more and more benefits to be paid by the insurance before the deductible is reached. Ultimately, this would spell the end of the Health Savings Account concept. We strongly urge Treasury not to get on the slope of that wet water slide.

[9] Employers or insurers who are pressuring Treasury in this regard should take what ever funds are currently being spent on the benefit they want to be carved out, and add that amount of money to the HSA deposit. One example that comes to mind is Prescription Drugs.

4. The relationship between HSAs and health FSAs or HRAs.

[10] Since they are separate and distinct types of plans, they should be treated as such within the regulations. There should be no ability to mix parts of an FSA, HSA, or HRA with each other, as they are each distinct entities.

5. The application of the nondiscrimination rules in section 125 to HSAs offered under a cafeteria plan.

[11] The nondiscrimination rules for employers should follow the current MSA rules and be applied to HSAs offered in Section 125 plans.

6. The corrective procedures in instances where employer contributions exceed the statutory contribution limits.

[12] The current MSA rule on this question should be carried forward and be applied to HSAs.

7. The relationship between limits on out-of-pocket expenses in section 223(c)(2)(A) and reasonable lifetime maximums on benefits in health insurance plans.

[13] Given the extremely rare nature of the event that this question contemplates, if an insured does reach the lifetime maximum, any after tax expenditures (not from their HSA) will count towards the 7.5% limit, which if met, would allow them to deduct these expenses. Therefore, there should be no special rules with regard to this rare event.

[14] The market, not Treasury, should set reasonable lifetime limits, working within the confines of each state's laws and regulations. Stated another way, with regard to lifetime maximums, the current MSA rules should apply (none).

Question 26.

[15] With regard to the answer to Question 26, the answer reads in part: