Health Savings Accounts Under Attack in Congress

Brian McManus of the Health Care Freedom Coalition and Dan Perrin of the HSA Coalition, both member organizations of Consumers for Health Care Choices, are mobilizing a defense of Health Savings Accounts (HSAs) against a new threat in Congress.

The threat is a proposed requirement, passed by the House of Representatives on April 15 but not yet being discussed in the Senate, that HSA withdrawals be "substantiated" by consumers to ensure ahead of time whether the withdrawals are being made for "qualified medical expenses."

Such substantiation is required for Health Reimbursement Arrangement (HRA) funds, but that is because HRA funds are provided by, and ultimately belong to, an employer, and may not be used for anything other than certain certified medical expenses.

Neither condition applies to Health Savings Accounts. HSA money is owned by the account holder, and it is perfectly legal to use those funds for non-medical purposes.

Corporate Welfare Grab

The substantiation requirement would severely damage HSAs by adding an enormous new administrative expense. Few banks or HSA administrators are interested in reviewing every withdrawal to determine whether it is a qualified expense. In addition, the law would discourage consumer participation because of the added paperwork and delays imposed on consumers.

This new requirement is reportedly being pushed by Bob Patricelli, a Connecticut businessman who owns Evolution Benefits, a company that owns the patent on a process for making such expense-substantiating determinations. Evolution has long been involved in the administration of HRAs and FSAs (untaxed, non-rollover accounts used only for certified health expenses), and this legislative push is simply a cynical ploy to increase the company's business by having that same requirement applied to HSAs.

The move was greeted warmly by Rep. Pete Stark (D-CA), chairman of the powerful House Ways & Means Committee's Health Subcommittee and vehement opponent of consumer-driven health care.

This is a near-perfect example of the corruption of Washington--a powerful member of Congress using his authority to benefit a single favored company at the expense of millions of consumers and taxpayers.

Veto Promised

This development is coming at a very troubling time for consumers, a large number of whom are warming to the idea of taking more financial and decision-making control over their own health care. The House of Representatives disregarded this, though, and passed the HSA substantiation bill by a vote of 238 to 179.

The bill, HR 5719, the "Taxpayer Assistance and Simplification Act," also included provisions to end the use of private collection agencies to collect unpaid taxes and reduce record-keeping for the business use of cell phones, and it added some identity theft protections and a number of other provisions.

The Bush administration said it would veto the bill because of the HSA and tax collection provisions, and the Senate has not yet taken up these issues, so it is uncertain whether those provisions will survive a Senate vote and eventual reconciliation of the House and Senate versions.

Fissures Revealed

This was, however, an interesting exercise that will play out over the coming year. First, it revealed some fissures in the CDHC community.

One person I greatly respect was all for the provision, saying HSAs can be more efficiently administered if all transactions are done with a debit card that can be automatically substantiated. He argues HRAs and FSAs have already gone this way and HSAs will be less competitive if they do not. He also felt non-medical use of HSA funds constitutes "abuse" of the program.

He said all of this is an added value to the HSA program and so should be mandated.

I strongly disagree. I know what a qualified expense is and keep all my receipts so I can verify them with the IRS if it ever comes up. How is my bank going to "substantiate" any of this? Am I supposed to take a folder of my receipts and give them to the bank teller when I withdraw money from my HSA? What is she going to do with them?

HSA Vendors, Consumers Energized

Of course, if substantiation really does improve the product, it does not have to be mandated. It will be willingly adopted in the market. The fact that my friend wants to have it mandated suggests it really isn't an improvement and cannot stand on its own.

While the bill passed the House, it also came only one vote shy of being "recommitted" to the Ways & Means Committee, and it is unlikely to survive in the Senate.

This was a test run for future challenges. Most HSA vendors have never been very active politically. They've been trying to start and then grow their businesses. But this time, they were called upon to do more, and many responded by contacting their clients to write letters and make phone calls.

HSAs now have decent market penetration, so there is a lot at stake in ensuring the survival of the product--and there are resources that can be tapped into.