Proponents of a complete government takeover of health care have been hostile to consumer-driven health care and Health Savings Accounts. Now they are no longer content to merely argue their case against market-based reforms and individual ownership and control of health insurance and health care; they also seek to erect barriers that would introduce unnecessary red tape and regulation to these transactions, and tamp out any enthusiasm for HSAs and health care flexibility.
Last week, the U.S. House approved new regulations on HSAs in legislation touted as protecting taxpayers. If passed, the law would require HSA withdrawals to be substantiated-that is, to require a determination as to whether the withdrawal is for a qualified medical expense, effectively restricting the uses for an HSA and slowing the transactions with red tape.HSA substantiation’s fans in Congress claim that the same process occurs with both Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs). But HRAs and FSAs are fundamentally different. The funds in an HRA are employer-only funds and employers have an understandable interest in making sure that HRA funds are used for medical expenses. FSAs are individually funded, but the funds are restricted for paying medical expenses with that dreaded use-it-or-lose-it feature that kicks in and reclaims any unused funds at the end of the year.
HSAs, however, are individually owned and managed; and the funds belong to the individual and may be used for any purpose, but are only tax-free when withdrawn for qualified medical expenses. HSA owners must keep records of their withdrawals and purchases and know they must supply them to the IRS if needed to substantiate HSA uses for qualified medical expenses. The account holder is responsible for the account and its uses, just as they are with IRAs and other savings vehicles with similar tax benefits.
If that weren’t enough, the proposal is rent-seeking at its worst. A Connecticut company with a significant share of the HRA and FSA substantiation market has decided to ask Congress to open a new market for their business by requiring HSA substantiation. Congressional leaders otherwise unable to kill HSAs outright have embraced the substantiation requirement, no doubt hoping to quietly kill HSAs with red tape.
If it passes, the winners are the company looking for new business and congressional leaders hoping to suck the lifeblood from HSAs. It would be a loss for the HSA account holders enjoying new flexibility in health care purchasing, and for greater consumer-control in health care.
– Mary Katherine Stout