by Gail Perry

The health savings account is here to stay, and in yet another effort to make the rules clear to the masses, the Treasury Department has issued a new set of technical guidance in the form of answers to the 88 most commonly asked questions about the highly publicized health savings plans.

The latest guidelines, published as Notice 2004-50, follow in a lengthy line of guidance and other explanatory publications that have come out of the Treasury Department over the past year. The Treasury promises that this is the last set of guidelines that will be issued on the HSAs, and so far it seems that health plan providers are satisfied that the all-important questions have been answered.

Since last December, the Treasury has issued five notices, two revenue rulings and one revenue procedure in an attempt to clarify the exact meaning of HSAs. This latest notice provides in-depth information about 11 categories of information, and it is expected to provide the final answers to lingering questions about the new health plan option.

HSAs, a kind of hybrid of individual retirement accounts and the much-less-utilized Archer medical savings accounts, offer individuals a portable, tax-favored account that can be used to pay for medical care expenses that aren’t covered by health insurance.

The HSA must be coupled with a high-deductible health plan, and the plan is not available to individuals who are covered by other, non-high-deductible health plans, Medicare participants, or individuals who are claimed as dependents on another person’s tax return.

Employers, employees and others can contribute to the HSA, subject to certain contribution limits. Because any unused balance is not required to be used currently, the possibility exists for prudent HSA plan holders to save money in their HSA account to be used for medical costs in retirement.

The Treasury’s new guidance provides additional insight into who is eligible to participate in HSAs, definitions of high-deductible health plans, contributions and distributions, comparability, coordination with cafeteria plans, administration, trustee and custodian information, and more.

Although the final guidelines for the HSA program will not necessarily please everyone, the general feeling is that all issues have been addressed and insurance companies and employers can begin offering the plans with confidence that there will be no additional significant changes.

“We feel comfortable with all the major issues right now,” said Heath Weber, a spokesperson for Anthem Blue Cross Blue Shield, which is one of several health insurers offering or about to offer HSA plans. “A lot of the questions were answered.”

Anthem was particularly anxious to see issues addressed in the areas of participation in employee assistance programs, carry-over and embedded deductibles, drugs and medications and their relation to preventative care services, who can make contributions on behalf of an eligible individual, Medicare eligibility versus Medicare entitlement, and joint husband-and-wife HSAs. All of these issues were covered in the Treasury guidelines.

“There were a lot of things that were clarified in the guidance,” said Bill Sharon, senior vice president in the health and welfare practice of Aon Consulting. Sharon indicated that for the most part the new guidance is “very favorable” to HSAs; however, he pointed out that not everyone is completely pleased with the Treasury’s Q&A report.

Sharon thinks employers were hoping for more control over the health savings account plans. “In particular they wanted to have more control over how it was spent. The Treasury guidance did not give employers that control. Once the money goes into the plan, it is owned by the employee and it can really be used for anything,” Sharon explained. “It can even be used for non-health-care expenses, although subject to taxation and penalty.”

“Could dollars be used to buy a big-screen TV? Well, yeah, in theory it could be,” said Sharon. “So I think that probably will limit the utility of an HSA as an employer-funded benefit. To the extent we see people adopting HSAs, it will be as an employee-funded program.”

Sharon also made reference to the high-deductible health plan that is a required component of an HSA: “For most people today, that would be considered a catastrophic plan and would be a lot less coverage than most employees are used to if they are in the workforce.” However, he pointed out that the HSA provides an opportunity for small employers to offer a health plan where before they had none.

Weber agreed that, now that the final guidance is available and insurance companies are ready to go forward with offering HSA plans, there may be some hesitation in terms of mass participation. Whether or not people will opt into HSAs remains to be seen. “This is quite a change in how people are used to thinking about health care benefits. The big thing is educating people on how these work — not only consumers but employers,” said Weber. “It’s not for everybody.”

On the surface, consumer interest in HSAs is high.

More than 80 percent of participants in a Cigna HealthCare consumer interest survey in June 2004 said that they find HSAs to be an attractive option. Consumer knowledge of how the HSA works, however, may be lacking. Forty-eight percent of those surveyed indicated that they would prefer to have a lower deductible on their health insurance plan, an option that is not available for HSAs.

Whether or not consumers like the HSA option, the likelihood exists that HSAs will become part of the regular fabric of health insurance options. In a recent survey by HR outsourcing and consulting firm Hewitt Associates, 61 percent of nearly 270 large employers surveyed indicated that they are likely to offer HSAs in the near future.

The complete text of the Treasury Department’s Notice 2004-50, containing the latest HSA guidance as well as earlier HSA guidelines, can be found online at

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