Tax evasion through HSAs
Tax bill could boost HSA administration costs
By Jerry Geisel
Business Insurance
April 10, 2008
Tax legislation approved Wednesday by the House Ways and Means Committee could significantly increase the costs of administering health savings accounts.
H.R. 5719, approved on a 23-17 vote, includes a provision that would effectively require HSA administrators — which often are banks — to put new systems in place to substantiate that HSA distributions are used to pay for health care-related expenses. That would be a big change from the current low-overhead system, in which employees with HSAs pay their uncovered health care expenses, such as those falling under a deductible, from their accounts with a bank-issued debit card or bank-issued checks. No substantiation is required that the distributions are, in fact, used for payment of health care expenses.
“Because most community banks and credit unions simply do not have the resources to put such costly technology into production, they would have to buy from vendors and pass on the cost to their accountholders,” said a memorandum prepared by the HSA Coalition, an HSA advocacy group in Washington.
Under current law, funds can be withdrawn tax-free from HSAs if used to pay for health care-related expenses. Funds withdrawn for other purposes are taxed, with an additional 10% penalty tax imposed.
The provision is expected to generate about $308 million in additional tax revenue for the federal government over the next 10 years, according to the congressional Joint Committee on Taxation.
http://www.businessinsurance.com/cgi-bin/news.pl?post_date=2008-04-10&id=12695
And…
Quote of the Day
PNHP
December 1, 2003
A major flaw in our health care system is the profound administrative waste that diverts funds from patient care. HSAs add a very significant administrative layer and interject more middlemen into the process.
http://www.pnhp.org/news/2003/december/stop_the_hsa_tsunami.php
Comment:
By Don McCanne, MD
In this day of negative savings rates and massive credit card debt, having readily accessible cash can be a problem. Health Savings Accounts (HSAs) are not insurance funds but are cash accounts that belong to the individual. By design, they are specifically intended to make individuals more aware of their own spending. Although intended to pay medical bills, shouldn’t individuals be able to tap these funds for other pressing needs such as paying past-due rent, or repairing an automobile that is essential for one’s employment? Well, no.
HSAs are a tax scheme in which we taxpayers subsidize the health care of individuals with incomes high enough to qualify for the tax relief. It would be inappropriate if these taxpayer-subsidized funds were used to purchase entertainment centers or expensive vacation trips. Unfortunately, the only way to ensure that these funds are used for health care is to establish an administrative process to clear each payment made out of the accounts. Otherwise, the temptation for individuals with HSAs to cheat their fellow taxpayers is just too great. It is far better to remove the temptation in advance than to penalize it after the fact.
Before the HSA legislation was signed (part of the Medicare Modernization Act), we cautioned that this would add another administrative layer to the administrative excesses that already drain resources from health care. Not only are the administrative services essential to prevent tax fraud, they are also essential to itemize qualified expenses that must be met before benefits of the associated high-deductible health plans can be accessed.
Employers, banks, credit card companies, and individuals may well find this hassle to be too great of a burden. Maybe then they’ll decide that HSAs aren’t such a great idea after all. Instead of splitting our risk pools into millions of individual accounts, maybe they will decide that it really would be better to establish one single, equitably-funded, universal risk pool - fair funding without the profound administrative waste. It does sound like an idea whose time has come.