The House Ways and Means Committee plans to meet Thursday to mark up a collection of bills that could revamp health savings accounts (HSAs) and flexible spending accounts (FSAs).
The committee already has sent about 10 measures to the congressional Joint Committee on Taxation for budget impact reviews.
One of the bills, for example, H.R. 5842, the Restoring Access to Medication Act bill, would restore health account holders' ability to use HSA and FSA cash to pay for over-the-counter medications not prescribed by physicians.
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Drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) tried to defray part of the cost of implementing PPACA by prohibiting taxpayers from using FSA funds to buy over-the-counter drugs unless they have prescriptions for the drugs.
Some health policy analysts have argued that most of the benefits of the Members of Congress took away that ability in an ability to cut the tax revenue lost to the FSA and HSA programs and use the anticipated increase in tax revenue to fund other programs.
Other bills up for consideration could make it easier for FSA holders to get back or roll over unused balances at the end of the year.
A taxpayer who buys the right kind of high-deductible health insurance can contribute income to an HSA free of income taxes and use HSA funds to pay for health care without paying income taxes on the withdrawals.
Any taxpayer at an employer with an FSA program can contribute income to an FSA free of income taxes and use the FSA funds to pay for health care without paying income taxes on the withdrawals. The FSA program is somewhat less restrictive than the HSA program, because an FSA holder can have low-deductible or no-deductible health insurance. But some workers have shied away from using FSAs because of the "use it or lose it rule." The rule requires any unused balance in an FSA to revert to the employer at the end of the year.
H.R. 1004, the Medical FSA Improvement Act of 2011 bill, would let an FSA sponsor distribute all or a portion of an employee's balance at the end of the year without losing its ability to operate as an FSA. The sponsor of an FSA that uses a calendar year as the plan year would have to pay the balance back to the FSA holders by July 31.
The Internal Revenue Service would treat any unused FSA funds paid back to the employee as ordinary taxable income.
A third bill up for consideration, H.R. 5858, would let early retirees over the age of 55 use HSA funds to pay for health insurance without paying income taxes on the distributions.
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Allison Bell
Allison Bell, a senior reporter at ThinkAdvisor and BenefitsPRO, previously was an associate editor at National Underwriter Life & Health. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached through X at @Think_Allison.
