Update: On June 7, 2012, the House of Representatives approved H.R. 436, H.R. 5842, and H.R. 1004 as a single bill, the Health Care Cost Reduction Act of 2012. (pdf) A section-by-section summary of this measure can be found here. (pdf)
On May 31, the House Committee on Ways and Means approved two bills that would repeal provisions included in the Affordable Care Act, and two others that would ease restrictions on the use of Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). Approval of these measures came the same day a House subcommittee heard testimony on the increasing popularity of HSAs and other account-based health plans (ABHPs) and the need to ease the limitations the new health reform law imposes on such plans.
An ABHP is a plan with a deductible offered together with a personal account (i.e., HSA or health reimbursement arrangement) that can be used to pay a portion of the medical expense not paid by the health plan. Generally, ABHPs provide tax-favored treatment for current medical expenses and allow employees to set aside funds for future medical expenses on a tax-favored basis.
The Health Flexible Spending Arrangements Improvements Act of 2012 (H.R. 1004), (pdf) which the Committee approved by a vote of 23-6, aims to increase participation in FSAs by allowing unused funds to be returned to the employee at the end of the plan year, instead of the current “use-it-or-lose-it” policy. Specifically, under the provisions of this bill:
- Any amount remaining in a Health FSA under a cafeteria plan that is not used to reimburse medical expenses incurred during the plan year (plus the plan's grace period, if any) would be distributed to the employee. The distribution must be made no later than the end of the seventh month after the close of the plan year.
- The amount of the distribution for any employee would be limited to the lesser of $500 or the amount of salary reduction contributions for the employee reduced by reimbursements for medical expenses for the plan year.
- Qualified distributions would not cause a cafeteria plan and Health FSA to violate the use-it-or-lose-it rule or the requirement that amounts available for reimbursement for medical expenses under a Health FSA not be available for any other purpose. The amount of a qualified distribution would be includable in gross income for the year in which the distribution is made and would be considered as wages for employment tax purposes.
The second ABHP-related bill, the Health Savings Accounts Improvements Act of 2012 (H.R. 5858), (pdf) would, among other things, extend the “saver’s” tax credit to HSA contributions. Current law provides eligible taxpayers who make qualified retirement savings contributions with a nonrefundable tax credit. This “saver’s credit” is equal to a percentage of the taxpayer’s qualified retirement savings contributions up to $2,000. H.R. 5858 would allow employee and employer HSA contributions qualify for the saver’s credit. The Committee approved this measure 21-7.
The Restoring Access to Medication Act (H.R. 5842) (pdf) would repeal the Affordable Care Act provisions that disqualify expenses for OTC medicine without a prescription under HSAs, Archer MSAs, health flexible spending arrangements, and health reimbursement arrangements. Specifically, as discussed in the Joint Committee on Taxation’s explanation (pdf) of the bill, the proposed legislation:
repeals the change to the definition of medical care made by the Affordable Care Act for purposes of the exclusion for reimbursements for medical care under employer provided accident and health plans and for distributions from HSAs or Archer MSAs used for qualified medical expenses that requires that over-the-counter medicine (other than insulin) be prescribed by a physician in order for the medicine to be medical care for these purposes.
The Committee approved this bill by a vote of 24-9.
Finally, the Committee approved by a vote of 23-11 the Protect Medical Innovation Act of 2012 (H.R. 436). (pdf) This legislation would repeal the 2.3% medical device excise tax included in the Affordable Care Act.
More information on these bills can be found here.
Photo credit: Kaupang