Blogging Employee Benefits

February 7, 2006

HSAs in the Blue Book

Filed under: Healthcare, Legislation — Fuguerre @ 10:34 am

Details on the Administration’s proposals for expansion of Health Savings Accounts (HSAs), included in the General Explanations of the Administration’s Fiscal Year 2007 Revenue Proposals (i.e., the “Blue Book”), released yesterday by the Treasury Department [JS-4011; Blue Book] –

  • Above-the-Line Deduction – For covered under an HSA-eligible high-deductible health plan (HDHP) in the individual market, an individual would be given an above-the-line deduction for the amount of the premium for determining gross income. That is, the individual’s taxable income would be reduced by the premium amount even if the individual does not itemize deductions. The individual would be ineligible for the deduction if the individual is covered by an employer health plan or other health insurance, except for health insurance that provides only certain benefits. Individuals would also be ineligible if the individual claims the Health Insurance Tax Credit or Health Coverage Tax Credit, or if the individual is otherwise ineligible to contribute to an HSA. Premiums deducted by self-employed individuals could also not be deducted as HDHP premiums. No deduction would be permitted for amounts paid with HSA funds.
  • Refundable Tax Credit – For coverage by an HDHP in the individual market, an individual would be allowed a refundable tax credit of the lesser of (a) 15.3% of the HDHP premium; or (b) 15.3% of the individual’s wages subject to employment taxes (adjusted downward for wages over the Social Security taxable wage base). No tax credit would be permitted for amounts paid with HSA funds.
  • Low-Income Refundable Tax Credit – A refundable health insurance tax credit (HITC) providing a subsidy up to 90% of the premium for an HSA-eligible HDHP would be provided for low-income individuals under age 65 who are not participating in public or employer-provided health plans. The HITC could only be claimed for periods for which the individual is not claiming the Health Coverage Tax Credit or the above-the-line deduction. Beginning in 2008, the HITC would be available in advance at the time the insurance is purchased, with the Treasury Department reimbursing the health insurer for the amount of the advance credit.
  • HSA Contribution Limit – The maximum annual HSA contribution would be increased to the out-of-pocket limit for a participant’s HDHP, e.g., $5,250 for self-only coverage or $10,500 for family coverage if the increase had been effective for 2006. The maximum HSA contribution would be pro-rated for partial years of HDHP coverage. Married couples with non-overlapping coverage would be allowed to “stack” separate maximum contributions up to the out-of-pocket maximum allowed for a family HDHP to determine the HSA contribution.
  • Additional Changes – Qualified medical expenses for HSA purposes would – (a) include any medical expense incurred on or after the first day of HSA-eligible coverage; and (b) include premiums for purchase of non-group HSA-eligible plans. HSA reimbursement of expenses would be excluded from income as long as the HSA is established no later than the tax return filing date. Employers would be allowed to contribute existing HRA balances to HSAs of employees who would be eligible employees but for the HRA coverage. Such contributions of HRA balances would not be taken into account for comparability rules or annual maximums on HSA contributions. Contributions to HSAs for employees who are chronically ill or who have spouses or dependents who are chronically ill would be excluded from comparability rules to the extent that those contributions exceed the comparable contributions for other employees.


  1. The White House takes issue with a Washington Post article critical of HSAs.

    Comment by Fuguerre — February 14, 2006 @ 7:57 am

  2. […] The White House has released Reforming Health Care for the 21st Century, describing the Administration’s national health care policy. As previously presented in the President’s State of the Union message and budget proposal, health savings accounts (HSAs) are a central element of the Administration’s plan. […]

    Pingback by BeneBlog » Blog Archive » White House Plan for Health Care Reform — February 16, 2006 @ 10:00 am

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