Congress adopts measures to boost health savings accounts

The changes will make it easier for employers to offer the products, supporters say.

By Doug Trapp, AMNews staff. Jan. 1/8, 2007.

Washington -- Congress passed legislation in December authorizing larger and different types of contributions to health savings accounts.

The Tax Relief and Health Care Act of 2006 increased contribution limits to $2,850 for individual plans and $5,650 for families. Previously, contributions could not exceed the lesser of the deductible or $2,700 for an individual and $5,450 for families.

High-deductible health plan enrollees contribute tax-free to HSAs and use the money to pay for medical expenses that count toward their deductible. The new rules allow one-time HSA contributions from flexible spending accounts, health reimbursement arrangements and individual retirement accounts. Enrollees also can contribute the annual maximum to their HSA even if they enter a plan in the middle of a year.

The changes are designed to fix quirks in health savings account rules and to make it easier for employers to offer the products, according to Devon Herrick, PhD, senior fellow at the National Center for Policy Analysis, which supports HSAs.

"A lot of this is just clarifying things that became problems after the fact," Dr. Herrick said. "Nobody really thought about them in 2003 and 2004 until the [U.S.] Treasury began to make rulings."

For example, it wasn't possible for a husband to contribute to a flexible spending account and his wife to contribute to an HSA, or vice versa. That is no longer the case, Dr. Herrick said.