Democrats Plot Restrictions on Health Savings Accounts

This just in from the Republican Study Committee:

Reports surfaced this week that the Democratic majority may be attempting to enact new restrictions on Health Savings Accounts (HSAs) as part of upcoming health legislation. The proposal being discussed would require that all HSA account holders submit information showing what portion of their HSA expenditures in a given year have been independently verified as constituting qualified medical expenses.

Available data suggest that the percentage of HSA funds being used for non-medical expenses is comparatively low—particularly upon close examination. For instance, purchases in a grocery store may at first blush appear irrelevant to HSA use—but in reality many of these transactions could involve permissible medical items (over-the-counter pharmaceuticals, prescriptions, medical supplies, etc.). And in those instances when individuals do use their HSA funds to make major non-health expenditures, the Internal Revenue Service has audit procedures in place to ensure that account-holders pay income taxes on non-qualified distributions—plus a 10% penalty to discourage such behavior.

When drafting the regulations implementing Health Savings Accounts in 2004, the Treasury Department attempted to create a framework that would ensure that HSA funds would be used for bona fide medical expenses, while avoiding burdensome regulations that would inhibit the growth of this innovative consumer-driven health product. The proposal under discussion places an additional burden on account holders to document their purchases—even the $3 bottle of cough syrup an individual might choose to buy at a grocery store like Safeway rather than at a CVS or other pharmacy—and may have a similarly chilling effect on insurance carriers and banks currently offering account-based products to individuals and employers.


Some conservatives may be concerned that this proposal represents the first of many impending attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that this particular provision, brought to the attention of the Democratic Ways and Means Committee staff by a former Republican staffer-turned-lobbyist, may constitute a legislative “earmark” drafted specifically to benefit one company (Evolution Benefits) seeking to market its substantiation technology to HSA administrators.

The attached policy brief explains the issue in further detail. The RSC will continue to monitor this or any similar attempts to enact burdensome restrictions on HSAs, and will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

Leave it to the Democrats to make health insurance more complicated and even more of a hassle...