Health Savings Accounts (HSA), recently passed through the Medicare Prescription Drug bill have been the subject of much discussion since President Bush signed the bill on December 8, 2003. The Treasury Department and Internal Revenue Service issued last week a comprehensive guide to using and implementing HSAs.

Effective January 1, 2004, HSAs will offer millions of people a new option to pay for qualified medical expenses. Under the law, any individual covered by a high-deductible health plan can establish an HSA. Both employers and employees may contribute to these tax-free accounts which will be treated as belonging to the individual. Owners of an HSA can carry the account from job to job and, contrary to Flexible Spending Arrangements (FSAs), unused funds will roll-over at the end of the year.

Additionally, these accounts allow for increased contribution rates for people between the ages of 55 and 65 to prepare for increased medical expenses beyond retirement age. NSBA has been actively lobbying on behalf on HSAs, formerly known as Medical Savings Accounts (MSAs), and is pleased to see this important, additional option for those seeking affordable health care.

The document released last week by Treasury outlines who can have an HSA, how to establish them and the basic rules for contributions and withdrawals from HSAs. Though a majority of the rules are similar to the guidelines implemented for use of MSAs, the new guidelines also address issues specific to HSAs such as the FICA exemption of employer contributions to an employee’s HSA.

These rules will be supplemented later in 2004 based upon requested public comment. Treasury and the IRS are asking interested parties to submit comments pertaining to preventative care and the relationship between HSAs and FSAs or Health Reimbursement Accounts (HRAs). Complete rules (Notice 2004-2) can be found on the Treasury’s Web site at http://www.treas.gov/press/releases/reports/1061notice20042.pdf.