HSAs: Pivotal to CDHPs

Key to the continued growth of consumer-driven health plans (CDHPs) is the Health Savings Account (HSA), and in one of its last acts of 2006, Congress took steps to make them more attractive. As part of the Tax Relief and Health Care Act of 2006, Congress added incentives to boost the appeal of HSAs, including allowing the following:

• Employees will be allowed a one-time tax-free roll over of unused funds from a Flexible Spending Account and/or Health Reimbursement Account (HRA) to an HSA.
• A one-time tax-free transfer of funds from an IRA to an HAS will be allowed; since funds withdrawn from an HSA to pay medical expenses are never taxed, it is arguably a more tax-advantaged account than an IRA.
• Individuals with HSA-qualified policies can contribute up to the annual contribution limit ($2,850 for individual coverage and $5,650 for family coverage in 2007) even if their deductible is less than that amount.
• The maximum contribution to an HSA no matter how late in the year the account is started.