New Bill Could Impede Spread of HSAs

Published February 1, 2006

A bill (H.R. 4511) introduced December 13, 2005 in the U.S. House by Rep Eric Cantor (R-VA) would allow employers to provide Health Savings Accounts (HSAs) and also allow Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs) to cover amounts below the deductible.

That is, patients would be able to spend HRA and FSA money to fill in the deductible amount required by the HSA law. Current federal law disallows any coverage other than the HSA itself (with a few specific exceptions) from filling in the deductible.

Legislation Called Premature

The bill, which would establish coverage known as a FlexHSA, is controversial. It is supported by a coalition of large employers and insurance companies, including Cigna, UnitedHealth Group, John Deere, and Medtronics. But some HSA supporters are wary of tinkering with what they feel is pretty good legislation, at least until the current law has a chance to be fully tested.

FlexHSA was referred to the House Committee on Ways and Means on the same day it was introduced. Predictions of the consequences of the bill are uncertain. Supporters say it would encourage many employers who have been reluctant to adopt HSA programs to do so. Employers could adopt a high-deductible health plan and fund an HRA with the premium savings to fill in part of the deductible. Employees could then open and fund their own HSA with their own money to fill the rest of the deductible.

Supporters also argue employers would be able to vary their HRA contributions based on need. Lower-income or chronically ill employees could be allocated more money than people without these conditions, which cannot be done under the current HSA law.

Employer Role Unclear

Detractors worry the desired behavioral changes of consumer-driven health care would be eroded as employees would again have first-dollar coverage paid for by the employer. They would have no ownership interest in the HRA funds, and so would be willing to spend them all. Detractors add some employers are simply unwilling to relinquish control of their benefit programs and do not trust their own workers to make decisions on health care.

The bill’s critics also point out employers already can set up HRAs with high-deductible plans, and many do. The HSA forces these employers to make a choice about taking the next step to allow employee ownership. But supporters counter those companies with HRAs will now be allowed to provide HSAs for their workers as well, thereby increasing the number of Americans with an HSA.

I am personally of two minds about this legislation. I would much prefer employers bite the bullet and put their premium savings into an employee-owned HSA. But I also know many large, self-funded employers simply won’t do it, and many other employers have already adopted high-deductible insurance plans and failed to turn over the premium savings to their workers.

Could Slow HSA Adoption

We need to have a vigorous debate about this issue and many other issues regarding consumer-driven health care. I would be a lot happier if the Cantor bill also created HSAs for the Medicare population, for example, or opened up the definition of a high-deductible insurance plan to allow greater flexibility for people with different needs, or allowed employers to vary their HSA contributions directly, based on income changes or health needs.

The current HSA law is not the be-all and end-all of health care reform, and it will need to be revised and expanded over time. But is this the right time to do it? One fear is more employers and vendors will take a wait-and-see stance if they think the legislation is still in flux.

Hence, just having this bill introduced could impede adoption of HSAs.

Shopping for Hospital Services

Writing in the Silicon Valley Business Journal, Laura Cutland reports on a project of the California Healthcare Foundation “to determine the [hospital] industry’s progress in disclosing costs and access to financial assistance.” The foundation hired “622 ‘mystery shoppers’ earlier this year to pose as poor uninsured patients at 64 hospitals around the state.”

The December 9 article says the shoppers were passed around within the hospital, with one having “17 points of contact before getting a response.” Only 7.3 percent of the shoppers “were offered information about financial assistance programs or charity care eligibility.”

The story quoted a spokeswoman for the state hospital association as saying, “hospitals haven’t always done a good job of communicating their policies but improvements are being made.”

But Anthony Wright of Health Access, the California nonprofit group dedicated to achieving affordable health insurance for all state residents, isn’t waiting. His group has proposed legislation mandating hospitals adopt specific charity care procedures.

“This study is simple proof that voluntary guidelines don’t work and that we need stronger consumer protections passed by the legislature,” said Wright, as quoted in the Silicon Valley Business Journal story.

Source: “Mystery Shoppers Sting Hospitals,” December 9, 2005

Cleveland Clinic Loses Tax Exemption

The Cleveland Plain Dealer published an article by Sarah Treffinger on November 27, 2005 about the Cleveland Clinic losing its property tax exemption in Cuyahoga County. The Ohio Tax Commissioner “ruled that the Clinic’s family health and surgery center in Beachwood must pay property taxes because it provides ‘minimal, if any, charity care,'” the article reported.

The article also mentions U.S. Senate Finance Committee Chairman Charles Grassley (R-IA) has asked the clinic and nine other hospitals “to account for their charitable activities.” The article suggests this ruling will be a precedent for other efforts to strip not-for-profit facilities of at least their property tax exemption.

Bill Ryan, CEO of the state hospital association, argued, “some of [their charitable activity] is difficult to quantify. How do you put a value on talking to 300 people about diabetes?” But a local law professor said, “Many of the community benefits that nonprofit hospitals tout are nothing more than good business practices, such as offering prenatal programs to attract patients.”

Source: “Ruling presents new challenge to hospitals’ tax-exempt status”

Greg Scandlen ([email protected]) is founder and president of Consumer for Health Care Choices.

For more information …

The full text of HR 4511 is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to, click on the PolicyBot™ button, and search for document #18383.