[Congressional Record Volume 154, Number 154 (Friday, September 26, 2008)]
[Senate]
[Pages S9708-S9709]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH:
  S. 3626. A bill to amend the Internal Revenue Code of 1986 to improve 
access to health care through expanded health savings accounts, and for 
other purposes; to the Committee on Finance.
  Mr. HATCH. Mr. President, I rise today to introduce the Family and 
Retirement Health Investment Act of 2008. In these difficult economic 
times, many Utahns are facing the rising costs of health insurance and 
medical expenses. This bill would make it easier for families to 
decrease the cost of health insurance and encourage savings for 
retirement health care costs.
  Briefly stated, this bill would enhance and improve Health Savings 
Accounts by addressing some of the questions and concerns that have 
been raised sine HSAs were first enacted in 2003 but were not addressed 
by the Health Opportunity Patient Empowerment Act of 2006.
  Health Savings Accounts were created as an alternative to traditional 
health insurance. HSAs allow participants to pay for current medical 
bills while saving for future health care expenses. One of the most 
attractive features of these accounts is the high degree of control the 
participants have over how to spend the money and how to manage 
investments within the account.
  Since their creation, HSAs have become increasingly popular. Part of 
the reason for this is that Health Savings Accounts offer several 
important tax incentives. Earnings accrued on savings in an HSA are not 
taxed. Funds can also be withdrawn from an HSA 100 percent tax free, so 
long as the withdrawal is related to medical care. HSAs are very easy 
is set up. Anyone can go to his or her local bank, credit union, 
insurance company, or sometimes even their employer and request to 
create an HSA.
  Broad agreement now exists that Congress must advance reform that 
will ``bend the growth curve'' in health care inflation. In recent 
years American families--often along with the businesses they own or 
work for--have been addressing this inflation on their own, by turning 
toward health savings account-eligible health plans.
  According to one survey, there are now 6.1 million people covered 
under health plans that are eligible for an HSA, including over 70,000 
in my home state of Utah. This is a 35 percent increase over the 
previous year, and it is clear that businesses large and small see 
these plans as an innovative solution for their employees' health care 
needs.
  In addition, because HSAs offer lower premiums, existing businesses 
find that they are able to maintain coverage, while new businesses are 
able to extend health insurance to their employees. And increasingly, 
these businesses are funding their employee's HSAs just as they would a 
401(k) plan. At the same time, the financial burden on families 
generally decreases under these plans due to lower premiums and a cap 
on out-of-pocket expenditures.
  Given these attractive features, HSA-eligible health plans will only 
expand over time. In fact, a recent report estimates that the number of 
Health Savings Accounts will double between January 2008 and January 
2009. It is appropriate, therefore, to continue to make common sense 
reforms to improve these plans for the families and businesses that are 
choosing them.
  That is what this bill is all about. Among other things, the bill I 
am introducing would allow a husband and wife to make catch-up 
contributions to the same HSA; clarify the use of prescription drugs as 
preventive care that will not be subject to the deductible; promote 
wellness by expanding the definition of qualified medical expenses to 
encourage more exercise and better diet; and establish a more equitable 
tax treatment of health insurance by allowing individuals and families 
without employer-sponsored insurance the ability to pay for their 
health insurance premiums with tax-deductible dollars.
  This proposal is certainly not a substitute for broader health care 
reform. Instead, it seeks to improve an important and growing 
innovation that is a partial answer to the health care puzzle.
  As the Senate prepares for a comprehensive health care debate in the 
coming months, it is important that we do what we can now to promote 
wellness, decrease costs, and increase coverage. By taking the 
intermediate steps proposed in this bill, we can facilitate broader 
reforms by decreasing costs and assisting businesses and families as 
they seek to make affordable health care choices.
  I expect the popularity of HSAs will one day elevate the acronym to 
the level of IRAs, where no further clarification is required. Today, I 
ask my colleagues to join me in a bipartisan effort to accelerate that 
process by supporting this important legislation.
  Mr. President, I ask unanimous consent that a section-by-section 
analysis be printed in the Record.
       There being no objection, the material was ordered to be 
     printed in the Record, as follows:

          Family and Retirement Health Investment Act of 2008


                     Section-by-Section Description

       This bill is designed to make certain enhancements and 
     improvements to Health Savings Accounts (HSAs) by addressing 
     some of the questions and concerns that have been raised 
     since HSAs were first enacted in 2003 but were not addressed 
     by the HOPE Act of 2006.
     Section 1. Short Title.
     Section 2. Catch-up Contributions by Spouses May Be Made to 
         One Account.
       Current law allows HSA-eligible individuals age 55 or older 
     to make additional catch-up contributions each year. However, 
     the contributions must be deposited into separate HSA 
     accounts even if both spouses are eligible to make catch-up 
     contributions. Section 2 would allow the spouse who is the 
     HSA account holder to double their catch-up contribution to 
     account for their eligible spouse.
     Section 3. Provisions Relating to Medicare.
       a. HSA-eligible seniors enrolled in Medicare Part A only 
     may continue to contribute to their Health Savings Accounts.
       Current law restricts HSA participation by Medicare 
     beneficiaries, which means that once a person turns 65, they 
     usually may no longer contribute to their HSA (although they 
     may continue to spend money from an existing HSA). For most 
     seniors, enrollment in Medicare Part A is automatic when 
     receiving Social Security and is difficult to delay or 
     decline enrollment. However, the current deductible for 
     hospital coverage under Medicare Part A is very high, over 
     $1,000 per admission, nearly equal to the minimum deductible 
     required for HSA-qualified plans. Section 3(a) allows 
     Medicare beneficiaries enrolled only in Part A to continue to 
     contribute to their HSA accounts after turning 65 if they are 
     otherwise eligible to contribute to an HSA.
       b. Medicare enrollees may contribute their own money to 
     their Medicare Medical Savings Accounts (MSAs).
       Current law prohibits Medicare beneficiaries enrolled 
     Medicare Medical Savings Account from contributing their own 
     money to their MSAs. Although created in the 1997 Balanced 
     Budget Act, Medicare MSAs are a relatively new type of plan 
     under the Medicare Advantage program. MSA plans allow

[[Page S9709]]

     seniors to enroll in a high-deductible plan and receive tax-
     free contributions from the federal government to HSA-like 
     accounts. However, the government contribution is 
     significantly lower than the plan deductible, and the 
     beneficiary may not contribute any of their own money to fill 
     in the gap. Section 3(b) allows Medicare beneficiaries 
     participating in a Medicare MSA plan to contribute their own 
     tax-deductible money to their MSAs to cover the annual 
     shortfall.
     Section 4. Expanded Opportunities for Veterans
       Current law prohibits veterans from contributing to the 
     their HSAs if they have utilized VA medical services in the 
     past three months. The bill would remove those restrictions 
     and allow veterans with a service-connected disability to 
     contribute to their HSAs regardless of utilization of VA 
     medical services.
     Section 5. Expanded Opportunities for Native Americans
       Current law prohibits Native Americans from contributing to 
     their HSAs if they have utilized medical services of the 
     Indian Health Service (IHS) or a tribal organization. The 
     bill would remove those restriction and allow Native 
     Americans to contribute to their HSAs regardless of 
     utilization of IHS or tribal medical services.
     Section 6. Improved Opportunities to Roll Over Funds From 
         FSAs and HRAs to Fund HSAs.
       The HOPE Act of 2006 (H.R. 6111) allowed employer that 
     offered Flexible Spending Arrangements (FSAs) or Health 
     Reimbursement Arrangements (HRAs) to roll over unused funds 
     to an HSA as employees transitioned to an HSA for the first 
     time. However, the unused FSA funds may not be rolled over 
     the HSAs unless the employer offers a ``grace period'' that 
     allow medical expenses to be reimbursed from an FSA through 
     March 15 of the following year (instead of the usual ``use or 
     lose'' by December 31). In addition, the amount that may be 
     rolled over to the HSA cannot exceed the amount in such an 
     account as of September 21, 2006. This provision effectively 
     limits most employees from ever being able to use unused 
     funds in an FSA or an HRA to help fund their HSAs. Section 6 
     clarifies current law to provide employers greater 
     opportunity to roll over funds from employees' FSAs or HRAs 
     to their HSAs in a future year in order to ease the 
     transition from FSAs and HRAs to HSAs.
     Section 7. Expanded Opportunity to Purchase Health Insurance 
         with HSA Funds.
       Under current law, people can only use their HSA account to 
     pay for health insurance premiums when they are receiving 
     federal or state unemployment benefits or are covered by a 
     COBRA continuation policy from a former employer. In 
     addition, HSA funds may not be used to pay for a spouse's 
     Medicare premiums unless the HSA account holder is age 65 or 
     older. Section 7 allows HSA account funds to be used to pay 
     premiums for HSA-qualified policies regardless of their 
     circumstances. This section also clarifies that Medicare 
     premiums for a spouse on Medicare are reimbursable from an 
     HSA even though the HSA account holder is not age 65.
     Section 8. Greater Flexibility Using HSA Account to Pay 
         Expenses.
       When people enroll in an HSA-qualified plan, some let a few 
     months elapse between the time when their coverage starts 
     (e.g., January) and when the health savings bank account is 
     set up and becomes operational (e.g., March). However, the 
     IRS does not allow for medical expenses incurred in that gap 
     (between January and March) to be reimbursed with HSA funds. 
     Section 8 allows all ``qualified medical expenses'' (as 
     defined under the tax code) incurred after HSA-qualified 
     coverage begins to be reimbursed from an HSA account as long 
     as the account is established by April 15 of the following 
     year.
     Section 9. Expanded Definition of ``Preventive'' Drugs
       Current law allows ``preventive care'' services to be paid 
     by HSA-qualified plans without being subject to the policy 
     deductible. Although IRS guidance allows certain types of 
     prescription drugs to be considered ``preventive care,'' the 
     guidance generally does not permit plans to include drugs 
     that prevent complications resulting from chronic conditions. 
     Section 9 expands the definition of ``preventive care'' to 
     include medications that prevent worsening of or 
     complications from chronic conditions. This would provide 
     additional flexibility to health plans that want to provide 
     coverage for these medications and remove a perceived barrier 
     to HSAs for people with chronic conditions.
     Sections 10-12. Expanded Definition of ``Qualified Medical 
         Expenses.''
       With the increasing need to encourage Americans to take 
     better care of their health and reduce the prevalence of 
     obesity, Section 10 and 11 modify the definition of 
     ``qualified medical expenses'' in Section 213(d) of the 
     Internal Revenue Code to include the cost of:
       Exercise and physical fitness programs, up to $1,000 per 
     year (Sec. 10)
       Nutritional and dietary supplements, including meal 
     replacement products, up 7 to $1,000 per year (Sec. 11)
       The modification would affect all health care programs 
     using the definition, including HSAs, HRAs, FSAs and the 
     medical expense deduction when taxpayers itemize.
       Finally, the current definition of ``qualified medical 
     expenses'' generally does not include fees charged by primary 
     care physicians that offer pre-paid medical services on 
     demand because there is no direct billing for individual 
     services provided by the physician and the arrangement is not 
     considered ``insurance.'' Section 12 would allow amounts paid 
     by patients to their primary physician in advance for the 
     right to receive medical services on an as-needed basis to be 
     considered a ``qualified medical expense'' under the tax 
     code. The modification would affect all health care programs 
     using the definition, including HSAs, HRAs, FSAs, and the 
     medical expense deduction when taxpayers itemize.
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