The House Ways and Means Committee met today to discuss HR 5719 – the “Taxpayer Assistance and Simplification Act of 2008” (I love when they come up with names like that – it sounds like the whole thing will be warm and fuzzy and make life easier for all of us). One of the many points covered in HR 5719 is a proposal to require substantiation of money distributed from health savings accounts. Currently, you put money into your HSA (up to $5800 for a family, or $2900 for an individual in 2008) and then you take it out if you need it for qualified medical expenses. You can pull money out to pay your health insurance deductible if needed, or to use for a variety of expenses that may not be covered by your health insurance – things like pregnancy, prescriptions, dental work, vision screening, etc. You have to keep track of what you spend and what distributions you take from the HSA, and keeping receipts is pretty much a no-brainer. But for the most part, it’s all for your own records. You don’t have to show the proof of medical expenses to anyone unless you’re audited by the IRS (and then you better have some iron-clad receipts on hand).
HR 5719 would change all that. It would require that proof of medical expenses be submitted to the HSA custodian in order to pull money out of the HSA. If this proposal had been in place when we had to meet our deductible this year to get Jay’s knee fixed, we would have had to submit all of our receipts in order to take money out of our HSA to pay the deductible. Sounds to me like one more thing to increase paperwork and decrease productivity. We have all of our receipts. They’re all neatly filed away, and in the unlikely event of an audit, we have everything we need. But I loved how smooth and simple our HSA reimbursement process was. We paid the medical bills on a credit card, called the HSA custodian and initiated a balance transfer, and had the money in plenty of time to pay the credit card bill. No faxing of receipts from five different medical providers, no hassles at all.
Our entire tax system is based on self-reporting. There are lots of checks and balances, but in the end of the day, we each file our own taxes, reporting (or not, for some people) tips, money earned on e-bay and side businesses, charitable donations, etc. HSAs were set up to try to eliminate costly overhead and offer the best value for the health insurance consumer. When we first started selling health insurance in Colorado in 2002, the only option for individuals was the MSA – and not everyone was eligible for one. Since HSAs became available, more and more people have gotten on board, attracted mainly to the simplicity and low cost that the HDHPs and HSAs offer. If we have to start substantiating every distribution from our HSAs, there is no way that the overhead and administration costs for the HSA custodians will remain unchanged. They will go up, and will be passed along to consumers. We’ll start to see monthly fees on our HSAs – which would eat away at the gains that consumers get for leaving their unused money to grow in an HSA.
The proposal to require substantiation of funds distributed from HSAs is being championed by Evolution Benefits – the makers of The Benny card. A card you can swipe to pay medical expenses sounds like a great idea – except that they have fees and expenses that you don’t get with an HSA that doesn’t use a debit card. We don’t pay any monthly expenses or fees with our HSA – when we have a medical expense, we notify them and they transfer the money to our bank account. No fees involved, and I’d like to keep it that way. I’m a touch suspicious that if everyone is required to substantiate medical expenses, all HSA custodians will end up switching to a debit card system (set up by Evolution Benefits, perhaps?) that would involve higher fees for anyone using an HSA. I’d rather stick with what we have, and keep the HSA as simple as possible.