•   Allow one-time conversions of Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSA’s) to Health Savings Accounts.

Insurers and employers want to be able to make HRA and FSA rollovers into HSAs -- all year long, and determined by the free market. Instead, the provision which passed is intended to simply eliminate HRAs and FSAs and replace them with HSAs. The section of the bill is entitled "HRA And FSA Terminations To Fund HSAs." Insurers and employers may actually lobby against the bill if it gets any farther, but nobody expects it to survive.

The report language is very clever. Its title describes the provision in detail as if it would "Allow rollovers from health FSAs and HRAs into HSAs for a limited time." In the last sentence it reveals that "The proposal is limited to one distribution with respect to each health FSA or HRA of the individual."

The number of employers who would actually convert HRAs to HSAs has never been measured, so the cost estimates in the legislation are pure speculation and the bank deposits resulting from this provision are unknown. However, the bank deposits from allowing market-based HRA-HSA rollovers can be easily quantified with existing market experience -- and are likely to be much larger. Banks would be better off under the original bill.

•   Repeal of annual plan deductible limits tied to the deductible.

The proposal modifies the limit on the annual deductible contributions that can be made to an HSA so that the maximum deductible contribution is not limited to the annual deductible under the high deductible health plan. Under the proposal, the maximum aggregate annual contribution that can be made to an HSA is $2,700 (as indexed for inflation after 2006) in the case of self-only coverage and $5,450 (as indexed for inflation after 2006) in the case of family coverage.

Everybody supports this.

•   Provide for earlier indexing - March 1 instead of August 1 – so that the inflation adjusted deductible limits will be known well before the fall health plan open enrollment activity begins;

Everybody supports this no-cost change.

•   Allow for full funding of an HSA regardless of when in a year an individual becomes eligible;

Everybody supports this, but it costs money.

•   Provide relief from the comparability rule for lower-paid employees;

This would encode the cafeteria plan exception letting employers income-adjust contributions to HSAs as long as they are making higher contributions to lower-income workers.

•   Allow a one time IRA distribution to fund HSAs.

There are issues here between banks and brokerages. We don't believe the entire brokerage community was consulted, since the fees earned on IRAs and those on HSAs will be very different. Possibly banks will benefit at the expense of brokerages, but in any case this one won't pass without going through the banking committees in both House and Senate -- next year.