Congress has approved legislation that includes several provisions affecting health savings accounts (HSAs).

HSAs are tax-exempt trusts or custodial accounts established exclusively to pay qualified medical expenses. To be eligible for HSAs, individuals must be covered by a high deductible health plan (HDHP).

If signed by President Bush, the legislation (HR 6408) would make several changes aimed at expanding HSAs. The legislation would:

• Remove the annual deductible limitation on contributions to HSAs and subject anyone with an HDHP to the statutory limit ($2,850 in 2007 for self-only coverage and $5,650 in 2007 for family coverage). Under current law, the contribution limit for HSAs is the "lesser of" (1) the annual deductible under the HDHP (2) or the indexed statutory limit.
• Allow those who enroll in an HDHP midyear to make a full-year contribution to HSAs.
• Allow a one-time distribution from an existing flexible spending account (FSA) or health reimbursement arrangement (HRA) to fund an HSA. The limit on the transfer from an FSA or HRA to an HSA would be the lesser of (1) the balance in the health FSA or HRA as of September 21, 2006 or (2) the balance in the health FSA or HRA as of the date of the distribution. The rollover must be made directly to the HSA before January 1, 2012.
• Allow a one-time distribution from an individual retirement account to an HSA.
• Require that the government publish cost-of-living adjustments affecting HSAs earlier in the year (by June 1).
• Add an exception to the comparable contribution requirements. The provision would allow employers to make larger HSA contributions for nonhighly compensated employees than for highly compensated employees.

President Bush is expected to sign the legislation.

Link

• Technical explanation of the legislation by the House's Joint Committee on Taxation (the HSA provisions start on page 71)