Mission-based Advocacy Toolkit from Alliance for Children & Families

Alert on Health Savings Accounts and their Impact on EAP Providers
Rising healthcare costs create many concerns for families and individuals that struggle to find
ways to pay for health services. For some the answer has come in the form of Health Savings
Accounts (HSAs), which arose from Medicare legislation passed in 2003. These personal
accounts allow individuals and/or their employers to deposit money for future medical expenses,
and these funds are not subject to taxation. Funds in the account carry over annually, and they
remain under the control of the individual regardless of whether or not a person changes jobs. In
order for an individual to be eligible for these accounts, he or she must be covered by a High
Deductible Health Plan (HDHP). These plans have a minimum deductible of $1,000 for
individuals or $2,000 for a family and annual out-of-pocket costs cannot exceed $5,000 for
individuals or $10,000 for families. High Deductible Health Plans can result in higher out-ofpocket
expenses if care is received outside of the plan’s network, and first dollar coverage (no
deductible) applies only to preventive care. In order to be eligible for an HSA, an individual
cannot qualify for Medicare or be claimed as a dependent on anyone’s income tax returns.
The current concern with HSAs is that there is a stipulation that the individual must not be
covered by other health insurance plans. The Employee Assistance Professionals Association
(EAPA) states that while this does not apply to injury, accident, disability, dental, vision, or long
term care plans, it is unclear if eligibility for an Employee Assistance Program (EAP) would
make a person ineligible for a Health Savings Account. If EAPs are classified as not deductible
health plans, then an EAP recipient would not be eligible for an HSA. However, if EAPs are not
classified as such, then analysts believe there is no problem with an individual obtaining a Health
Savings Account. Language on HSAs is in the Internal Revenue Service Code of 1986, part VII
of subchapter B of chapter 1, section 223, and there is a provision within that allows for a “safe
harbor” if the preventive care deductible has not been met. Thus, while HDHPs can provide
preventive care benefits with a deductible below the minimum annual level (or no deductible at
all), section 223 does not require this type of scenario. Because of this ambiguity, the Internal
Revenue Service at the Department of the Treasury is seeking comments concerning what the
appropriate standard for preventive care should be, and to what extent (if any) benefits provided
by Employee Assistance Programs should be included in this standard of preventive care.
Obviously, the financial incentives of HSAs will make them an attractive and popular option for
those who qualify. Because of this, the future of Employee Assistance Programs and those who
administer them would be uncertain if the EAPs are not classified in a way that allows
employees to take advantage of both plans. The Employee Assistance Professionals Association
has prepared information on the effects of the proposed actions by Treasury which can be found
at http://www.eapassn.org/public/pages/index.cfm?pageid=677.
It is for this reason that action must be taken by May 28, 2004 to ensure that the U.S.
Department of the Treasury protects the EAPs. If you wish to submit your concerns to
policymakers, please send comments to:
CC:PA:LPD:PR (Notice 2004-2)
Room 5203, Internal Revenue Service
POB 7604
Ben Franklin Station
Washington, DC 20044
Because of the time constraints we would prefer that you e-mail your comments to the following
address: Notice.2004.2.Comments@irscounsel.treas.gov
Please also send us a copy of your comments at policy@alliance1.org
© January 2006 The Alliance for Children and Families 125
Appendix I