another obstacle for health savings accounts

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Another obstacle for health savings accounts, Rev. Rul. 2004-45

by Tony Novak, CPA, MBA, MT
, revised 11/16/11

The IRS and the Department of Treasury issued another significant restriction to health savings accounts with the release of Revenue Ruling 2004-45. Tax adviser Tony Novak of Freedom Benefits Association says the new tax rule restricts an employee from making Health Savings Account (HSA) contributions if they are covered by a employer-sponsored medical plan like a Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA). Since the trend in employer provided health plans is moving in the direction of consumer-driven designs defined by FSA and HRA plans, this new ruling severs a large portion of Americans from participating in the benefits of HSA plans.

Health savings accounts were originally anticipated as being a tool widely available to many Americans. Rosy predictions were floated by Washington insiders that as many as 40 million HSA accounts would be opened by the end of the decade. But the availability of HSAs has been restricted by a series of new laws, interpretations and IRS rulings beginning even before the new plans became effective on January 1, 2004. A new tax reform law will be required to reverse the current trend restricting HSAs.

More detail on tax implications of health savings accounts may be found at

This new ruling will likely slow the expansion of HSAs. We predict that eventually cost pressure will push employers into replacing current plans with higher deductible policies. Employees are increasingly turning to allowable supplemental insurance coverage to minimize their risk.

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