- borman818 via Creative Commons
Say you have a health reimbursement account—somewhat like a health savings account, but for public employees. And now, let’s say you die with a bunch of un-spent money in your health reimbursement account.
What happens?
Right now the federal government takes the money unless you have a spouse or “qualified dependent” to claim it. Which seems a little crazy. You earned the money. You should have a right to leave it to your heirs, whether they’re “qualified dependents” or not.
Another of Senator Maria Cantwell’s amendments attempts to deal with this problem. Cantwell Amendment #F1 would allow more people to leave their health reimbursement accounts to whomever they choose.
Full summary of the proposed amendment in the jump.
Cantwell Amendment #F1 to the America’s Healthy Future Act of 2009
Title: Equalize the tax treatment of Health Reimbursement Arrangements (HRA) established by all governmental employers.
Description: Under current law, distributions from an HRA are excluded from gross income if they are used for qualified medical expenses. When a participant dies, the HRA can still be used to pay for qualified medical expenses of the participant’s surviving spouse or qualified dependents and these amounts will not be included in the spouse/dependent’s income.
IRS Revenue Ruling 2006-36, which took effect this year (2009), prohibits an HRA from providing excludable medical reimbursements to nondependent beneficiaries when no surviving spouse or qualified dependents remain after a participant’s death.
The elimination of medical reimbursements to non-dependent heirs is a concern for employees contemplating continued participation in their HRA plan. The fear of potentially losing accumulated assets within this key retiree medical savings tool, due to an untimely death, strongly discourages individual HRA savings for future health care expenses.
Congress partially addressed these concerns in the Worker, Retiree, and Employer Recovery Act of 2008 for participants in plans provided by certain governmental employers. The criteria laid out in the law, which covers plans established in connection with a public retirement system that has been authorized by a state legislature, however, leaves out plans provided to governmental employees using VEBAs and plans that are established by local government employers.
The amendment would correct this disparity by including plans established by or on behalf of a state or a political subdivision thereof and qualified VEBAs in the special rule under IRC Section 105(j).
The amendment will include offsets sufficient to ensure that the amendment is revenue neutral.
Just a distinction: Health Savings Accounts (HSA) are different from Health Reimbursement Arrangements (HRA). HSAs are investment accounts that have designated beneficiaries just like any IRA or 401k. The money is to be used for medical expenses until retirement and then can be withdrawn for any purpose. Cantwell is referring to HRAs which suck.
WOW. I wouldn’t think even Ron Paul could spin allowing rich people to pass down government subsidies to their heirs as “health care reform”. Shameful.
@1: Oops. You’re right, I misread the amendment and then misunderstood a conversation with someone on Cantwell’s staff. Have fixed and updated. Thanks.
I’m hoping a lot of really rich people are going to die during the donut hole for the estate tax that 2010 to 2011 represents.
HSAs suck kind of. I like to use em for glasses myself. But if you’ve got a kid, you can use em to pay for dental costs, since most plans won’t cover the whole cost, and you only get a tax deduction if they require major surgery anyway.
You earned the money. You should have a right to leave it to your heirs
That’s the first time I’ve seen a progressive use those words. Can I quote that back at you in the future?
@5: As long as we’re still talking about money from a health reimbursement account.
@6: So the rest of your wages you didn’t earn? They belong to the government to take as much as it sees fit?
I suspect that the real issue you are getting at is that the law shouldn’t privlege some kinds of heirs over others. I agree entirely. But that has nothing to do with whether “you earned the money” or not. That turn of phrase isn’t an argument, it’s merely a rhetorical flourish. And a rather incongrous one coming from a progressive.
@7: No, I think in the case of a health reimbursement account, which only came into existence to protect people from runaway medical costs, one can apply a slightly different analysis.
Or … we could just go to single payer national health care, all pay $54 a month, and live 8-10 years longer ….
Hmmm. I think I’ll opt for single payer national health care. Way simpler.
Will, what are you talking about? US life expectancy is just a few years behind nations with single payer, nothing like 8.
Domestic partners are not considered Spouses or Qualified Dependents under the current VEBA provisions. It’s galling, since I did not choose VEBA but per my employer’s policy any unused sick time when I leave employment will be converted to one of these accounts against my will. Broader inheritance rights would lessen the sting.