White House Threatens To Veto Tax Bill in Part Because of Provision on HSAs

The White House on Monday threatened to veto a tax bill (HR 5719) because of a provision under which individuals with tax-free health savings accounts would have to provide evidence that they used funds in the accounts for medical purposes, CQ Today reports. Under the provision, individuals with HSAs after Dec. 31, 2010, would have to provide evidence that they used funds in the accounts for medical purposes.

Current law allows use of funds in HSAs for nonmedical purposes, but the funds are taxed as income and assessed a 10% penalty in such cases. The Joint Committee on Taxation estimates that the provision would increase tax revenue by about $308 million over 10 years through collection of the penalties and decreased use of HSAs to defer or avoid tax payments.

Republican lawmakers and companies that benefit from HSAs have criticized the provision, which they maintain would have negative effects for the seven million individuals with the accounts. According to a statement of administration policy from the White House Office of Management and Budget, the provision is "unnecessary for efficient tax administration, inconsistent with the flexibility purposely afforded HSAs at their inception, and could undermine efforts by employers, individuals and insurers to reduce health care costs and improve health outcomes by empowering consumers to take greater control of health care decision-making" (Rubin, CQ Today, 4/14).