The number of employers offering health savings accounts is set to more than quadruple next year, according to a report by Mellon Financial Corp.'s human-resources consulting practice. In a survey of 361 large employers, 32% of respondents said they planned to offer an HSA in 2006, up from 7% that now offer the option. HSAs, authorized under the Medicare Modernization Act of 2003, pair a high-deductible health plan with a tax-free savings account for out-of-pocket medical expenses. Two percent of employers planning to offer an HSA for the first time in 2006 said they would make it employees' only coverage option. Some 66% said they would contribute to the tax-free accounts, according to the survey. On average, respondents hoped to enroll 24% of eligible employees in HSAs, up from an average of 16% enrolled today. Two-thirds of respondents said they believed HSAs could be designed to help consumers make wiser medical-spending decisions. "2006 will see an explosion of HSAs, with many more large employers adding them to their benefits package," a Mellon official said in a news release.
Separately, the Treasury Department and the IRS issued a notice that employers will be able to modify flexible spending accounts to extend the deadline for reimbursement up to 2 1/2 months beyond the end of the plan year. Previously, employees were required to "use or lose" FSA funds by the end of the year. "The new rule will give workers with FSAs more time to pay for medical and dependent-care expenses and will ease the year-end spending rush prompted by the prior rule," said Treasury Secretary John Snow. FSAs allow employees to pay for out-of-pocket expenses with pre-tax funds, but unlike HSAs, funds cannot be rolled over from one year to the next. -- by Laura B. Benko