Expanded HSAs

The tax extenders just enacted by Congress lifts the cap on HSA contributions and removes the link to the deductible of the health insurance plan of the HSA owner. Details here ($). The new approach means that the HSA can really be a savings account, not just a spending management account. Also, there's a once-in-a-lifetime chance to fund an HSA with a tax free transfer from an IRA. That means that otherwise taxable IRA money can become tax free.

There's something here that I'm not getting. Couldn't this change effectively make all medical expenses fully deductible, provided only that they are channeled through an HSA? I guess not, if an employer's health program is not structured as an HSA. Still, the 10-year cost of eliminating the cap on deductions is a scant $712 million, which must assume that no one will be switching to the HSA format in the future. Why won't everyone take that approach now?

In a contrasting revenue projection, allowing the deduction of sales taxes in those states without an income tax for only two years, 2006 and 2007, has a ten-year cost of $5.5 billion. That seems way too high.

I'll be watching for the new HSA marketing plans.