Members of the U.S. Congress have introduced multiple bills aimed at expanding health savings accounts (HSAs) or simplifying the rules that govern HSA eligibility, contributions and distributions. The pending legislation covers a wide range of issues, from sweeping expansions for HSA eligibility to more technical changes addressing the timing of reimbursable medical expenses. Legislation to expand and improve HSAs is not new but could find new momentum this year as House and Senate Republicans draft budget reconciliation legislation.
Legislation currently pending in Congress proposes a broad range of potential changes.
Some pending bills would allow individuals to contribute to HSAs, even if they are not covered by high-deductible health plans (HDHPs). For example, the Personalized Care Act (H.R.810/S.276) would allow individuals to contribute if they are covered by almost any health coverage, including a group health plan, individual health insurance coverage (including short-term limited duration or medical indemnity coverage), a governmental health plan or a healthcare sharing ministry. The Freedom for Families Act (H.R.74) would allow anyone to contribute, regardless of health coverage.
Some bills would increase the annual contribution limits to HSAs. The HSA Modernization Act (H.R.548) would increase the contribution limit to equal the HDHP out-of-pocket maximum. Others, such as the Personalized Care Act, would increase the annual dollar limitation.
Some legislation would clarify that individuals are eligible to contribute to HSAs when they have certain other coverage, such as benefits from the Veteran’s Administration, Indian Health Services or Medicare Part A; benefits through a healthcare sharing ministry; and coverage through a direct primary care arrangement.
Many of the bills would expand or restrict eligible distributions from HSAs. Some examples include the Healthcare Freedom Act (H.R.317), which would allow distributions to pay health insurance premiums; the Oral Health Products Inclusion Act (H.R.1219), which would allow HSAs to reimburse over-the-counter oral care products; and the HSA Modernization Act, which would allow HSA distributions to pay for long-term care expenses. Other bills would aim to restrict distributions. For example, the Protecting Life in HSAs Act (H.R.720/S.251) would provide that amounts reimbursed for abortion expenses would not be considered eligible distributions.
A number of other changes have also been proposed, including changes that would allow both spouses to make catch-up contributions to the same HSA (if both spouses are eligible); provisions that would allow the HSA to reimburse certain expenses incurred before the HSA was established; and changes that would reduce the penalty on distributions that are not used for qualified medical expenses.
The House has approved bipartisan legislation addressing preventive care coverage for HSA-eligible HDHPs. The Chronic Disease Flexible Coverage Act (H.R.919), which would codify guidance issued by the IRS in Notice 2019-45, was approved on March 4 and is now awaiting action in the Senate.[1]
Congress is developing a budget reconciliation package that will include significant tax, spending and other legislative provisions. Congressional leaders hope to negotiate and approve the legislation over the next several months. Budget reconciliation could provide a vehicle for some HSA-related provisions, though it is not yet clear which provisions — if any — may gain traction this year.
