House Passes Bills Enhancing HSAs
Annual contribution caps would be almost double if bills were to become law
By Stephen Miller, CEBS July 27, 2018
The House of Representatives on July 25 passed two health care bills that could transform the use of tax-advantaged health savings accounts (HSAs).
The bills, H.R. 6199 and H.R. 6311, are broader than the versions passed by the House Ways and Means Committee earlier this month and incorporate certain parts of other bills that had been approved by the committee. Both of the GOP-backed bills received some crossover support from Democrats.
H.R. 6199, renamed the Restoring Access to Medication and Modernizing Health Savings Accounts Act and passed by a margin of 277-142, would:
- Reverse the Affordable Care Act's (ACA's) prohibition on using tax-favored health accounts to purchase over-the-counter medical products.
- Treat menstrual care products as qualified medical expenses that could be purchased with all tax-advantaged health care accounts.
- Treat certain sports and fitness expenses–including gym memberships and the cost to participate in certain physical exercise programs–as qualified medical expenses up to a limit of $500 a year for an individual and $1,000 a year for a family.
- Allow high-deductible health plans (HDHPs) to cover up to $250 (self-only) and $500 (family) annually for nonpreventive services that currently may not be covered predeductible. This would let HDHPs cover outside the deductible, albeit on a limited basis, chronic-condition treatment and telehealth services, for example.
- Permit individuals with HSA-qualifying family coverage to contribute to an HSA if their spouse is enrolled in a medical flexible spending account(FSA), currently a disqualifying scenario.
- Allow limited use of employer onsite medical clinics and other employment-related health services without risking HSA eligibility.
- Protect HSA-eligible individuals who participate in a direct primary care (DPC) arrangement from losing their HSA eligibility and allow DPC provider fees to be covered with HSAs (capped monthly at $150 per individual and $300 per family).
"Allowing HSAs to work alongside a direct primary care arrangement, if it becomes law, would immediately benefit Americans who use HSAs and the growing population of employers, physicians and individual consumers who are choosing DPC to deliver high-quality primary care outside the constraints of a fee-for-service payment model," said Anne Richter, chief strategy officer of Ameriflex, an administrator of consumer-driven health plans.
H.R. 6311, renamed the Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act and passed 242-176, would allow the ACA's premium tax credit for low and moderate earners to be applied when buying lower-premium, "catastrophic" copper plans; let people over age 30 buy copper plans; and allow copper and bronze-level individual and small-group market plans to qualify for HSA contributions. The bill also would make these modifications to tax-advantaged accounts:
- Raise HSA contributions to $6,650 for individuals and $13,300 for families, which is the combined annual limit on out-of-pocket and deductible expenses under an HSA-qualified insurance plan in 2018. Currently, for 2018, HSA contribution limits are $3,450 for individuals and $6,900 for those covered under family medical plans.
- Permit HSAs to pay for qualified medical expenses as of the start of HDHP coverage if the accounts are opened within 60 days after coverage under a HDHP begins.
- Allow working seniors participating in Medicare Part A and covered by a qualifying HDHP to contribute to an HSA.
- Permit spouses over the age of 55 to make an annual catch-up contribution (an extra $1,000) to an HSA that's linked to a health plan providing family coverage. Currently, only the account holder can make an annual catch-up contribution.
- At an employer's discretion, allow employees with an FSA or a health reimbursement arrangement (HRA) who enroll in a qualifying high-deductible health plan with an HSA to transfer balances from their FSA or HRA to the HSA. Transfers would be capped at $2,650 for individuals and $5,300 for families.
- Permit health FSA balances to be carried over to the following plan year. This rollover could not exceed three times the annual FSA contribution limit.
Support from SHRM
"These changes will provide employers with greater flexibility to design benefit offerings to meet the needs of their employees and their families [and] … retain and recruit talent," said Chatrane Birbal, director of the Society for Human Resource Management's (SHRM's) congressional affairs, health and employee benefits policy. "SHRM fully supports the repeal of the restrictions on the use and limits on contributions to health savings accounts and flexible spending accounts." As health costs have increased for workers and employers alike, HSAs and FSAs "can enable thousands of businesses to continue offering employment-based health coverage."
In a July 25 letter to Republican and Democratic leaders of the House and Senate, SHRM President and Chief Executive Officer Johnny C. Taylor, Jr., SHRM-SCP, wrote that "SHRM supports bipartisan proposals to repeal the restrictions on the use and limitations on contributions to health savings accounts," and that "modernizing the rules governing HSAs will provide employers with greater flexibly to design benefit plans that meet the unique needs of varying workforces and would help employees and their families save money for their healthcare needs."
SHRM also supports repeal of the 40 percent "Cadillac tax" on employer-sponsored health care benefits set to go into effect in 2022. "If this tax goes into effect many employers may be forced to cut benefits, alter wellness and chronic-care prevention programs, and reduce innovative new benefit offerings," Taylor said. "Employees will also be negatively impacted through higher co-pays and deductibles and could even cause some to decline employer-provided health care."
Taylor also urged Congress to repeal the employer mandate penalty that "continues to hamper employer-sponsored health care plans as an administrative and financial burden to employers."
Along with employer groups, providers of consumer-directed plan services favored the legislation.
"The bills passed by the House of Representatives would allow a greater number of consumers to take advantage of health savings accounts by allowing more flexibility in the definition of a high-deductible health plan," said Harrison Stone, general counsel at ConnectYourCare, a Baltimore-based HSA services provider. "Modernizing HSAs and other consumer-directed health programs would allow more Americans to save for the current and future medical needs. HSAs are the most effective way to plan for long-term medical expenses, and these two bills illustrate their growing importance to consumers."
Allowing more products and services to be purchased with pretax dollars "will reduce the amount of money U.S. consumers spend on their overall health care costs," said Steve Auerbach, CEO of Alegeus, a provider of benefit administration platforms.
A new Alegeus survey of 1,400 U.S. health care consumers found that HSA participants are 38 percent more likely to make cost- or value-based decisions than the general population and 46 percent more likely to research and compare costs than the average worker.
Senate Approval Needed
Both bills must be voted on and passed by the Senate before the end of the year in order to become law, and the prospect of that happening is challenging.
"Although budget pressures have put limits on some reforms, and the Senate outlook this year is dim, the proposed changes indicate the direction that many Republicans and more than a few Democrats would like to take," said Tracy Watts, senior partner and U.S. leader for health reform at HR consultancy Mercer.
"We still have a fairly high hurdle to clear in order for these bills to get through the Senate, but we are optimistic that positive changes are finally on the horizon," said Richter.
In September, the House is expected to vote on several of the other ACA-related measures passed by the Ways and Means Committee, including a bill to delay the Cadillac tax by an additional year.