On September 28, the House Ways and Means Committee marked up two bills that would expand health savings accounts (HSAs): HR 5687 (Changes in HSA Modernization Act) and HR 5688 (Bipartisan HSA Improvement Act).

HR 5687 passed the Committee on a 24-18 vote with all Republicans supporting it and all Democrats opposing it. The legislation has several components. The most expensive component (and the provision most opposed by Democrats) would significantly increase the annual HSA contribution limit to an amount equal to the annual limit on out-of-pocket expenses for HSA-qualified plans ($7,500 for a single and $15,000 for a family in 2023). The legislation would also allow any enrollee in a bronze or catastrophic plan offered under the Affordable Care Act to contribute to HSAs. Currently only high deductible health plans, which must meet several requirements in addition to having a requisitely high deductible, can be integrated with an HSA.

HR 5688 passed the Committee on a 28-14 vote with four Democrats joining all the Republicans in support. The legislation also has several components. It would clarify that direct primary care arrangements (DPC) are not a health plan so that the arrangements do not disqualify individuals from HSA eligibility. The legislation would also define direct primary care arrangements and allow HSA funds to pay for fees for DPC. The legislation would also permit employees to transfer unspent money from a health flexible spending account (FSA) or health reimbursement arrangements (HRA) to an HSA when the transfer is made in connection with an employee establishing coverage under an HSA-qualified plan after a four-year period of not having such coverage.

Both bills have additional components. For a summary of the two bills and the Joint Committee on Taxation’s estimates of their effects on federal revenue, see here.

These bills will likely be voted on by the full House of Representatives at some point this Congress, whether individually or combined in a single package. While the legislation would likely pass the full House, it is unlikely to receive consideration by the Senate. This is similar to this summer’s legislative exercise with respect to the codification of the 2019 regulation that created individual coverage HRAs (ICHRAs). This legislative exercise if instructive for policymaking in the next Congress, however. If Republicans maintain control of the House, they are likely to continue looking at policies that expand HSAs and HRAs. Unless the political make-up of the Senate or White House changes, however, these proposals are likely to stall unless they become part of broader compromise legislative packages.

Additional insights from Brian Blase, HRA Council Public Policy Consultant:

H.R. 5687 as a bill would: 

• Allow all veterans to receive hospital care or medical services from a VA facility, or have services paid by the VA, without losing the HSA eligibility for any period (3 months under current law

• Allow Native Americans to receive hospital care or medical services at Indian Health Service facilities without losing their HSA eligibility for any period (3 months under current law)

• Allow HSA-eligible seniors enrolled only in Medicare Part A to contribute to their HSAs

• Prohibit HSA-eligible individuals aged 65 or older from using HSA funds to pay for health insurance and applies the 20 percent penalty on HSA distributions for non-qualified expenses

• Allow enrollees in any Bronze or Catastrophic plan under the Affordable Care Act to contribute to HSAs

• Allow HSA-qualified plans to cover up to $500 of mental health benefits below the deductible

• Allow HSA-eligible expenses incurred before the date an HSA is established to be reimbursed tax-free if the HSA account is established within 60 days of the date that the account owner’s HSA-qualified coverage begins

• Allow both spouses to make catch-up contributions to the same HSA account

• Increase the annual HSA contribution limit to an amount equal to the annual limit on out-of-pocket expenses for HSA-qualified plans (i.e., $7,500 single / $15,000 for family in 2023)

• Clarify that HSA funds may be used tax-free for qualified long-term care services provided to chronically ill individuals (NOTE: this provision is effective for amounts paid after the date of enactment)

NOTE: All the provisions of this bill (except where otherwise noted) would not be effective until January 1, 2026.

H.R. 5688 as a bill would: 

• Clarify that direct primary care arrangements are not a health plan so that the arrangements do not disqualify individuals from HSA eligibility

• Direct primary care arrangements would be defined as care provided by primary care practitioners for periodic fee that does not exceed $150/month for individuals ($300/month for 2 or more individuals); the limit on periodic fees will be adjusted annually for inflation

• Direct primary care arrangements cannot include procedures that require general anesthesia or laboratory services not typically administered in a practitioner’s office

• Allow HSA funds to be used tax-free to pay period fees for direct primary care arrangements

• Require reporting of fees paid by employers for direct primary care arrangements on employees’ W-2 forms

• Allow HSA-eligible individuals to receive specified health care services at their employer’s on-site medical clinic without cancelling their HSA-eligibility

• Allow HSA-eligible individuals to contribute to their HSA even though their spouse is enrolled in a health FSA

• Allow employees to transfer unspent money from a health FSA or HRA to an HSA when the transfer is made in connection with an employee establishing coverage under an HSA-qualified plan after a four-year period of not having such coverage

NOTE: All the provisions of this bill would not be effective until January 1, 2026.