Health Savings Accounts (HSAs): Part of the 2018 Congressional Health Care Reform Agenda?

Congressional leaders are currently sending mixed signals on whether they will make another attempt to fully repeal the ACA. That gives us an opportunity to take a closer look at recent legislative proposals involving a common feature of employer sponsored health insurance coverage:  the health savings account (HSA).

Passage of the Affordable Care Act (ACA), otherwise known as “Obamacare,” didn’t end the discussion of reforming health care. In fact, nearly one-third of all voters cite health care as the most important issue for the 2018 mid-term election.

Where do HSAs Fit in the Health Care Reform Conversation?

HSAs are tax-free savings accounts that allow some consumers to save money to pay for some out-of-pocket health care expenses. Because the accounts are tax-free, they have the added benefit of lowering the taxpayer’s adjusted gross income and therefore, tax burden.

Established in 2003 and revised by the ACA in 2010, current HSA policy includes many restrictions. Currently, only consumers with high deductible health plans (HDHP) can take of advantage of the savings accounts. Furthermore, 2018 tax-free contributions to the account are limited to $3,450 per individual or $6,900 per family. HSA disbursements can pay for out-of-pocket medical, dental or vision expenses, but not health care premiums. Finally, over-the-counter drugs require a prescription in order to qualify for HSA disbursement.

HSA accounts have proven to be popular.  Today, HSAs hold $40 billion in assets and over 20 million Americans contribute to an account. The current political environment is favorable for expanding the programs.

In fact, even though proposals to expand HSAs would come with a fiscal note to show their impact on the deficit, the most fiscally conservative lawmakers have championed some of the most aggressive expansions.

Legislative Proposals to Expand or Reform HSAs

President Trump’s first year in office did not produce any changes to HSA regulations. However, this was not for a lack of effort, but perhaps due to flawed strategy.

Throughout 2017, lawmakers introduced a slate of bills that repealed various parts of the ACA and expanded the use of HSAs. None of these bills has seen much movement. Instead, partial repeal and modification of the ACA has occurred in piecemeal fashion through either executive action or tax reform.

Health policy advocates are optimistic that this year will produce a standalone bill to expand HSAs.  To understand what might be included, we can look to the health savings account language in the comprehensive reform bills that have already been introduced.

• The American Healthcare Act introduced last spring passed the House but failed to garner 50 votes in the Senate. This bill would have almost doubled the contribution limits for health savings account, to $6,550 for individuals and $13,000 for families. The bill would have also made it possible to use an HSA to pay for all over-the-counter drugs.
• Healthcare Market Certainty and Mandate Relief Act, introduced in the House and Senate, would increase the HSA contribution limits to the amount of the HDHP deductible and out-of-pocket limitations.
• American Healthcare Reform Act of 2017, introduced in the House, would increase HSA contributions and expand the products and services that may be paid for by the user’s HSA account.
• The World’s Greatest Healthcare Plan of 2017 establishes a Roth HSA to pay for medical expenses and insurance premiums.
• Obamacare Replacement Act provides tax credits for HSA contributions, eliminates the contribution limits, allows any individual to open an HSA account, allows HSAs to pay for over-the-counter drugs and health insurance premiums.
• Obamacare Repeal Act provides a tax credit up to $5,000 for contributions to an HSA and eliminates the maximum allowable contribution.
• Health Care Choices for Seniors Act, applies the same principals of health savings accounts to help seniors pay for health care. The bill creates a Medicare Alternative Voucher (MAV) Program, under which a voucher could be used to contribute to the HSA and pay for HDHP enrollment premiums. Participants who qualify for Medicare coverage could waive their access to Medicare in exchange for enrollment in the MAV Program.
• Patient Freedom Act allows states to use the ACA “as is” or move to state-specific plans that rely on expanded health savings accounts and decreased financial support from the federal government.

Forecast for Change

While it is clear that Congress remains interested in further health care reform, including changes to HSAs, the path forward for any particular piece of legislation is uncertain at best.

At a minimum, we should expect more legislative proposals that expand or eliminate the maximum allowed contribution and expand the permitted use of those dollars.  The combination of consumer cost sharing and consumer flexibility may even win a degree of bipartisan support, even if HSA expansion would come with a fiscal note.