Expanding the use of Health Savings Accounts (HSAs) has been one of the top health policy action items for the Republicans and for President Trump. (Click here and here for prior articles on this website.)
Last week the U.S. House of Representatives passed two different bills that, IF passed by the Senate, would make significant changes to HSA, Health flexible spending account (HFSA) and Health Reimbursement Account (HRA) rules. The two bills enacted on July 25, 2018 were:
- H.R. 6311: Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018
- H.R. 6199: Restoring Access to Medication and Modernizing Health Savings Accounts Act
It is quite possible the Senate will not enact either of these bills, or any other legislation to expand the use of HSAs. At least 60 votes are needed in the Senate to prevent a filibuster. You may recall that last year the Senate did not pass various Repeal-Obamacare bills, even though only a 50-vote threshold was required because the bills were introduced using the reconciliation process. However, the two bills just passed by the House are narrowly focused and do not attempt to overturn the entire Affordable Care Act (ACA). Instead, they include numerous provisions to expand the use of and contribution limits to HSAs, a policy strategy that all Republicans support and an increasing number of Democrats seem to also support or at least are leaning toward.
General Approaches in the Bills
- Many of the provisions affect HSA contribution and carryover amounts, funding sources, eligibility to participate and eligible expenses. Implementing these types of changes is relatively straightforward, although employers must notify employees in advance and also make appropriate changes to their enrollment and payroll systems. Additionally, HSA administrators must make systems modifications (to allow higher contribution limits, to reimburse for newly eligible services and to track other sources of contribution funds).
- One of the proposed expansions will be more challenging to administer. It will allow high deductible health plans (HDHPs) to provide first-dollar coverage (i.e., before the deductible has been met) for up to $250 of non-preventive services per year for single coverage ($500 for family). This will allow HDHPs to cover telemedicine and services for chronic diseases, for example. Plan sponsors must decide whether they will define or limit which preventive services can be paid pre-deductible (e.g., virtual doctor visits and medication for diabetes, high blood pressure and high cholesterol) or whether they will take as broad an approach as possible. Plan sponsors also must consider the additional cost to the plan of paying for these services before the deductible is met. Although the per-person or per-family cost is relatively small, for larger groups the total cost could quickly add up.
- One practical concern for employers is timing. If the Senate does enact similar legislation in the fall and the President signs the bill, will most employers have time to adopt the new HSA expansions for a January 1 effective date? Many of the changes noted in the first bullet point above would be fairly easy to implement (e.g., higher employee contributions, more expenses eligible for reimbursement), although even those changes would require that employers distribute Summaries of Material Modifications (SMMs) if they had already distributed benefits booklets and other communications about 2019 benefits. But provisions that would change plan design (in the second bullet point above and in and others listed below) might have cost implications.
Specific Provisions in the Bills
Various provisions of H.R. 6199 and H.R. 6311 would make the following types of changes.
Amounts, Contributions and Carryforwards:
- Would increase the HSA annual contributions to equal the HDHP deductible, i.e., from $3,450 to $6,550 (for single) and from $6,900 to $13,300 (for family). The current additional $1,000 contribution for account holders over age 55 would also be continued. (6311)
- If both spouses are eligible to make the $1,000 catch-up contribution (age 55+), would allow both to make the additional contribution to the same HSA. Existing law requires the non-employee spouse to make the catch-up contribution to his/her own separate HSA. (6311)
- Would significantly increase the amount in a health FSA that can be carried over to the following plan year. The current maximum is $500. The proposed maximum is up to three times the annual FSA salary-reduction contribution limit (which is currently $2,650). The effect of this would be to eliminate use-it-or-lose-it. (6311)
- Would permit employees to convert existing FSA or HRA balances into an HSA contribution upon enrollment in an HSA (up to $2,650 for an individual and $5,300 for a family). (6199)
Expanding the Definition of Eligible Expenses, what can be paid for with HSA funds:
- Non-prescription over-the-counter medications and menstrual care products. (6199)
- “Qualified sports and fitness expenses,” including gym memberships and fitness trainer fees, to an annual limit of $500 for individual taxpayers and $1,000 for joint tax returns. These would also be tax deductible medical expenses for all purposes, not just HSAs (e.g., also health FSAs & HRAs). (6199)
- Medical expenses that were incurred before the HSA was established as long as the HSA is funded within 60 days after enrollment in the HDHP. (6311)
Expanding Who is Eligible to Participate in an HSA:
- Older workers with Medicare Part A coverage. (6311)
- Individuals with concierge-style primary care services, if the monthly fee for such services is not more than $150 for individual coverage or $300 for family coverage. (6199)
- Individuals with employer-provided on-site medical clinics that offer free or discounted services, if the clinic only offers the qualified items and services listed in HR 6199. (6199)
- Employees whose spouse is enrolled in a general purpose health FSA through his/her own work, so long as none of the employee’s expenses are submitted for reimbursement under the spouse’s health FSA. (6199)
- Individuals in any Bronze level plan sold on the exchange or in any catastrophic coverage plan. (6311)
- Would allow HSA-compatible HDHPs to provide first-dollar coverage (e., before the deductible has to be met) for up to $250 of non-preventive services per year for single coverage ($500 for family). This will allow HDHPs to cover telemedicine and services for chronic diseases. (6199)
- Unrelated to HSAs: Would eliminate the ACA health insurance premium tax for 2020 and 2021. This tax on insurers (often referred to as the “HIT” tax) is already scheduled to be suspended for 2019. (This was part of the budget bill continuing resolution (HR 195) enacted in January 2018.) (6311)