Passage of the Affordable Care Act (ACA), didn’t end the healthcare reform discussion. In fact, nearly 1/3 of all voters cite healthcare as the most important issue for the 2018 midterm election. With congressional leaders sending mixed signals on whether they intend to make another attempt to fully repeal the ACA, let’s take a closer look at recent legislative proposals involving a common feature of employer-sponsored health insurance coverage: the health savings account or HSA.
Where Do HSAs Fit in the Healthcare Reform Conversation?
HSAs are tax-free savings accounts that allow some consumers to save money to pay for certain out-of-pocket healthcare 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 plan (HDHP) can take advantage of HSAs. 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 healthcare premiums. Finally, over-the-counter drugs require a prescription in order to qualify for HSA disbursement. These accounts have proven to be popular.
Today, HSAs hold $40 billion in assets, and over 20 million Americans contribute to aN HSA.
The current political environment is favorable for expanding the programs. In fact, even though expanding HSAs would come with a fiscal note, some of the most aggressive expansions have been championed by the most fiscally conservative lawmakers.
Legislative Proposals to Expand or Reform HSAs
President Donald Trump’s first year in office did not produce any changes to HSA regulations. 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 Throughout 2017, lawmakers introduced a slate of bills that repealed various parts of the ACA and expanded use of HSAs. None of these bills has seen much movement. Instead, partial repeal and modification of the ACA has occurred in piecemeal fashion, either through 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 HSA language in the comprehensive reform bills that have already been introduced.
The American Health Care Act (AHCA) was introduced last spring and passed the House but failed to garner 50 votes in the Senate. This bill would have almost doubled the contribution limits for HSA, to $6,550 for individuals and $13,000 for families. The AHCA would have also allowed the accounts to be used to pay for all over-the-counter drugs.
Healthcare Market Certainty and Mandate Relief Act was introduced in the House and Senate in 2017, would increase the HSA contribution limits to the amount of the HDHP deductible and out-of-pocket limitations.
American Healthcare Reform Act of 2017 was introduced in the House, would increase HSA contributions and expand 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, and allows HSAs to pay for over-the-counter drugs and health insurance premiums.
Obamacare Repeal Act provides a tax credit of 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 HSAs to help seniors pay for healthcare. The bill creates a Medicare Alternative Voucher (MAV) Program, under which a voucher may be used as a contribution into an HSA and for the payment of enrollment premiums under an HDHP. 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 HSAs and decreased financial support from the federal government.
Forecast for Change
While it is clear that Congress remains interested in further healthcare 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.