Republicans in Washington, D.C. have been busy this year, attempting to pass substantial health care legislation. We’ve watched each of the following slip away: the American Health Care Act of 2017 (AHCA), Better Care Reconciliation Act of 2017 (BCRA), Sen. Rand Paul’s Obamacare Replacement Act, Skinny Repeal and my sanity as I struggled to follow the details of each proposal . . . Just because none of these bills became law doesn’t mean there’s nothing to learn from what’s in them. Republicans may have differences of opinion regarding the structure of our health care system, but there was at least one common area of agreement: health savings accounts (HSA).
Republicans’ agreement on HSAs suggests that, if health care legislation is passed in the future, it is likely that some, if not all, of their proposed changes might be included. Here are some of the proposed HSA changes found in both the AHCA and BCRA:
- Increased HSA contribution limits
Federal regulations set limits on how much a participant may contribute to his or her HSA. The contribution limits for 2017 are $3,400 for an individual with self-only coverage and $6,750 for an individual with family coverage. Republicans proposed increasing those limits dramatically starting January 1, 2018. The proposed bills increased the limit for individuals with self-only coverage to $6,550, while the limit for those with family coverage rose to $13,100. - Permission for spouses to make catch-up contributions to the same HSA
Under current law, an HSA is owned by a single individual, even if that individual has his or her HSA connected to family coverage. Therefore, regulations have always specified that only the owner of the HSA is allowed to make contributions to the account. Under their recent proposals, Republicans were hoping to bend this requirement by allowing spouses to make what are referred to as catch-up contributions to the same HSA.
Right now, catch-up contributions are solely used in relation to retirement plans such as 401(k)s. They allow individuals aged 50 or older to make additional contributions to their accounts in order to adequately prepare for retirement. Since HSAs tend to function similarly to retirement accounts, this proposal suggests Republicans are looking to allow older Americans the opportunity to increase contributions to their HSAs in order to adequately plan for future health emergencies during their retirement years. - Repeal of the prescription requirement for over-the-counter medicines
Republicans also looked to repeal one of the more minor, but nonetheless controversial, provisions of the ACA: the requirement that over-the-counter medicine may only be considered a covered expense under HSAs, flexible spending accounts or health reimbursement accounts if it has been prescribed by a doctor. Without that prescription, people must pay for this medicine out of pocket. - Lessening of the penalty for nonqualified HSA distributions made prior to age 65
Money put into an HSA is required to be used to pay for qualified medical expenses. If it is used for purposes other than what is considered a qualified medical expense, then an additional tax is applied to that purchase. This penalty was originally set at 10%, until the ACA increased it to 20%. So it is no surprise that, under both the AHCA and the BCRA, Republicans proposed decreasing this penalty back down to 10%. - Permission for qualified distributions to pay medical expenses incurred before an HSA account was established
Currently, funds put into an HSA cannot be used to pay expenses incurred prior to the establishment of the HSA. Republicans were seeking to change this rule by allowing individuals to use HSA funds to reimburse for the medical expenses incurred within 60 days of high deductible health plan coverage but before creation of the HSA.
The future of health care may be uncertain but, if Republicans have any say in it, it will include more flexible opportunities for people to contribute to, and use, their HSAs.
Adam Abelson, Esq.
Associate Director, Educational Programs at the International Foundation