How HSA Contributions and Rules May Expand Under Trump, GOP Congress
Last week, Congress took the first steps on the road to repealing the Affordable Care Act (“ACA”) by passing a budget resolution and setting up a process to dismantle portions of the ACA.
Now Americans wait to see what will emerge to replace Obamacare and reshape the U.S. health care landscape. All signs point to HSAs being a cornerstone of whatever plan that may be.
Coinciding with President-Elect Trump’s inauguration, and while we wait to see how this will unfold, let’s look at how the 45th President and several GOP lawmakers could utilize HSAs as part of their collective approaches to health care reform.
Donald Trump Favors HSAs Bigly
Throughout his campaign to secure the Republican presidential nomination and then to claim the White House, President-Elect Donald Trump has spoken about the benefits of HSAs. He spoke to the need for these accounts when addressing high deductibles that could otherwise prevent insurance holders from seeking care.
“I’m OK with the savings accounts. I think it’s a good idea; it’s a very down-the-middle idea. It works. It’s something that’s proven,” Trump told George Stephanopoulos in an October 2015 interview.
He went on to say in that interview that “it’s possible” HSAs could eventually make Medicare unnecessary.
In a summary of his health care reform position, President-Elect Trump advocates for tax-free contributions to HSAs and making these accounts part of an individual’s estate to enable HSA funds to be passed on to his or her heirs without incurring an estate tax penalty.
While a spouse may inherit an HSA today without incurring a tax penalty, HSA funds inherited from someone other than a spouse would result in a tax because an HSA is currently considered part of an heir’s income in that scenario.
“The flexibility and security provided by HSAs will be of great benefit to all who participate,” he wrote.
For a better understanding of what proposals or reforms President-Elect Trump’s White House may embrace, we can review the Empowering Patients First Act – the Obamacare replacement plan proposed by Tom Price, the Georgia congressman and orthopedic surgeon tapped by Trump to serve as Health and Human Services (HHS) Secretary.
Underscoring the significant role HSAs would play in Cong. Price’s vision for U.S. health care reform, he calls for high deductible health plans to be re-labeled “HSA qualified health plans,” and almost 19% of Price’s 242-page bill is dedicated to HSAs.
Increasing the allowable HSA contribution to be equal to the maximum IRA contribution level. Currently, the IRA contribution limit is $5,500, while the HSA contribution limit for individuals is $3,400 per year — meaning contribution limits could increase by more than 60%.
$1,000 one-time HSA government contribution to encourage HSA enrollment
Providing a refundable tax credit for health insurance. If the enrollee’s health plan premiums are less than the tax credit amount, the remainder would be deposited into his/her HSA
Minimum distribution requirement from a retirement plan becoming transferable to an HSA and prohibiting its inclusion in an individual’s gross, taxable income
Enabling employers to roll funds from employees’ flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs) to their HSAs in a future year
HSA funds cannot be seized as part of bankruptcy
Allowing spouses who are HSA account holders to double their catch-up contributions to account for their eligible spouses
HSA Availability Expansion
The Empowering Patients First Act expands HSA availability as well, making it possible for various groups to utilize the accounts, including:
Medicare Part A enrollees
Veterans with service-connected disabilities
Native Americans utilizing IHS or tribal medical services
In terms of HSA expansion at least, the primary differences between various plans is often in the details. A Better Way, for example, would increase the maximum HSA contribution to match the combined amount of a participant’s annual deductible and out-of-pocket maximums – rather than mirroring IRA limits as Cong. Price proposed.
Expanding HSA accessibility to certain groups and enabling spousal catch-up contributions to a single HSA are also part of the Patient Choice, Affordability, Responsibility, and Empowerment Act (Patient CARE Act) – the replacement option created by Congressmen Richard Burr (R-NC), Orrin Hatch (R-UT), and Fred Upton (R-MI).
The Patient CARE Act, however, also calls for over-the-counter medications to become eligible HSA expenses and enables account participants to use funds to pay for HSA-qualified insurance premiums.
Paying for insurance premiums with HSA contributions is also a component of Patient Freedom Act, the proposal from Senator Bill Cassidy (R-LA).
Senator Cassidy’s proposal would convert the current Obamacare subsidies into state-managed federal grants which could be distributed directly to patients via HSA deposits.
His proposal would also require health care providers to publicly disclose their rates for services paid for using HSA funds in order to help patients comparison shop.
Unlimited HSA Contributions?
While some of the GOP’s most influential lawmakers seem to be marching to the same beat regarding HSAs, the abundance of Obamacare replacement plans in various stages and the lack of a consensus have been criticized by Democrats and some Republicans.
The importance of the GOP presenting a united front and rallying around the same ACA alternative bill hasn’t been lost on Senator Rand Paul (R-KY).
Senator Paul has made headlines in recent weeks while advocating repeal and replacement of Obamacare be a simultaneous 1-2 punch and promoting a “consensus replacement bill” he and other Republican members of Congress have crafted.
He asserts that this new bill weaves together the most popular and important elements from other Republican bills — noting that most of the positions in his proposal have been supported previously by Congressman Price.
I just spoke to @realDonaldTrump and he fully supports my plan to replace Obamacare the same day we repeal it. The time to act is now.
Senator Paul has stated that one of the pillars of his bill will be helping people pay for health care with a tax credit and health savings accounts.
One of the things that stands out most about Senator Paul’s approach is that HSA contributions would become uncapped if his bill were to become law.
“As we repeal Obamacare, we would be wise to vote on its replacement at the same time,” Paul wrote in a recent editorial. “What should we replace Obamacare with? Perhaps we should try freedom….”
He goes on to state that one of these freedoms would be the ability to “save unlimited amounts in a health savings account.”
Untethering HSAs from HDHPs
If unlimited HSA contributions is on the table then it should come as no surprise that dramatically expanding HSA eligibility in the President Trump era is as well.
Under the proposed Improving Health And Health Care Plan – the reform crafted by American Enterprise Institute scholars – all Americans would be eligible to enroll in an HSA regardless of their insurance plan’s deductible amount.
HSAs could be paired with any insurance plan. That’s a drastic departure from today’s minimum deductible eligibility requirement, but it’s important to note that removing that pre-requisite isn’t out of the question.
What that would mean to the future of FSAs and HRAs is unclear.
The popularized Obamacare alternatives discussed all focus on expanding health savings accounts. Exactly how HSAs should be enhanced, however, remains the subject of debate.
But common HSA changes proposed include:
Expand eligible expenses for HSAs
Establish government contributions to HSAs
Increase HSA contribution limits
Expand HSA availability for designated groups
“Improving the flexibility of health savings accounts and other consumer-oriented health care options will further enhance individual choice, without compromising quality of care or driving up the cost of coverage,” Ryan wrote in his policy paper.
This assertion that HSAs ultimately empower individuals to have more control of their health care choices is a shared element in many GOP plans as well.
Congress and the Trump Administration must now identify the most beneficial and realistic HSA elements of the various plans and devise a way to bring them together in one cohesive health care reform bill capable of matching Americans’ health and financial needs.
> Employee Next Steps: Interested in learning more about HSAs? Download our HSA For Dummies® eBook to learn more about eligible expenses, contribution rules, and much more.
> Employer Next Steps: If you’re an employer interested in improving and expanding upon your company’s consumer-directed benefits, contact us to learn how ConnectYourCare’s offerings and services can help your employees.
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.