SHRM: HSA Provisions in Failed GOP Bills Could Return in Future Legislation. Should They?
Health savings account advocates support higher contribution limits and eased restrictions
Even with no replacement measure for the Affordable Care Act (ACA) on the congressional horizon, the health savings account (HSA) reforms in the now-abandoned Senate and House health care bills may yet be voted on by Congress, said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management (SHRM).
“HSA stand-alone legislation will likely be introduced with additional modifications to the ACA,” she said.
On July 18, Senate Majority Leader Mitch McConnell announced that “Regretfully, it is now apparent that the effort to repeal and immediately replace the [ACA] will not be successful,” leaving in place the ACA’s employer coverage and reporting obligations.
The GOP House and Senate measures to repeal and replace the ACA contained provisions to expand the use of HSAs. Given the lack of Senate votes to move the measure forward, attention is focusing on resurrecting the HSA-related reforms in separate legislation.
HSA Reforms Still Viable
Republicans had put into their proposed ACA repeal provisions to raise contribution levels and ease restrictions on HSA use, as noted below.
Higher HSAs contributions.
Currently, HSA contributions limits for 2018 will be $3,450 for self-only coverage and $6,900 for family coverage, plus a $1,000 catch-up contribution for those 55 or older. Only the account holder may make a catch-up contribution. Republicans had proposed:
Nearly doubling the annual HSA contribution limits to equal the out-of-pocket maximums that apply to high-deductible health plans (for 2018: $6,650 for self-only coverage and $13,300 for family coverage), plus $1,000 catch-up contribution for those 55 or older.
Allowing spouses age 55 or older to make catch-up contributions to the same HSA.
Eased HSA restrictions.
Under the ACA, the tax on HSA distributions for nonmedical expenses is 20 percent. HSA funds may not be used for over-the-counter medical items without a prescription, and HSAs may not reimburse expenses incurred before the account is established. Republicans had proposed:
- Lowering the tax on HSA distributions for nonmedical expenses to 10 percent, its pre-ACA level.
- Allowing HSA funds to be used for over-the-counter medical items.
- Allowing HSAs to reimburse expenses incurred up to 60 days before the account is established, if the individual was eligible to open an account during that period.
- Allowing HSAs to be used to pay health insurance premiums for individual-market plans, including Medicare-supplemental (“Medigap”) health plans.
- Allowing HSAs to reimburse medical expenses of nondependent adult children covered under the account holder’s health plan.
The Republican health care bills also would have eliminated the ACA’s cap on employee contributions to flexible spending accounts (FSAs), originally set at $2,500 then indexed for inflation (the 2017 limit is $2,600). The GOP measures would let employers limit employee contributions.
Another commonly mentioned HSA reform, although not included in the GOP bills, would allow HSAs to pay for health services under all types of health plans, repealing the current rule that HSAs may only be coupled with high-deductible health plans (HDHPs).
“SHRM fully supports the repeal of the restrictions on the use and limitations on contributions to health savings accounts and flexible spending accounts,” Birbal said. “The promotion of HSAs will continue to allow employers the flexibility to offer a benefits package that best meets the needs of its workforce and would further provide medical financial stability and significant relief for employees.”
Below, benefit experts weigh in on the provisions that are expected to be reintroduced in future legislation
A Benefit Just for High Earners?
Would allowing HSAs to pay for plan premiums encourage employees to build up HSA funds during their working years to pay for post-employment health coverage?
“In an ideal world, yes. But this would require a massive amount of education and communication to shift employees away from thinking of HSAs as bank accounts and instead viewing them as supplemental retirement plans,” said Kim Buckey, a health care regulations expert and vice president of client services at DirectPath, a Birmingham, Ala.-based strategic employee engagement and health care compliance advisory firm.
“Folks would need to get comfortable with investing those funds rather than keeping them in cash,” she explained. “Also, younger workers might not be interested—their discretionary dollars are likely going to reduce debt, not saving for something 30 to 40 years away.”
Considering that a typical employee’s paycheck is already subject to federal income taxes, FICA taxes, health benefit costs, 401(k) deferrals and other benefit costs, “there may not be enough left over for the day-to-day costs of living, let alone HSA deferrals” for moderate income employees, said John Lowell, a benefits and compensation consultant based in Woodstock, Ga. He disputed a common assertion that HSAs would be more popular if people only understood them. “If participation in an HDHP is an entrance requirement, your average participant just doesn’t care about the possible benefits of a health savings account.”
But Alex Tolbert, an advisor with Nashville-based benefits brokerage Bernard Health, encourages employers to teach HDHP enrollees with moderate incomes how to effectively use HSAs. “Even if they don’t have enough in their HSA to cover a medical bill at this time, they can reimburse themselves later [with pretax HSA dollars] as long as the account was opened before the health care cost was incurred, and then re-fund their HSA via payroll contributions,” he said. Otherwise, “they’ll have to pay the bill with funds they’ve already paid taxes on,” driving up their overall out-of-pocket costs.
“The proposed changes to HSAs would allow consumers greater opportunities to save for current and future medical expenses,” said Harrison Stone, general counsel at ConnectYourCare, a Baltimore-based HSA services firm. “The increased contribution limits, grace period for expenses incurred between HSA eligibility and enrollment, joint catch-up contributions, decreased excise tax on unqualified distributions, and ability to purchase over-the-counter medications with an HSA are all improvements on current law and make HSAs an even more attractive option to save for current and future medical expenses.”
An Opportunity for Employers
“There is a difference in encouraging employees to save through HSAs and employees actually saving,” said Perry Braun, executive director of the Benefit Advisors Network (BAN), a Cleveland-based consortium of health and welfare benefit brokers. “The key question is given the earnings of the workforce today, do they have the financial resources to save for future health expenses.”
Higher contribution limits, if enacted, “could be an opening for employers to step up and contribute funds to employees’ HSAs” as part of a rewards strategy aimed at attracting and retaining talent, he noted.
(Stephen Miller, CEBS, is the Online Manager/Editor, Compensation & Benefits)