Expanded HSAs Part of Proposed ACA Fix

In Washington you never really quite know whether a legislative proposal is truly dead, mostly dead, or partly alive. In this case, we’re not talking about Rothification, but a proposed legislative fix to the Affordable Care Act (ACA) that includes an expansion of the HSA contribution limits.

Congress has tried to repeal the ACA several times over the last few months. When those efforts failed, various members proposed legislative fixes to address, among other things, the cost-sharing subsidies paid to insurance companies that are integral to the operation and stability of the exchanges.

This latest effort comes from the two influential tax-writing committee chairmen – House Ways and Means Committee Chairman Kevin Brady (R-TX) and Senate Finance Committee Chairman Orrin Hatch (R-UT) – who announced that they reached an agreement to provide a two-year funding extension for the ACA’s cost-sharing reduction (CSR) payments, as well as “concrete, structural” ACA reforms.

Forcing the Issue

As background, the CSR payments have been entangled in litigation when congressional Republicans successfully argued before a federal court that the payments made under the Obama administration were improper because they had been made without congressional approval. While the case is currently before an appeals court, the Trump administration recently announced it would no longer send this money to insurance companies without the constitutionally-required appropriation from Congress. This has set off a new round of litigation and legislative efforts to address the issue.

In addition to addressing the “underlying illness” with Obamacare, Chairman Brady explains that the agreement “also empowers individuals and families to save and spend their health care dollars the way they want and need by expanding and enhancing a popular, tax-advantaged savings tool known as health savings accounts.”

According to the chairmen’s release, along with extending the CSR payments through 2019, their agreement would:

  • Expand HSAs to increase the maximum contribution limit.
  • Provide relief from the ACA’s individual mandate from 2017-2021. The chairmen note that “this time frame should produce enough savings to cover the cost of providing relief from the employer mandate and the HSA expansion policy.”
  • Provide relief from the employer mandate from 2015-2017. Employers would be exempt from penalties if they did not provide coverage based on requirements of the mandate.

ARA Supportive of HSA Expansion

The American Retirement Association has been supportive of efforts to enhance and expand HSAs, believing that the triple tax advantages of HSAs are a tremendous opportunity for saving health care dollars for retirement. In addition, the ARA has advocated for permitting employers to add HSAs as a “sidecar” account to a 401(k) plan.

An earlier Senate proposal would have nearly doubled the HSA contribution limits to $6,900 for an individual and $13,800 for family coverage, as well as provide for a $1,000 catch-up contribution for each spouse beginning at age 55. Other enhancements included reducing the additional tax on distributions that are not used for qualified medical expenses from 20% to 10%, and broadening the current categories eligible for health care expenses.

While we do not know the exact details of this latest proposal, the chairmen say the full legislative language will be released “in the coming days.”

Whether President Trump and the full House and Senate are willing to accept the agreement is a whole other matter, but it does appear that lawmakers are not yet ready to give up on addressing the issue.

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