Proposed Legislation Opens New Doors of Opportunity for HSAs

HR 6857 is in its legislative infancy. But it includes some interesting provisions that deserve committee consideration.

US Rep. Mike Gallagher (R-Wisc.) introduced HR 6857 days before Christmas. The proposed legislation is unlikely to become law in its current form. But it reinforces the concept of expanding the Health Savings Account opportunity to more hard-working Americans struggling to pay their qualified out-of-pocket medical, dental, and vision expenses. Also, it introduces a new approach to setting contribution limits that allows enrollees with higher deductible and out-of-pocket financial responsibility to contribute more money to meet those higher expenses.

The introduction of the bill is the first step in a long process of writing laws. The next step is to assign it to the House of Representatives committees of jurisdiction (Ways & Means and Energy & Commerce) for a mark-up (a process during which committee members consider the provisions and make edits) and a majority vote out of committee to the floor. The bill is then debated and voted on by the whole House before advancing to the Senate. If it passes the Senate with alternation, leaders of the two chambers designate a small working group to reconcile the differences and re-present the bill to the House and Senate. If both chambers approve identical language, the bill is sent to the president for his signature or veto.

In other words, the process to turn this proposed legislation - or any introduced bill - into law is a long one.

Health Savings Account Expansion

A key feature of the bill is to expand the number of Americans who can open and fund a Health Savings Account. The legislation defines the following coverage as an HSA-qualified plan:

Medicare. Under current law, anyone age 65 or older collecting Social Security benefits is auto-enrolled in Medicare Part A, with no opportunity to decline this coverage. Even working seniors (employees age 65+) or spouses, when covered by one or the other's company's plan, must enroll in Part A when they collect Social Security benefits (as half of all Americans do by age 65). This provision penalizes working seniors who earn lower wages and must collect Social Security benefits to balance their budgets. Under HR 6857, anyone enrolled in Medicare would be eligible to open and fund a Health Savings Account.

Student insurance. Many students take advantage of a federal law requiring their parent's plan to continue to cover them until their 26th birthday. But others don't have the luxury of a parent's policy or are doctoral candidates age 26 or older. Student plans aren't HSA-qualified today. Under this bill, they would be.

Direct-primary care. This increasingly popular form of medical delivery works outside insurance. Patients pay a fixed monthly rate, usually adjusted for patient age and sometimes medical condition, and in exchange receive comprehensive primary care services. Doctors don't file claims with insurance. They spend more time with and communicate through more media with patients, work with patients to develop strategies to retain or maintain health, and manage chronic conditions. Under current law, patients covered by a DPC arrangement aren't eligible to open and fund a Health Savings Account, even if they're covered by an HSA-qualified plan and meet all other eligibility requirements. This bill would redefine DPC so that it's not considered disqualifying coverage. You can read more about the benefits of DPC to both patient health and in reduced cost here.

Veterans coverage and care. Under federal law, military retirees who carry their TRICARE coverage as secondary coverage aren't HSA-eligible. And veterans who are otherwise HSA-eligible but receive certain non-preventive, non-service-related care at a Department of Veterans Services (VA facility are disqualified from funding their Health Savings Account for three months. This bill would ensure that this coverage and care isn't disqualifying.

Actuarial Value and Contributions

The rules that define an HSA-qualified plan are very descriptive. Except for select preventive care, all services must be applied to a deductible of at least $1,600 for self-only and $3,200 for family coverage. Insurers and employers can't make exceptions to reduce the barriers to regular monitoring of chronic conditions when that care reduces claims and enhances the patient's quality of life.

One proposal that the industry has advanced to address this issue is to allow a second path to designing HSA-qualified coverage based on the plan's actuarial value, or AV. The AV of a plan is determined by the percentage of total claims paid by the insurer (the balance is the patients' financial responsibility).

Example: New Century Insurance offers its Saver 3000 HSA Plan with a deductible of $3,000 for self-only and $6,000 for family coverage. At the end of the year, it determines that the plan has processed $100 million in claims for covered services. New Century paid $67 million of that amount. Patients paid the balance as deductibles, coinsurance, and copays. The Saver 3000 HSA Plan has an actuarial value of 67 (67% of claims paid by the insurer).

AV is a core concept in qualifying plans sold in federal- and state-facilitated marketplaces. The Platinum Gold, Silver, and Bronze plans must have AVs of 90, 80, 70, and 60, respectively, with a deviation of no more than two percentage points (thus, the Silver plan AV target is 70, so qualifying plans must have an AV between 68 and 72).

Tying AV to Contribution Limits

Under current law, Health Savings Account contribution limits apply to all HSA-eligible individuals, regardless of the AV of their HSA-qualified plans. In 2024, those limits are $4,150 for self-only and $8,300 for family plans, with an additional $1,000 catch-up contribution for eligible owners who are age 55 or older.

HR 6857 would adjust contribution limits based on the AV of the HSA-qualified coverage, as follows:

• AV less than 55: $10,000 self-only and $20,000 family

• AV between 55 and 64.9: $8,600 and $17,200

• AV 65 or greater: $7,200 and $14,400

This change would deliver some positive effects:

1. It would encourage employers to offer multiple HSA-qualified plans so that employees could determine their optimal balance between the level of financial responsibility that they want to assume and the corresponding contribution limits.

2. Similarly, buyers purchasing coverage in the nongroup market receive financial incentives to purchase plans with a lower AV, thereby reducing their premiums and freeing up money to contribute to their Health Savings Account to cover their cost-sharing.

3. Employees whose employer offers a plan with a low AV will have an opportunity to fund their accounts at higher levels to cover their higher financial responsibility.

It's a different way of looking at contributions. It definitely has merit. Allowing people enrolled in plans with low AVs - whether that decision was voluntary or their only employer-sponsored option - to build larger balances to match their larger financial responsibility is an approach worth exploring.

The Bottom Line

This bill deserves a thorough debate when the committees of jurisdiction consider healthcare legislation (which they typically must every year, if only because they must reauthorize existing programs). Any of or all these changes would help Americans across the income spectrum save for unexpected (or expected) medical expenses and pay those bills with tax-advantaged funds.

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HSA Wednesday Wisdom is published fortnightly, alternating with HSA Question of the Week on Wednesdays. The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity. HSA Wednesday Wisdom is published every other Wednesday, alternating with HSA Question of the Week.