Health Savings Accounts (HSAs) were created to provide a tax-efficient way for people with high-deductible health care plans to make tax-deductible contributions to fund medical expenses not covered by the health plan. ‘insurance. However, many people may not be eligible to contribute to an HSA due to limitations on HSA eligibility.
According the Kaiser Family Foundation, 85% of covered workers are subject to a general annual deductible. The general annual deductible has increased by 13% over the past five years and by 68% over the past 10 years. Changes in the health insurance market in the years since the establishment of HSAs indicate that HSA would be a useful way to provide more people with a way to fund these increased deductibles and out-of-pocket expenses on a tax-advantaged basis.
It’s time for Congress to update the HSA rules to allow more people to establish an HSA to help pay their deductibles and OOP expenses. A number of bills have been introduced in Congress that remove restrictions on who can contribute to an HSA. Rather than tackle these issues piecemeal, Congress should consider a simple solution: allow anyone covered by a health plan that meets the requirements of the Affordable Care Act to contribute to an HSA.
HSA Eligibility Rules
The eligibility rules for the HSA are complex. To be eligible to contribute to an HSA, a person must be covered by a qualified high-deductible health plan. For 2022, an eligible high-deductible health insurance plan cannot have a deductible of $1,400 for personal coverage and $2,800 for family coverage, and out-of-pocket expenses under this coverage cannot exceed $7,050 in 2022 for personal coverage and $14,100 for family coverage. (with higher amounts for 2023). (Data from the Kaiser Family Foundation indicates that in 2021, the average deductible for health coverage provided by small businesses is $2,379 and $1,397 for large businesses.)
Preventive care expenses paid below the deductible amounts are allowed, but if other medical expenses are paid below the deductible, the person is not eligible to contribute to an HSA. This can occur if a person is eligible to receive free or reduced-cost medical benefits from a clinic offered by their employer or when state law requires that certain medical services be covered for free or at a reduced cost.
But this is not the only requirement. Also, some people are not eligible for an HSA, even if they are covered by a high-deductible health plan. Persons participating in Medicare, persons receiving benefits under Tricare which provides civilian health benefits to military personnel of the United States Armed Forces, military retirees, and persons receiving benefits from the Indian Health Service are not eligible for an HSA.
Therefore, if a company employs people in these categories, those employees will not be eligible to make or receive contributions to an HSA even if they are covered by the company’s health insurance plan. qualified high deductible health planalthough other employees of that company may make and receive contributions to their CGS.
The COVID-19 pandemic has shown how convoluted these HSA eligibility rules are and demonstrated the need for Congress to pass changes to these rules. During the COVID-19 pandemic, many employer-sponsored health insurance plans offered telehealth services at no cost or at a reduced cost below fair market value because many people could not see their doctor directly. . However, by providing this ability for employees to use telehealth services during a pandemic, people would become ineligible to contribute to an HSA.
Congress reacted and the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) passed on March 27, 2020, which provided a temporary exclusion from these incentives to use telemedicine to allow participants to continue to make and receive HSA contributions. The CARES Act relief was available for plan years beginning on or before December 31, 2021. Efforts to extend this relief before the end of 2021 have failed.
Therefore, effective January 1, 2022, HDHPs would not be able to provide telehealth services. However, Congress reconsidered this issue and in the Consolidated Appropriations Act of 2022, the CARES Act relief for telehealth services was reinstated for months beginning after March 31, 2022 and before January 1, 2023. As of January 1, 2023, however, this temporary relief will go away again. This shows that the current HSA eligibility rules are out of step with current health care coverage.
Legislation has been introduced to address some of the HSA eligibility issues. The Prohibition of Penalizing Older Workers Act(HR 5563) and the Health Savings Act of 2021 (HR 6271 and S. 380) would allow Medicare Part A beneficiaries to participate in an HSA. The Health Savings Act would also allow people who receive health care from the Indian Health Service to participate in an HSA. The Personalized Care Act of 2021 (HR 725) would allow people who receive health care from Tricare, which provides civilian health benefits to U.S. Armed Forces military personnel, military retirees, and their dependents, to participate in an HSA.
Some interest groups have argued for legislation that would override state law mandates on high-deductible health plans or to allow those subject to such state law mandates to Always be eligible for an HSA regardless of these state law mandates. Each of these proposed pieces of legislation will help address inequities under the current HSA eligibility rules.
There is a simpler solution to address these inequities: allow anyone covered by a health plan that meets the requirements of the Affordable Care Act to contribute to an HSA. Most people with health insurance coverage have high deductibles and out-of-pocket expenses, and they should be able to use an HSA to cover medical expenses not covered by their health insurance plan, even if they don’t meet eligibility rules. of the HSA. A broad and simple solution like this is good health care policy that Congress should address.
William Sweetnam is the Technical and Legislative Director of ECFC, a non-profit organization dedicated to maintaining and expanding employee benefit programs on a tax-efficient basis.