Healthcare reform

Washington Pulse: House Version of Repeal-and-Replace Health Bill Would Make Significant Changes to HSAs

On May 4, 2017, the House of Representatives passed—by a margin of 217 to 213—the American Health Care Act of 2017 (AHCA). Its purpose is to repeal and replace the Affordable Care Act (ACA), often referred to as Obamacare. This was the second attempt by House Republican leadership to pass repeal-and-replace legislation, the first bill having been abandoned when it became clear that there was not enough support for it to be passed.

Among the many AHCA provisions, some of which would affect taxes, coverage requirements, employer and individual mandates, etc., are provisions that would alter health savings accounts (HSAs). Americans are increasingly using these individual savings accounts, coupled with certain high-deductible health plans (HDHPs), to pay for health care expenses. In fact, the trend in American health care—both employer-sponsored and individually purchased—is toward these “defined contribution” savings arrangements and away from what have been informally referred to as low-deductible/comprehensive health plans.

The AHCA would significantly relax contribution and certain other HSA requirements. Most notably, the AHCA would

  • increase annual HSA contribution limits to equal the maximum HDHP out-of-pocket payment amounts (currently $6,550 for single and $13,100 for family coverage);
  • treat an HSA as having been established on the date HDHP coverage begins if the HSA is established within 60 days of such date. This change would permit medical expenses incurred on the date insurance coverage begins to be considered qualified expenses;
  • restore the 10 percent additional penalty tax on HSA distributions that are not used for qualified medical expenses (the ACA increased the additional penalty tax to 20 percent);
  • allow spouses that are both eligible to make catch-up contributions to choose which of their HSAs will receive the additional contributions; and
  • allow over-the-counter (i.e., nonprescription) medications to be considered HSA-eligible expenses.

Another health-related, but non-HSA, provision would affect IRAs and employer-sponsored retirement plans. It would restore the 7.5 percent of adjusted gross income (AGI) threshold for the federal medical expense deduction (the ACA increased this threshold to 10 percent). This would, in turn, reduce the threshold from 10 percent to 7.5 percent of AGI for the unreimbursed medical expense exception to the 10 percent early distribution penalty tax.

The AHCA is expected to face challenges in the Senate. The HSA provisions are not considered controversial, but other provisions in the House bill—including those dealing with coverage of pre-existing health conditions, rolling back state expansions of Medicaid, etc.—are expected to be among provisions that many senators, including some in the Republican majority, may not support. If the Senate passes a health care bill different from the House bill, a conference committee process will be needed to reach a single uniform bill, followed by a new vote by both House and Senate, the outcome of which is uncertain at this time.

The HSA and early distribution provisions described above would generally become effective in 2018 if the AHCA were enacted as currently written.

Ascensus will continue to monitor this rapidly developing process and provide additional information as it becomes available.


House Passes Obamacare Replacement Bill

The U.S. House of Representatives narrowly passed H.R. 1628, the American Health Care Act of 2017, legislation introduced under the administration and Republican congressional leadership’s Affordable Care Act (ACA) repeal-and-replace initiative. H.R. 1628 repeals most of the ACA tax provisions, includes certain refundable tax credits, rolls back state Medicaid expansions under the ACA, and was introduced under what are known as “reconciliation rules.” This means that the legislation could pass in the Senate with a filibuster-proof simple majority. But some Democratic opponents to the legislation believe that certain provisions of the bill do not qualify for this filibuster-proof protection. Such reconciliation bills are generally subject to a future expiration date, and if so would have to be affirmed before such date in future legislation by a future Congress. Changes to H.R. 1628 could be made in the Senate, in which case, it would likely require action by a House-Senate conference committee to resolve differences, with voting on such unified legislation by both the House and Senate.

Proposed Senate Bill a Potential Component in Replacing Obamacare

Senators Bill Cassidy (R-LA) and Susan Collins (R-ME) have proposed the Patient Freedom Act of 2017, legislation intended to be a component in the replacement of the Affordable Care Act (ACA), also known as Obamacare. Under one of three options contained in this proposal, health savings accounts (HSAs) paired with a high deductible health plan (HDHP) and what is described as a ”basic pharmacy plan” would be combined with refundable tax credits or subsidy payments deposited on a taxpayer’s behalf into a “Roth HSA.” Under current law there is no “Roth HSA,” only HSAs to which tax-deductible contributions can be made by employers and taxpayers, and the distributions from which are tax free—including earnings—if used for qualified medical expenses. Cassidy further describes the HSA/HDHP/basic pharmacy plan as providing catastrophic coverage.


Under the Cassidy-Collins proposal, each state could either 1) retain the provisions of ACA, with some limitations on subsidies, 2) implement the above-described HSA/HDHP program with federal grants to states or refundable tax credits—in either case to fund taxpayer HSAs, or 3) design an alternative program without federal assistance. ACA provisions described as being retained include its prohibitions on excluding persons for pre-existing conditions or having annual and lifetime payment limits, its guaranteed insurability requirement, and the ability to insure young adults up to age 26. Several ACA mandates would be repealed, however, including those for individual coverage and employer coverage.


Additional details on this newly-described plan are anticipated. As of yet, no comparable plan has been proposed or is under consideration in the House of Representatives. While it is unclear how ACA repeal advocates will respond to the Cassidy-Collins proposal, it has been widely expected that some form of HSA expansion or enhancement would accompany ACA repeal efforts.