HSA Expansion Is in the Reconciliation Bill, Then It's Out. What's Happening in DC?
By William G. Stuart | Originally posted by Health Savings Academy
The House of Representatives wants to expand Health Savings Accounts. The Senate's first pass at a reconciliation bill does not include any of the 10 provisions that the House approved. What is the future of Health Savings Account expansion?
I spent the last two days on Capitol Hill, speaking with legislative aides for Republican lawmakers in both the House and Senate, to understand why a key committee chairman on the Senate side scuttled the House's HSA expansion provisions and what can be done to bring them back into the conversation. Here's a timely report.
A Civics Lesson Refresher
Under our Constitution, all legislation related to federal spending originates in the House of Representatives. When the House passes a bill, it moves to the Senate for consideration. The Senate either approves the bill as is, rejects it, or approves a similar but not identical bill. When the two chambers' bills are different, leaders form a conference committee composed of both chambers to iron out the differences and approve one bill that then goes back to each chamber for approval or rejection.
Reconciliation bills, which are limited to federal taxation and spending (as opposed to, say, foreign policy, presidential powers, or new federal programs). They become law with a simple majority vote in both the House and Senate. In contrast, all other legislation typically passes the Senate with only 60 votes.
Today, because Republicans hold slim majorities in both the House (220 to 212) and Senate (53-47), they can pass a reconciliation bill with no Democrat support. But their majority in both chambers does not guarantee passage. A handful of Republicans have indicated that they will not vote for a reconciliation bill unless it includes or excludes specific items such as a larger deduction for state and local taxes, Medicaid reform, and authorization to borrow more money.
House Expansion of Health Savings Accounts
The House of Representatives passed its version of the One Big, Beautiful Bill Act with 10 provisions that enhanced Health Savings Accounts:
Define all Bronze and catastrophic plans in ACA marketplaces as HSA-qualified, opening the Health Savings Account opportunity to 7.2 million Americans.
Permit otherwise-eligible seniors who are enrolled on Medicare Part A to continue to fund their Health Savings Accounts.
Permit patients in a direct-primary care (DPC) relationship who are otherwise HSA-eligible to fund a Health Savings Account and pay their monthly fee with tax-dree withdrawals from their account.
Ease the restrictions on what employer onsite clinics can treat without disqualifying an employee from funding a Health Savings Account.
Give employers the option to roll over Health FSA and Health Reimbursement Arrangement balances into employees' new Health Savings Accounts.
Allow otherwise-HSA-qualified individuals whose spouse's participate in a general Health FSA to remain eligible to fund a Health Savings Account.
Permit spouses who are both eligible to make a catch-up contribution to deposit the funds into one spouse's Health Savings Account.
Permit account owners to establish their Health Savings Accounts retroactively up to 60 days, back to the date that they became HSA-eligible.
Define fitness club memberships and certain fitness equipment as qualified expenses.
Permit lower-income Health Savings Account owners to increase their annual contributions by as much as twice the statutory limit.
On to the Senate
The healthcare provisions in the reconciliation bill rest with the Senate Finance Committee. (The Senate Banking; Housing and Urban Affairs; and Health, Education, Labor, and Pensions committees have jurisdiction over other parts of the bill.) Late last week, Sen. Mike Crapo (R-ID), who chairs the Finance Committee, issued an outline of a Senate version that makes major changes to the healthcare provisions in the legislation. His version excludes all 10 HSA expansion provisions (and wipes out the codification and enhancement of Individual-Coverage Health Reimbursement Arrangements, too). The rationale was that all other health-related initiatives in the bill were excluded as well, although that reasoning does not hold up to close scrutiny.
Policy and Politics
So, where do leaders in the industry go from here? The legislative path is composed not just of what makes good policy. It's also a function of the politics of an issue, the particular path (process) that a bill takes, and the people who control that process.
Policy: The 10 Health Savings Account provisions make good sense. They allow more Americans to open and fund Health Savings Accounts, removing barriers to eligibility that make little sense. They give account owners more opportunities to enhance their health and to spend their money directly, rather than through insurers. Some provisions are better than others. For example, Nos. 1 and 2 above would open this opportunity to more than 8 million Americans who face very high cost sharing on their medical plan without the opportunity to pay their medical bills with tax-free funds (or save tax-free for future qualified expenses). They are industry priorities. Nos. 3 and 4 remove disqualifying "coverage" that should not be considered when determining eligibility. Nos. 5-8 eliminate help more individuals covered on an HSA-qualified plan to begin to experience the benefits of their accounts sooner. These provisions account for approximately $23 billion in lost federal revenue over 10 years (in a bill whose total revenue loss is $3 trillion for perspective).
Politics: The final two provisions - defining gym memberships and certain sports equipment as a qualified expense, and increasing contributions - account for about $20 billion in lost revenue. The industry would gladly sacrifice these initiatives to reduce the cost of Health Savings Account expansion. This is where politics come into play. The fitness provision is sponsored by Sen. John Thune (R-SD), the new majority leader, and Rep. Jason Smith (R-MO), the chair of the House Ways and Means Committee that has jurisdiction over the bill. It's difficult to recommend that this provision be sacrificed to bring down the cost of the Health Savings Account changes.
Also, the Health Savings Account provisions represent 1% of the total cost of the bill. They fall into the bucket of healthcare changes that include much larger and more controversial changes to Medicaid (pulling back eligibility for able-bodied working-age adults with no children - a group who are currently favored over single mothers, children, and disabled Americans under the current Medicaid structure) and a rollback of enhanced income-related subsidies for people who buy coverage through federal- and state-facilitated marketplaces (commonly known as the ACA exchanges). A handful of Republican senators are willing to die politically on those hills. Health Savings Account provisions don't engender that level of political passion.
Process
The third "P" that's critical to understanding what's happening is process. There are several ways that the Health Savings Account provisions can be included in the final legislation. It's important to note that the reconciliation bill must pass. And it will pass in some form. Without it, all Americans will receive a hefty tax increase beginning in 2026, as the provisions in the Tax Cut and Jobs Act of 2017 expire.
So, what is the process now? First, the Senate must move from a general statement of Chairman Crapo's high-level outline to legislative language. That should happen in the next few days. At that point, the Senate Finance Committee will have a bill to mark up and present to the full Senate for consideration (assuming it passes through committee, where Republicans have a majority). that bill will differ from the House in important respects, including - most likely - the elimination of the Health Savings Account provisions.
What then of the future of Health Savings Account expansion?
First, the Senate could pass a bill without the Health Savings Account provisions. That bill would then go to the House for a vote. Based on Chairman Crapo's outline, that legislation would likely fail in the House. Leaders could then organize a conference committee to iron out the differences. If negotiators for either chamber insist on including provisions that the other chamber omitted in its version or voted down, the negotiating process would then collapse. Republicans would be left with implementing the largest tax increase in history with the expiration of the 2017 tax cuts. This outcome is unlikely.
Second, members of the Finance Committee could alter the bill when it moves from the chairman's memo to an actual draft. Eight of the 13 Republican members of the committee have cosponsored Health Savings Account bills in the past, so these accounts have support within the committee. Including some or all the Health Savings Account provisions, either in committee as the bill is written or as floor amendments when the full Senate considers the legislation, would increase the likelihood that the Senate bill would pass the House or that a conference committee could work out differences in the two chambers' bills.
Third, the Trump Administration could intervene and effectively write the bill to its liking and demanding that both chambers pass it as written. This heavy-handed approach is unusual, but this administration does not hesitate to make demands of Republican legislators and test senators' and representatives' loyalties.