[House Report 118-387]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 118-387
======================================================================
HSA MODERNIZATION ACT OF 2023
_______
February 13, 2024.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Smith of Missouri, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5687]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5687) to amend the Internal Revenue Code of 1986 to
modernize health savings accounts, having considered the same,
reports favorably thereon with an amendment and recommends that
the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND........................................... 4
A. Purpose and Summary................................. 4
B. Background and Need for Legislation................. 4
C. Legislative History................................. 5
D. Designated Hearing.................................. 5
II. EXPLANATION OF THE BILL.......................................... 6
A. Individuals Without Service-Connected Disability and
Eligible for Certain Veterans Benefits Permitted to
Contribute to Health Savings Accounts (sec. 2 of
the bill and sec. 223 of the Code)................. 6
B. Individuals Entitled to Part A of Medicare by Reason
of Age Allowed to Contribute to Health Savings
Accounts (sec. 3 of the bill and sec. 223 of the
Code).............................................. 8
C. Individuals Eligible for Indian Health Service
Assistance Not Disqualified from Health Savings
Accounts (sec. 4 of the bill and sec. 223 of the
Code).............................................. 9
D. Allowance of Bronze and Catastrophic Plans in
Connection With Health Savings Accounts (sec. 5 of
the bill and sec. 223 of the Code)................. 10
E. Safe Harbor for Absence of Deductible for Mental
Health Services (sec. 6 of the bill and sec. 223 of
the Code).......................................... 11
F. Special Rule for Certain Medical Expenses Incurred
Before Establishment of Health Savings Account
(sec. 7 of the bill and sec. 223 of the Code)...... 11
G. Allow Both Spouses to Make Catch-up Contributions to
the Same Health Savings Account (sec. 8 of the bill
and sec. 223 of the Code).......................... 12
H. Maximum Contribution Limit to Health Savings Account
Increased to Amount of Deductible and Out-of-pocket
Limitation (sec. 9 of the bill and sec. 223 of the
Code).............................................. 13
I. Clarification of Treatment of Distributions From
Health Savings Account for Long-term Care Services
(sec. 10 of the bill and sec. 223 of the Code)..... 14
III. VOTE OF THE COMMITTEE.......................................... 16
IV. BUDGET EFFECTS OF THE BILL..................................... 16
A. Committee Estimate of Budgetary Effects............. 16
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 16
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 16
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE..... 21
A. Committee Oversight Findings and Recommendations.... 21
B. Statement of General Performance Goals and
Objectives......................................... 22
C. Information Relating to Unfunded Mandates........... 22
D. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 22
E. Duplication of Federal Programs..................... 22
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.......... 22
A. Text of Existing Law Amended or Repealed by the
Bill, as Reported.................................. 22
VII. DISSENTING VIEWS................................................ 34
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``HSA Modernization Act of 2023''.
SEC. 2. INDIVIDUALS WITHOUT SERVICE-CONNECTED DISABILITY AND ELIGIBLE
FOR CERTAIN VETERANS BENEFITS PERMITTED TO
CONTRIBUTE TO HEALTH SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(1)(C) of the Internal Revenue Code of
1986 is amended by striking ``for a service-connected disability
(within the meaning of section 101(16) of title 38, United States
Code)''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 3. INDIVIDUALS ENTITLED TO PART A OF MEDICARE BY REASON OF AGE
ALLOWED TO CONTRIBUTE TO HEALTH SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(1)(B) of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iv) entitlement to hospital insurance
benefits under part A of title XVIII of the
Social Security Act by reason of section 226(a)
of such Act.''.
(b) Treatment of Health Insurance Purchased From Account.--Section
223(d)(2)(C)(iv) of such Code is amended by inserting ``and who is not
an eligible individual'' after ``who has attained the age specified in
section 1811 of the Social Security Act''.
(c) Coordination With Penalty on Distributions Not Used for Qualified
Medical Expenses.--Section 223(f)(4)(C) of such Code is amended by
striking ``Subparagraph (A)'' and inserting ``Except in the case of an
eligible individual, subparagraph (A)''
(d) Conforming Amendment.--Section 223(b)(7) of such Code is amended
by inserting ``(other than an entitlement to benefits described in
subsection (c)(1)(B)(iv))'' after ``Social Security Act''.
(e) Effective Date.--The amendments made by this section shall apply
to months beginning after December 31, 2025, in taxable years ending
after such date.
SEC. 4. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH SERVICE ASSISTANCE NOT
DISQUALIFIED FROM HEALTH SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(1) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(E) Special rule for individuals eligible for
assistance under indian health service programs.--For
purposes of subparagraph (A)(ii), an individual shall
not be treated as covered under a health plan described
in such subparagraph merely because the individual
receives hospital care or medical services under a
medical care program of the Indian Health Service or of
a tribal organization.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 5. ALLOWANCE OF BRONZE AND CATASTROPHIC PLANS IN CONNECTION WITH
HEALTH SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(H) Bronze and catastrophic plans treated as high
deductible health plans.--The term `high deductible
health plan' shall include any plan described in
subsection (d)(1)(A) or (e) of section 1302 of the
Patient Protection and Affordable Care Act.''.
(b) Effective Date.--The amendment made by this section shall apply
to months beginning after December 31, 2025, in taxable years ending
after such date.
SEC. 6. SAFE HARBOR FOR ABSENCE OF DEDUCTIBLE FOR MENTAL HEALTH
SERVICES.
(a) In General.--Section 223(c)(2) of the Internal Revenue Code of
1986, as amended by this Act, is amended by adding at the end the
following new subparagraph:
``(I) Safe harbor for absence of deductible for
mental health services.--A plan shall not fail to be
treated as a high deductible health plan by reason of
failing to have a deductible for not more than the
first $500 of any mental health benefits (as defined in
section 9812(e)(4)) specified by the plan for purposes
of this subparagraph.''.
(b) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2025.
SEC. 7. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE
ESTABLISHMENT OF HEALTH SAVINGS ACCOUNT.
(a) In General.--Section 223(d)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(E) Treatment of certain medical expenses incurred
before establishment of account.--If a health savings
account is established during the 60-day period
beginning on the date that coverage of the account
beneficiary under a high deductible health plan begins,
then, solely for purposes of determining whether an
amount paid is used for a qualified medical expense,
such account shall be treated as having been
established on the date that such coverage begins.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to coverage beginning after December 31, 2025.
SEC. 8. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS TO THE SAME
HEALTH SAVINGS ACCOUNT.
(a) In General.--Section 223(b)(5) of the Internal Revenue Code of
1986 is amended to read as follows:
``(5) Special rule for married individuals with family
coverage.--
``(A) In general.--In the case of individuals who are
married to each other, if both spouses are eligible
individuals and either spouse has family coverage under
a high deductible health plan as of the first day of
any month--
``(i) the limitation under paragraph (1)
shall be applied by not taking into account any
other high deductible health plan coverage of
either spouse (and if such spouses both have
family coverage under separate high deductible
health plans, only one such coverage shall be
taken into account),
``(ii) such limitation (after application of
clause (i)) shall be reduced by the aggregate
amount paid to Archer MSAs of such spouses for
the taxable year, and
``(iii) such limitation (after application of
clauses (i) and (ii)) shall be divided equally
between such spouses unless they agree on a
different division.
``(B) Treatment of additional contribution amounts.--
If both spouses referred to in subparagraph (A) have
attained age 55 before the close of the taxable year,
the limitation referred to in subparagraph (A)(iii)
which is subject to division between the spouses shall
include the additional contribution amounts determined
under paragraph (3) for both spouses. In any other
case, any additional contribution amount determined
under paragraph (3) shall not be taken into account
under subparagraph (A)(iii) and shall not be subject to
division between the spouses.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 9. MAXIMUM CONTRIBUTION LIMIT TO HEALTH SAVINGS ACCOUNT INCREASED
TO AMOUNT OF DEDUCTIBLE AND OUT-OF-POCKET
LIMITATION.
(a) Self-Only Coverage.--Section 223(b)(2)(A) of the Internal Revenue
Code of 1986 is amended by striking ``$2,250'' and inserting ``the
amount in effect under subsection (c)(2)(A)(ii)(I)''.
(b) Family Coverage.--Section 223(b)(2)(B) of such Code is amended by
striking ``$4,500'' and inserting ``the amount in effect under
subsection (c)(2)(A)(ii)(II)''.
(c) Conforming Amendments.--Section 223(g)(1) of such Code is
amended--
(1) by striking ``subsections (b)(2) and'' both places it
appears and inserting ``subsection'', and
(2) in subparagraph (B), by striking ``determined by'' and
all that follows through ```calendar year 2003'.'' and
inserting ``determined by substituting `calendar year 2003' for
`calendar year 2016' in subparagraph (A)(ii) thereof.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2025.
SEC. 10. CLARIFICATION OF TREATMENT OF DISTRIBUTIONS FROM HEALTH
SAVINGS ACCOUNT FOR LONG-TERM CARE SERVICES.
(a) In General.--Section 223(d)(2)(A) of the Internal Revenue Code of
1986 is amended by inserting before the last sentence the following:
``Such term includes amounts paid for qualified long-term care services
(as defined in section 7702B(c)).''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid after the date of the enactment of this Act.
(c) No Inference.--Nothing contained in this section or the amendment
made thereby shall be construed to create any inference with respect to
any amounts paid on or before such date.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 5687, the ``HSA Modernization Act of 2023,''
as ordered reported by the Committee on Ways and Means on
September 28, 2023, would expand high deductible health plan
health savings account eligibility to more populations,
increase contribution limits, and make technical changes to
improve these accounts.
B. Background and Need for Legislation
In order for an individual to be eligible to make
contributions or to receive contributions from an employer to a
health savings account (HSA), the individual must have a high
deductible health plan (``HDHP'') and have no disqualifying
health coverage. An HDHP is a health insurance plan that
satisfies certain requirements with respect to minimum
deductibles and maximum out-of-pocket expenses.
Individuals without a service-connected disability who are
eligible for health care services through the Department of
Veterans Affairs (``VA''), individuals who are entitled to
Medicare Part A but enrolled in an HDHP, and individuals who
receive care under a medical care program of the Indian Health
Service (``IHS'') or tribal organization are all ineligible to
contribute to an HSA under certain circumstances.
Under current law, some bronze plans on the Health Benefit
Exchanges\1\ may have maximum out-of-pocket costs that exceed
limits for HDHPs defined by the Internal Revenue Service
(``IRS''). In addition, catastrophic plans cannot be HDHPs.
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\1\See secs. 1311 and 1321 of Patient Protection and Affordable
Care Act (the ``PPACA'').
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Subject to several specific exceptions, under section
223(c)(2)(A) of the Internal Revenue Code, a HDHP may not
provide benefits for any year until the minimum deductible for
that year is satisfied.
HSA funds can only be used to pay for qualified medical
expenses (QMEs) incurred after the HSA is established.
Under current law, if both spouses are HSA-eligible and age
55 or older, they must open separate HSA accounts for their
respective ``catch-up'' contributions (an extra $1,000
annually).
The annual HSA contribution limit for an individual is
generally the sum of the limits determined separately for each
month (i.e., \1/12\ of the limit for the year, including the
catch-up limit, if applicable), based on the individual's
status and health plan coverage as of the first day of the
month. For 2023, the general limit on annual contributions that
can be made to an HSA is $3,850 in the case of self-only
coverage and $7,750 in the case of family coverage.
Clarification is needed to affirm that HSA funds can be
used for diagnostic, preventive, therapeutic, curing, treating,
mitigating, and rehabilitative services, and maintenance or
personal care services, for an individual that is unable to
perform at least two of the following activities: eating,
toileting, transferring, bathing, dressing, or continence as
certified by a licensed health care practitioner.
C. Legislative History
Background
H.R. 5687 was introduced on September 26, 2023, and was
referred to the Committee on Ways and Means.
Committee Hearings
On May 16, 2023, the Committee held a Full Committee
Hearing on ``Health Care Price Transparency: A Patient's Right
to Know''.
Committee Action
The Committee on Ways and Means marked up H.R. 5687, the
``HSA Modernization Act of 2023,'' on September 28, 2023, and
ordered the bill, as amended, favorably reported (with a quorum
being present).
D. Designated Hearing
Pursuant to clause 3(c)(6) of rule XIII, the Committee on
Ways and Means held a hearing on May 16, 2023, Ways and Means
Hearing ``Health Care Price Transparency: A Patient's Right to
Know'' which was used to develop and consider H.R. 5687.
II. EXPLANATION OF THE BILL
A. Individuals Without Service-Connected Disability and Eligible for
Certain Veterans Benefits Permitted to Contribute to Health Savings
Accounts (Sec. 2 of the Bill and Sec. 223 of the Code)
PRESENT LAW
Health savings accounts
An individual may contribute to an HSA only if the
individual is covered under a plan that meets the requirements
for a high deductible health plan, as described below. In
general, HSAs provide tax-favored treatment for current medical
expenses, as well as the ability to save on a tax-favored basis
for future medical expenses. In general, an HSA is a tax-exempt
trust or custodial account created exclusively to pay for the
qualified medical expenses of the account holder and his or her
spouse and dependents.
Within limits,\2\ contributions to an HSA made by or on
behalf of an eligible individual (with the exception of
contributions by the individual's employer) are deductible by
the individual. HSA contributions made on behalf of an eligible
individual by an employer are excludible from income and wages
for employment tax purposes. Earnings on amounts in HSAs are
not taxable. Distributions from an HSA for qualified medical
expenses are not includible in gross income. Distributions from
an HSA that are not used for qualified medical expenses are
includible in gross income and are subject to an additional tax
of 20 percent. The 20-percent additional tax does not apply if
the distribution is made after death, disability, or the
individual attains the age of Medicare eligibility (age 65).
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\2\For 2023, the basic limit on annual contributions that can be
made to an HSA is $3,850 in the case of self-only coverage and $7,750
in the case of family coverage. Rev. Proc. 2022-24, 2022-20 I.R.B.
1075, May 16, 2022. The basic annual contribution limits are increased
by $1,000 for individuals who have attained age 55 by the end of the
taxable year (referred to as ``catch-up'' contributions). Sec.
223(b)(3).
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High deductible health plans
An HDHP is a health plan that has an annual deductible
which is not less than $1,500 (for 2023) for self-only coverage
(twice this amount for family coverage), and for which the sum
of the annual deductible and other annual out-of-pocket
expenses (other than premiums) for covered benefits does not
exceed $7,500 (for 2023) for self-only coverage (twice this
amount for family coverage).\3\ These dollar thresholds are
adjusted for inflation.\4\
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\3\Ibid. Sec. 223(c)(2).
\4\Sec. 223(g).
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An individual who is covered under an HDHP is eligible to
contribute to an HSA, provided that while such individual is
covered under the HDHP, the individual is not covered under any
health plan that (1) is not an HDHP and (2) provides coverage
for any benefit (subject to certain exceptions) covered under
the HDHP.\5\
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\5\Sec. 223(c)(1).
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Various types of coverage are disregarded for this purpose,
including coverage of any benefit provided by permitted
insurance, coverage (whether through insurance or otherwise)
for accidents, disability, dental care, vision care, or long-
term care, as well as certain limited coverage through health
flexible spending arrangements.\6\ Permitted insurance means
insurance under which substantially all of the coverage
provided relates to liabilities incurred under workers'
compensation laws, tort liabilities, liabilities relating to
ownership or use of property, or such other similar liabilities
as specified by the Secretary of the Treasury (the
``Secretary'') under regulations. Permitted insurance also
means insurance for a specified disease or illness and
insurance paying a fixed amount per day (or other period) of
hospitalization.\7\
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\6\Sec. 223(c)(1)(B).
\7\Sec. 223(c)(3).
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Under a safe harbor, an HDHP is permitted to provide
coverage for preventive care (within the meaning of section
1861 of the Social Security Act, except as otherwise provided
by the Secretary) before satisfaction of the minimum
deductible.\8\ IRS guidance provides a safe harbor for the
types of coverage that constitute preventive care for this
purpose.\9\
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\8\Sec. 223(c)(2)(C).
\9\Notice 2004-23, 2004-1 C.B. 725. See also Notice 2004-50, 2004-
33 I.R.B. 196, August 16, 2004, Q&A's-26 and 27; Notice 2008-59, 2008-
29 I.R.B. 123, July 21, 2008; Notice 2013-57, 2013-40 I.R.B. 293,
September 30, 2013; and Notice 2019-45, 2019-32 I.R.B. 593, August 5,
2019.
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After an individual has attained age 65 and becomes
enrolled in Medicare benefits, contributions cannot be made to
the individual's HSA.\10\
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\10\See sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, January 12, 2004, corrected by Announcement 2004-67, 2004-
36 I.R.B. 459, September 7, 2004.
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Health savings accounts and veterans benefits
Prior to the passage of the Surface Transportation and
Veterans Health Care Choice Improvement Act of 2015 (``the
Surface Transportation Act''),\11\ under IRS guidance, an
individual who was eligible to receive medical services or
medical benefits through the VA, but who had not actually
received such services during the previous three months, was an
eligible individual for purposes of making contributions to an
HSA.\12\
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\11\Pub. L. No. 114-41, July 31, 2015.
\12\Notice 2004-50, 2004-33 I.R.B. 196, August 16, 2004, Q&A-5.
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The Surface Transportation Act amended the Code to provide
that an individual shall not fail to be treated as an eligible
individual for any period merely because the individual
receives hospital care or medical services under any law
administered by the Secretary of Veterans Affairs for a
service-connected disability.\13\ In response, the IRS issued
guidance providing that as a rule of administrative
simplification, any hospital care or medical services received
from the VA by a veteran who has a disability rating from the
VA may be considered to be hospital care or medical services
under a law administered by the Secretary of Veterans Affairs
for service-connected disability.\14\
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\13\Pub. L. No. 114-41, sec. 4007(b), July 31, 2015 (adding sec.
223(c)(1)(C)). A service-connected disability is defined by reference
to section 101(16) of title 38, United States Code.
\14\Notice 2015-87, 2015-52 I.R.B. 889, December 28, 2015, Q&A-20.
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REASONS FOR CHANGE
The Committee believes that all veterans should be able to
contribute to HSAs if they are otherwise eligible, not just
those that have a service-connected disability, or who have not
used VA medical benefits in the previous three months.
EXPLANATION OF PROVISION
Under the provision, an individual is not treated as
covered under a health plan other than an HDHP merely because
the individual receives hospital care or medical services under
any law administered by the VA. Thus, an individual who is
otherwise an eligible individual for purposes of making HSA
contributions does not become ineligible merely because of
receiving hospital care or medical services under a VA medical
care program.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2025.
B. Individuals Entitled to Part A of Medicare by Reason of Age Allowed
to Contribute to Health Savings Accounts (Sec. 3 of the Bill and Sec.
223 of the Code)
PRESENT LAW
Health savings accounts and entitlement to Medicare
For a general description of HSA eligibility, see Part A of
this document.
After an individual has attained age 65 and becomes
enrolled in Medicare benefits, contributions can no longer be
made to the individual's HSA.\15\ An individual who is
receiving retirement benefits from Social Security or the
Railroad Retirement Board is automatically enrolled in both
Medicare Part A (hospital insurance benefits) and Part B
(supplementary medical insurance benefits) starting the first
day of the month in which he or she turns age 65.\16\ When an
individual is automatically enrolled in Medicare at age 65, the
amount that can be deducted by that individual for
contributions to the HSA drops to zero for the first month (and
each subsequent month) that the individual is entitled to
Medicare benefits.\17\ In addition, the 20-percent additional
tax that otherwise applies to distributions not used for
qualified medical expenses does not apply if the distribution
is made after the individual attains age 65.
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\15\See sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, January 12, 2004, corrected by Announcement 2004-67, 2004-
36 I.R.B. 459, September 7, 2004 (``After an individual has attained
age 65 and becomes enrolled in Medicare benefits, contributions,
including catch-up contributions, cannot be made to an individual's
HSA.''). See also Notice 2004-50, 2004-33 I.R.B. 196, August 16, 2004,
Q&A-2 (``Thus, an otherwise eligible individual under section 223(c)(1)
who is not actually enrolled in Medicare Part A or Part B may
contribute to an HSA until the month that individual is enrolled in
Medicare.''); Notice 2008-59, 2008-29 I.R.B. 123, July 21, 2008, Q&A-5
and Q&A-6 (``[A]n individual is not an eligible individual under
section 223(c)(1) in any month during which such individual is both
eligible for benefits under Medicare and enrolled to receive benefits
under Medicare[, including Part D (or any other Medicare benefit)]'').
\16\42 U.S.C. 426(a). Medicare Part B, however, is a voluntary
program, and enrollees must pay premiums. See sec. 1839 of the Social
Security Act, 42 U.S.C. 1395r.
\17\Sec. 223(b)(7).
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Qualified medical expenses
Generally, for purposes of distributions from HSAs,
qualified medical expenses\18\ mean amounts paid for medical
care\19\ or menstrual care products. Medical care generally
means amounts paid for the diagnosis, cure, mitigation,
treatment and prevention of disease, or for the purpose of
affecting any structure or function of the body, as well as
transportation primarily for and essential to medical care.
Health insurance premiums are generally not qualified medical
expenses,\20\ but an individual who attains the age of Medicare
eligibility (age 65) may use an HSA to pay for health insurance
other than a Medicare supplemental policy.\21\
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\18\Sec. 223(d)(2).
\19\Based on the definition under sec. 213(d).
\20\Sec. 223(d)(2)(B).
\21\As defined in section 1882 of the Social Security Act, 42
U.S.C. 1395ss. Sec. 223(d)(2)(C)(iv).
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REASONS FOR CHANGE
As Americans increasingly work later into their lives, the
Committee believes that a working individual should not be
precluded from contributing to an HSA merely because the
individual has reached the age of Medicare eligibility.
EXPLANATION OF PROVISION
Under the provision, with respect to an individual who is
Medicare eligible but enrolled only in Medicare Part A, the
allowable deduction for contributions to an HSA does not become
zero during any month for such individual. Such an individual
is also considered as not having a health plan or other
coverage that would cause that individual to fail to be an
eligible individual for purposes of making contributions to an
HSA. Thus, an individual eligible for Medicare but enrolled
only in Medicare Part A would not fail to be treated as
eligible to make HSA contributions merely by reason of
enrollment in Medicare Part A.
In addition, the provision provides that individuals who
have attained age 65 and who are eligible to contribute to an
HSA generally may not use HSA funds to pay for health
insurance, unlike other individuals who have attained age 65,
and that the 20-percent additional tax on HSA distributions
that otherwise does not apply to individuals who have attained
age 65 continues to apply if the individual is an eligible
individual.
EFFECTIVE DATE
The provision applies to months beginning after December
31, 2025, in taxable years ending after such date.
C. Individuals Eligible for Indian Health Service Assistance Not
Disqualified From Health Savings Accounts (Sec. 4 of the Bill and Sec.
223 of the Code)
PRESENT LAW
For a general description of what constitutes permitted
insurance or permitted coverage related to eligibility to make
HSA contributions, see Part A of this document.
Under IRS guidance, an individual who is eligible to
receive medical services at an IHS facility, but who has not
actually received such services during the previous three
months, is an eligible individual for purposes of making
contributions to an HSA.\22\ However, an individual generally
is not an eligible individual if the individual has received
medical services at an IHS facility at any time during the
previous three months.
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\22\Notice 2012-14, 2012-8 I.R.B. 411, February 21, 2012.
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REASONS FOR CHANGE
The Committee believes Native Americans should be able to
contribute to HSAs if otherwise eligible, not just individuals
that have not received IHS or similar tribal medical benefits
within the past three months.
EXPLANATION OF PROVISION
Under the provision, an individual is not treated as
covered under a health plan other than an HDHP merely because
the individual receives hospital care or medical services under
a medical care program of the IHS or of a tribal organization.
Thus, an individual who is otherwise an eligible individual for
purposes of making HSA contributions does not become ineligible
merely because of receiving hospital care or medical services
under a medical care program of the IHS or of a tribal
organization.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2025.
D. Allowance of Bronze and Catastrophic Plans in Connection With Health
Savings Accounts (sec. 5 of the Bill and sec. 223 of the Code)
PRESENT LAW
For a general description of HDHPs, see Part A of this
document.
Plans in the Health Benefit Exchanges\23\ are defined by
reference to various metal categories which correspond to the
percentage of costs an enrollee is expected to incur, including
bronze, silver, gold, and platinum plans.\24\ A bronze plan
provides coverage that is designed to provide benefits that are
actuarially equivalent to 60 percent of the full actuarial
value of the benefits provided under the plan.\25\ This
percentage increases to 70 percent in a silver plan, 80 percent
in a gold plan, and 90 percent in a platinum plan.
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\23\See secs. 1311 and 1321 of Patient Protection and Affordable
Care Act (the ``PPACA'').
\24\See sec. 1302 of the PPACA.
\25\Sec. 1302(d) of the PPACA.
---------------------------------------------------------------------------
Catastrophic plans\26\ do not fall into any of these
categories and have low monthly premiums and higher
deductibles. Catastrophic plans are available only to
individuals under 30 or individuals of any age with a hardship
exemption. Under present law, catastrophic plans cannot be
qualified as HDHPs.
---------------------------------------------------------------------------
\26\See sec. 1302(e) of the PPACA.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that, consistent with the intent of
HDHPs, individuals enrolled in qualified health coverage with
deductibles above the HDHP threshold should be eligible to
contribute to HSAs and have identified bronze and catastrophic
plans as meeting this requirement.
EXPLANATION OF PROVISION
Under the provision, any bronze or catastrophic plan\27\ is
treated as an HDHP.
---------------------------------------------------------------------------
\27\See sec. 1302(d)(1)(A) and (e) of the PPACA.
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision is applicable to months beginning after
December 31, 2025, in taxable years ending after such date.
E. Safe Harbor for Absence of Deductible for Mental Health Services
(sec. 6 of the Bill and sec. 223 of the Code)
PRESENT LAW
For a general description of HDHPs, see Part A of this
document.
REASONS FOR CHANGE
The Committee believes that subject to a dollar limit,
permitting individuals with HSAs to access mental health
services at reduced rates before reaching their annual
deductible would increase access to these important services.
EXPLANATION OF PROVISION
The provision provides that an HDHP is permitted to provide
coverage for up to $500 of any mental health benefits\28\
specified by the plan before satisfaction of the plan's annual
deductible.
---------------------------------------------------------------------------
\28\As defined in sec. 9812(c)(4).
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision applies to plan years beginning after
December 31, 2025.
F. Special Rule for Certain Medical Expenses Incurred Before
Establishment of Health Savings Account (sec. 7 of the Bill and sec.
223 of the Code)
PRESENT LAW
Health savings accounts and high deductible health plans
For a general description of HSAs and HDHPs, see Part A of
this document.
In order for a distribution from an HSA to be excludable as
a payment for a qualified medical expense, the medical expense
must be incurred on or after the date that the HSA is
established.\29\ Thus, a distribution from an HSA is not
excludable as a payment for a qualified medical expense if the
medical expense is incurred after a taxpayer enrolls in an HDHP
but before the taxpayer establishes an HSA.
---------------------------------------------------------------------------
\29\Notice 2004-2, 2004-1 C.B. 269, Q&A-26.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes connecting consumers to their health
care dollars through consumer-directed health plans, including
HDHPs, reduces health care costs. The Committee further
believes that HSAs are an important tool used in conjunction
with HDHPs to permit consumers to set aside funds and provide
such consumers the choice on how to spend those funds to pay
for medical care.
The Committee believes that allowing an HSA to be treated
as established on the date coverage under an HDHP begins will
avoid confusion and delays in care for individuals setting up
their HSAs while expanding access to and enhancing the utility
of HSAs.
EXPLANATION OF PROVISION
Under the provision, if an HSA is established during the
60-day period beginning on the date that an individual's
coverage under an HDHP begins, then, solely for purposes of
determining whether an amount paid is used for a qualified
medical expense, the HSA is treated as having been established
on the date that coverage under the HDHP begins. Thus, if a
taxpayer establishes an HSA within 60 days of the date that the
taxpayer's coverage under an HDHP begins, any distribution from
an HSA used as a payment for a qualified medical expense
incurred during that 60-day period after the HDHP coverage
began is excludable from gross income as a payment for a
qualified medical expense even though the expense was incurred
before the date that the HSA was established.
EFFECTIVE DATE
The provision is effective with respect to coverage
beginning after December 31, 2025.
G. Allow Both Spouses To Make Catch-Up Contributions to the Same Health
Savings Account (Sec. 8 of the Bill and Sec. 223 of the Code)
PRESENT LAW
Health savings accounts
For a general description of HSAs, see Part A of this
document.
Within limits, contributions to an HSA made by or on behalf
of an eligible individual (with the exception of contributions
by the individual's employer) are deductible by the individual.
For 2023, the basic limit on annual contributions that can be
made to an HSA is $3,850 in the case of self-only coverage and
$7,750 in the case of family coverage.\30\ The basic annual
contributions limits are increased by $1,000 for individuals
who have attained age 55 by the end of the taxable year
(referred to as ``catch-up'' contributions).\31\ If eligible
individuals are married to each other and either spouse has
family coverage, both spouses are treated as having only family
coverage, so that the coverage limit for family coverage
applies. The contribution limit, after being reduced by the
aggregate amount paid to the Archer Medical Savings Accounts
(``Archer MSAs'') of the spouses, but without regard to any
catch-up contribution amounts, is divided equally between the
spouses unless they agree to a different division.\32\
---------------------------------------------------------------------------
\30\Rev. Proc. 2022-24, 2022-20 I.R.B. 1075, May 16, 2022.
\31\Sec. 223(b)(3).
\32\Sec. 223(b)(5).
---------------------------------------------------------------------------
If both spouses of a married couple are eligible
individuals, each may contribute to an HSA, but they cannot
have a joint HSA.\33\ Under the rule described above, however,
the spouses may divide their basic contribution limit for the
year by allocating the entire amount to one spouse to be
contributed to that spouse's HSA.\34\ However, this allocation
rule does not apply to catch-up contribution amounts. Thus, if
both spouses are at least age 55 and eligible to make catch-up
contributions, each must make the catch-up contribution to his
or her own HSA.\35\
---------------------------------------------------------------------------
\33\Notice 2004-50, 2004-2 C.B. 196, Q&A-63.
\34\Notice 2004-50, 2004-2 C.B. 196, Q&A-32. Funds from the
spouse's HSA may be used to pay qualified medical expenses for either
spouse on a tax-free basis. Notice 2004-50, Q&A-36.
\35\Notice 2004-50, 2004-2 C.B. 196, Q&A-22.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that HSAs are a useful tool to allow
and encourage individuals and families to cover current and
future health care expenses. The Committee further believes
that there should be fewer barriers for those wishing to
contribute to their HSAs.
Therefore, the Committee believes that spouses should be
allowed to make catch-up contributions to the same HSA, without
requiring each spouse to make the catch-up contribution to his
or her own HSA.
EXPLANATION OF PROVISION
Under the provision, if both spouses of a married couple
are eligible for catch-up contributions (i.e., both spouses are
at least age 55) and either has family coverage under a high
deductible health plan as of the first day of any month, the
annual contribution limit that can be allocated between them
(after being reduced by the aggregate amount paid to the Archer
MSAs of the spouses) includes the catch-up contribution amounts
of both spouses. Thus, for example, the spouses may agree to
have their combined basic and catch-up contribution amounts
allocated to one spouse to be contributed to that spouse's HSA.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2025.
H. Maximum Contribution Limit to Health Savings Account Increased to
Amount of Deductible and Out-of-Pocket Limitation (Sec. 9 of the Bill
and Sec. 223 of the Code)
PRESENT LAW
Health savings accounts and high deductible health plans
For a general description of HSAs and HDHPs, see Part A of
this document.
Within limits, contributions to an HSA made by or on behalf
of an eligible individual (with the exception of contributions
by the individual's employer) are deductible by the individual.
The annual HSA contribution limit for an individual is
generally the sum of the limits determined separately for each
month (i.e., \1/12\ of the limit for the year, including the
catch-up limit, if applicable), based on the individual's
status and health plan coverage as of the first day of the
month.\36\ For 2023, the basic limit on annual contributions
that can be made to an HSA is $3,850 in the case of self-only
coverage and $7,750 in the case of family coverage.\37\ The
basic annual contribution limits are increased by $1,000 for
individuals who have attained age 55 by the end of the taxable
year (referred to as ``catch-up'' contributions).\38\
---------------------------------------------------------------------------
\36\Sec. 223(b).
\37\Rev. Proc. 2022-24, 2022-20 I.R.B. 1075, May 16, 2022.
\38\Sec. 223(b)(3).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that the basic HSA contribution
limit should be aligned to better reflect the actual health
care costs (i.e., the out-of-pocket expenses and the
deductible) that individuals and families may have to cover.
EXPLANATION OF PROVISION
The provision increases the basic limit on aggregate HSA
contributions for a year to equal the sum of the annual
deductible and out-of-pocket expenses permitted under an HDHP.
Thus, for 2023, the basic limit is $7,500 for self-only
coverage and $15,000 in the case of family coverage. As under
present law, the basic contribution limit is increased by
$1,000 for an eligible individual who has attained age 55 by
the end of the taxable year. In addition, as under present law,
the annual HSA contribution limit for an individual is
generally the sum of the limits determined separately for each
month (i.e., \1/12\ of the limit for the year, including the
catch-up limit, if applicable), based on the individual's
status and health plan coverage as of the first day of the
month.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2025.
I. Clarification of Treatment of Distributions from Health Savings
Account for Long-Term Care Services (Sec. 10 of the Bill and Sec. 223
of the Code)
PRESENT LAW
For general information on HSAs and HDHPs, see Part A of
this document.
Qualified medical expenses
Generally, for purposes of distributions from HSAs,
qualified medical expenses\39\ mean amounts paid for medical
care.\40\ Medical care generally means (with respect to an
account beneficiary) amounts paid for the diagnosis, cure,
mitigation, treatment and prevention of disease, or for the
purpose of affecting any structure or function of the body, as
well as transportation primarily for and essential to medical
care.
---------------------------------------------------------------------------
\39\Sec. 223(d)(2); see also Notice 2004-50, 2004-2 C.B. 196, Q&A-
42.
\40\Based on the definition under sec. 213(d). For HSA purposes,
amounts paid for menstrual care products are treated as paid for
medical care. Sec. 223(d)(2)(A).
---------------------------------------------------------------------------
Qualified long-term care services
Medical care also includes qualified long-term care
services\41\ which are certain necessary diagnostic,
preventive, therapeutic, curing, treating, mitigating and
rehabilitative services, and maintenance or personal services
required by a chronically ill individual which are provided
pursuant to a plan of care prescribed by a licensed health care
practitioner. The term ``chronically ill individual'' includes
any individual who has been certified by a licensed health care
practitioner (within the preceding 12-month period) as being
unable to perform (without substantial assistance from another
individual) at least two activities of daily living--eating,
toileting, transferring, bathing, dressing, or continence--for
a period of at least 90 days due to a loss of functional
capacity. The term ``maintenance or personal care services''
means any care the primary purpose of which is the provision of
needed assistance with any of the disabilities as a result of
which the individual is a chronically ill individual (including
the protection from threats to health and safety due to severe
cognitive impairment). A ``licensed health care practitioner''
is any physician\42\ and any registered professional nurse,
licensed social worker, or other individual who meets such
requirements as may be prescribed by the Secretary.
---------------------------------------------------------------------------
\41\Sec. 213(d)(1)(C). Qualified long-term care services are
defined in section 7702B(c).
\42\As defined in section 1861(r)(1) of the Social Security Act, 42
U.S.C. 1395x. Section 1861(r)(1) of the Social Security Act provides
that a doctor of medicine or osteopathy must be legally authorized to
practice medicine and surgery by the State in which he performs such
function or action.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes connecting consumers to their health
care dollars through consumer-directed health plans, including
high deductible health plans, reduces health care costs. The
Committee further believes that HSAs are an important tool used
in conjunction with HDHPs to permit consumers to set aside
funds and provide such consumers the choice on how to spend
those funds to pay for medical care.
The Committee believes that individuals should be able to
use their HSAs to pay for qualified long-term care services,
including certain home health care services, for chronically
ill individuals.
EXPLANATION OF PROVISION
The provision clarifies that qualified medical expenses
include amounts paid for qualified long-term care services,
allowing HSA distributions to be used to pay for needed
assistance for chronically ill individuals.
EFFECTIVE DATE
The provision is effective for amounts paid after the date
of enactment.
Nothing contained in the provision is to be construed to
create any inference with respect to any amounts paid on or
before the date of enactment.
III. VOTE OF THE COMMITTEE
Pursuant to clause 3(b) of rule XIII of the Rules of the
House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 5687, the ``HSA Modernization Act of
2023,'' on September 28, 2023.
H.R. 5687 was ordered favorably reported to the House of
Representatives as amended by a roll call vote of 24 yeas to 18
nays (with a quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)................... X ....... ......... Mr. Neal........... ....... X .........
Mr. Buchanan..................... X ....... ......... Mr. Doggett........ ....... X .........
Mr. Smith (NE)................... X ....... ......... Mr. Thompson....... ....... X .........
Mr. Kelly........................ X ....... ......... Mr. Larson......... ....... X .........
Mr. Schweikert................... X ....... ......... Mr. Blumenauer..... ....... X .........
Mr. LaHood....................... X ....... ......... Mr. Pascrell....... ....... X .........
Dr. Wenstrup..................... X ....... ......... Mr. Davis.......... ....... X .........
Mr. Arrington.................... X ....... ......... Ms. Sanchez........ ....... X .........
Dr. Ferguson..................... X ....... ......... Mr. Higgins........ ....... X .........
Mr. Estes........................ X ....... ......... Ms. Sewell......... ....... X .........
Mr. Smucker...................... X ....... ......... Ms. DelBene........ ....... X .........
Mr. Hern......................... X ....... ......... Ms. Chu............ ....... X .........
Ms. Miller....................... X ....... ......... Ms. Moore.......... ....... X .........
Dr. Murphy....................... X ....... ......... Mr. Kildee......... ....... X .........
Mr. Kustoff...................... X ....... ......... Mr. Beyer.......... ....... X .........
Mr. Fitzpatrick.................. X ....... ......... Mr. Evans.......... ....... X .........
Mr. Steube....................... ....... ....... ......... Mr. Schneider...... ....... X .........
Ms. Tenney....................... X ....... ......... Mr. Panetta........ ....... X .........
Mrs. Fischbach................... X ....... .........
Mr. Moore........................ X ....... .........
Mrs. Steel....................... X ....... .........
Ms. Van Duyne.................... X ....... .........
Mr. Feenstra..................... X ....... .........
Ms. Malliotakis.................. X ....... .........
Mr. Carey........................ X ....... .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 5687, as
reported.
The estimate prepared by the Congressional Budget Office
(CBO) is included below.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority.
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The bill would:
Expand eligibility for health savings
accounts (HSAs)
Increase annual HSA contribution limits to
$7,500 for self-only coverage and $15,000 for family
coverage
Increase the HSA catch-up contribution limit
by $1,000 for people age 55 or older
Estimated budgetary effects would mainly stem from:
Decreased Medicare outlays caused by
increased use of HSAs
Reduced revenues from expanding HSA
contribution limits and eligibility
Areas of significant uncertainty include:
Anticipating the number of taxpayers who
would contribute to HSAs and the amount of their
contributions
The Congressional Budget Act of 1974, as amended,
stipulates that revenue estimates provided by the staff of the
Joint Committee on Taxation (JCT) are the official estimates
for all tax legislation considered by the Congress. CBO
therefore incorporates such estimates into its cost estimates
of the effects of legislation. Most of the estimates for the
provisions of this bill were provided by JCT.
Bill summary: H.R. 5687 would increase contribution limits
and expand eligibility for health savings accounts (HSAs)--tax-
favored accounts used to cover medical expenses for people with
high-deductible health plans (HDHPs). The bill also would
modify certain coverage requirements for HDHPs. H.R. 5687 would
take effect for tax years beginning after December 31, 2025.
Estimated Federal cost: The estimated budgetary effect of
H.R. 5687 is shown in Table 1. The costs of the legislation
fall within budget functions 570 (Medicare), 550 (health), 700
(veterans benefits and services), and 800 (general government).
Basis of estimate: The Congressional Budget Act of 1974, as
amended, stipulates that revenue estimates provided by the
staff of the Joint Committee on Taxation (JCT) are the official
estimates for all tax legislation considered by the Congress.
CBO therefore incorporates such estimates into its cost
estimates of the effects of legislation. JCT provided all
revenue estimates presented here for H.R. 5687.\1\
---------------------------------------------------------------------------
\1\For JCT's preliminary estimates of the provisions that include
detail beyond the summary presented here, see Joint Committee on
Taxation, Estimated Revenue Effects of H.R. 5687, the ``HSA
Modernization Act of 2023,'' Scheduled for Markup by the Committee on
Ways and Means on September 28, 2023, JCX-42-43 (September 26, 2023),
www.jct.gov/publications/2023/jcx-42-23; other details are in Joint
Committee on Taxation, Description of the Chairman's Amendment in the
Nature of a Substitute to H.R. 5687, The ``HSA Modernization Act of
2023,'' JCX-44-23 (September 27, 2023), www.jct.gov/publications/2023/
jcx-44-23.
---------------------------------------------------------------------------
For this estimate, CBO and JCT assume that the bill will be
enacted in fiscal year 2024 and that, except as otherwise
specified, its provisions would affect tax years beginning in
2026.
Direct spending and revenues: CBO and JCT estimate that
enacting H.R. 5687 would reduce Medicare outlays because some
people would remain in an HDHP who would not do so under
current law. JCT estimates that enacting the bill would reduce
income tax receipts because new or larger HSA contributions
would reduce income tax liabilities for some filers.
CBO and JCT estimate that, in total, H.R. 5687 would reduce
revenues by $61.1 billion and reduce outlays by $2.7 billion
over the 2024-2033 period. The bill's revenue reductions
include Social Security taxes, which are classified as off-
budget.
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 5687
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, billions of dollars--
-----------------------------------------------------------------------------------------------------------
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2024-2028 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decreases in Direct Spending
Estimated Budget Authority.................. 0 0 -0.1 -0.2 -0.3 -0.4 -0.4 -0.4 -0.5 -0.5 -0.6 -2.7
Estimated Outlays........................... 0 0 -0.1 -0.2 -0.3 -0.4 -0.4 -0.4 -0.5 -0.5 -0.6 -2.7
Decreases in Revenues
Section 3, Extend Tax Exclusion of HSA
Contributions to Certain Medicare Part A
Enrollees
Estimated Revenues.......................... 0 0 -0.2 -0.5 -0.9 -1.2 -1.3 -1.4 -1.4 -1.5 -1.7 -8.5
On-Budget Revenues...................... 0 0 -0.1 -0.4 -0.6 -0.8 -0.9 -0.9 -1.0 -1.1 -1.2 -5.9
Off-Budget Revenues..................... 0 0 -0.1 -0.2 -0.3 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -2.6
Section 9, Increase HSA Contribution Limits
Estimated Revenues.......................... 0 0 -2.5 -4.5 -5.2 -5.6 -6.0 -6.4 -6.8 -7.2 -12.2 -44.2
On-Budget Revenues...................... 0 0 -1.9 -3.5 -4.0 -4.2 -4.5 -4.8 -5.2 -5.5 -9.3 -33.5
Off-Budget Revenues..................... 0 0 -0.6 -1.1 -1.3 -1.3 -1.4 -1.5 -1.7 -1.8 -2.9 -10.7
All Other Sectionsa
Estimated Revenues.......................... 0 0 -0.3 -0.7 -0.9 -1.1 -1.2 -1.3 -1.4 -1.5 -2.0 -8.4
On-Budget Revenues...................... 0 0 -0.2 -0.6 -0.7 -0.9 -1.0 -1.0 -1.1 -1.2 -1.5 -6.7
Off-Budget Revenues..................... 0 0 -0.1 -0.1 -0.2 -0.2 -0.2 -0.3 -0.3 -0.3 -0.4 -1.7
Total Decreases
Estimated Revenues.......................... 0 0 -3.0 -5.8 -7.1 -7.9 -8.5 -9.0 -9.6 -10.2 -15.9 -61.1
On-Budget Revenues...................... 0 0 -2.3 -4.4 -5.4 -5.9 -6.4 -6.8 -7.3 -7.7 -12.0 -46.1
Off-Budget Revenues..................... 0 0 -0.7 -1.4 -1.7 -1.9 -2.1 -2.2 -2.4 -2.5 -3.8 -15.0
Net Increase in the Deficit
From Changes in Direct Spending and Revenues
Effect on the Deficit....................... 0 0 2.9 5.6 6.8 7.5 8.1 8.6 9.2 9.7 15.3 58.3
On-Budget Increases..................... 0 0 2.2 4.2 5.1 5.6 6.0 6.4 6.8 7.2 11.5 43.4
Off-Budget Increases.................... 0 0 0.7 1.4 1.7 1.9 2.1 2.2 2.4 2.5 3.8 15.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding; HSA = health savings account.
CBO estimates that implementing H.R. 5687 would increase spending subject to appropriation by less than $500,000 in any year over the 2024-2028 period.
aIncludes effects of interactions among all of the bill's provisions.
Section 3. This section would expand HSA eligibility to
include some people who are eligible for Medicare Part A:
People enrolled in an HDHP would no longer lose the tax
preference for HSA contributions when they enroll in Medicare
at age 65. As a result, CBO and JCT expect that some
beneficiaries who, under current law, would drop their HDHP
coverage would instead retain that coverage and thus make
Medicare their secondary payer.
CBO and JCT estimate that as a result, Medicare outlays
would decline by $2.7 billion over the 2024-2033 period. JCT
also estimates that, as a result of the additional HSA
contributions, enacting section 3 would reduce revenues by $8.5
billion over the same period.
Section 9. This section would raise the annual HSA
contribution limit from $3,850 for self-only coverage to $7,500
and from $7,750 for family coverage to $15,000 (if the policy
was in place for 2023). As under current law, those amounts
would be indexed for inflation and people age 55 or older could
make an additional $1,000 in catch-up contributions. All of the
increases would take effect for tax years after 2025. JCT
estimates that the changes to contribution limits would reduce
revenues by $44.2 billion over the 2024-2033 period.
All Other Sections. Provisions in other sections of the
bill would expand HSA eligibility to include veterans receiving
care through the Department of Veterans Affairs, enrollees in
certain health care exchange plans with low premiums, and
people receiving medical care through the Indian Health
Service. In addition, the bill would allow HDHPs to cover as
much as $500 annually for mental health services before the
plan's deductible is met and would allow HSA funds to be used
for health care services provided up to 60 days before the HSA
is established. Finally, H.R. 5687 would allow a spouse to make
catch-up contributions into the same HSA rather than having to
establish a separate account to do so. JCT estimates that
enacting those provisions would reduce revenues by an
additional $8.4 billion over the 2024-2033 period; that
estimate accounts for interactions among all of the bill's
provisions. CBO estimates that some veterans who currently
forego receiving health care through the Department of Veterans
Affairs in order to maintain an HSA would no longer do so under
H.R. 5687. Some costs for health care provided through the
Department of Veterans Affairs are paid from the Toxic
Exposures Fund, which is a mandatory appropriation; CBO
estimates that any changes to such direct spending stemming
from those provisions would be insignificant.
Spending subject to appropriation: CBO estimates that
implementing H.R. 5687 would increase the Internal Revenue
Service's administrative costs by less than $500,000 over the
2024-2028 period. There also would be an insignificant cost for
spending on health care for veterans and for people receiving
medical care through the Indian Health Service over the same
period. That spending would be subject to the availability of
appropriated funds.
Uncertainty: JCT's and CBO's estimates of the budgetary
effects of H.R. 5687 are subject to uncertainty because they
are made on the basis of underlying projections and other
factors that could change significantly. In particular, the
estimates here rely on CBO's economic projections for the next
decade under current law and on expectations about the way
taxpayers and beneficiaries of other health care programs might
respond to changes in tax law. In this case, the uncertainty
involves how many people would decide to contribute to an HSA
after the 2025 tax year and how much they would contribute.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. Only on-budget changes to outlays or revenues are
subject to pay-as-you-go procedures. The net changes in outlays
and revenues that are subject to those pay-as-you-go procedures
are shown in Table 2.
TABLE 2.--CBO'S ESTIMATE OF THE STATUTORY PAY-AS-YOU-GO EFFECTS OF H.R. 5687, THE HSA MODERNIZATION ACT OF 2023, AS ORDERED REPORTED BY THE HOUSE
COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 28, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, billions of dollars--
-----------------------------------------------------------------------------------------------------
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2024-2028 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Increase in the On-Budget Deficit
Pay-As-You-Go Effect.............................. 0 0 2.2 4.2 5.1 5.6 6.0 6.4 6.8 7.2 11.5 43.4
Memorandum:
Changes in Outlays............................ 0 0 -0.1 -0.2 -0.3 -0.4 -0.4 -0.4 -0.5 -0.5 -0.6 -2.7
Changes in Revenues........................... 0 0 -2.3 -4.4 -5.4 -5.9 -6.4 -6.8 -7.3 -7.7 -12.0 -46.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Increase in long-term net direct spending and deficits: CBO
and JCT estimate that enacting H.R. 5687 would not increase net
direct spending in any of the four consecutive 10-year periods
beginning in 2034.
CBO and JCT estimate that enacting H.R. 5687 would increase
on-budget deficits by more than $5 billion in at least one of
the four consecutive 10-year periods beginning in 2034.
Mandates: JCT has determined that H.R. 5687 would not
impose intergovernmental or private-sector mandates as defined
in the Unfunded Mandates Reform Act.
Estimate prepared by: Federal Revenues: Nathaniel Frentz,
Staff of the Joint Committee on Taxation; Federal Costs: Sarah
Sajewski for Medicare, Matthew Pickford for Internal Revenue
Service, Staff of the Joint Committee on Taxation; Mandates:
Andrew Laughlin, Staff of the Joint Committee on Taxation.
Estimate reviewed by: Joshua Shakin, Chief, Revenue
Estimating Unit; Robert Reese, Chief, Natural and Physical
Resources Cost Estimates Unit; Asha Saavoss, Chief, Medicare
and Health Systems Cost Estimates Unit; Kathleen FitzGerald,
Chief, Public and Private Mandates Unit; H. Samuel Papenfuss,
Deputy Director of Budget Analysis; John McClelland, Director
of Tax Analysis.
Estimate approved by: Phillip L. Swagel, Director,
Congressional Budget Office.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives, the Committee made findings and
recommendations that are reflected in this report.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill does not authorize funding, so no statement of general
performance goals and objectives is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
E. Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
With respect to the requirement of clause 3(e) of rule XIII
of the Rules of the House of Representatives, changes in
existing law made by the bill, as reported, are reflected in
the following.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--COMPUTATION OF TAXABLE INCOME
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is 1/12 of--
(A) in the case of an eligible individual who
has self-only coverage under a high deductible
health plan as of the first day of such month,
[$2,250] the amount in effect under subsection
(c)(2)(A)(ii)(I).
(B) in the case of an eligible individual who
has family coverage under a high deductible
health plan as of the first day of such month,
[$4,500] the amount in effect under subsection
(c)(2)(A)(ii)(II).
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
(4) Coordination with other contributions.--The
limitation which would (but for this paragraph) apply
under this subsection to an individual for any taxable
year shall be reduced (but not below zero) by the sum
of--
(A) the aggregate amount paid for such
taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to
health savings accounts of such individual
which is excludable from the taxpayer's gross
income for such taxable year under section
106(d) (and such amount shall not be allowed as
a deduction under subsection (a)), and
(C) the aggregate amount contributed to
health savings accounts of such individual for
such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
[(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
[(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
[(B) the limitation under paragraph (1)
(after the application of subparagraph (A) and
without regard to any additional contribution
amount under paragraph (3))--
[(i) shall be reduced by the
aggregate amount paid to Archer MSAs of
such spouses for the taxable year, and
[(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.]
(5) Special rule for married individuals with family
coverage.--
(A) In general.--In the case of individuals
who are married to each other, if both spouses
are eligible individuals and either spouse has
family coverage under a high deductible health
plan as of the first day of any month--
(i) the limitation under paragraph
(1) shall be applied by not taking into
account any other high deductible
health plan coverage of either spouse
(and if such spouses both have family
coverage under separate high deductible
health plans, only one such coverage
shall be taken into account),
(ii) such limitation (after
application of clause (i)) shall be
reduced by the aggregate amount paid to
Archer MSAs of such spouses for the
taxable year, and
(iii) such limitation (after
application of clauses (i) and (ii))
shall be divided equally between such
spouses unless they agree on a
different division.
(B) Treatment of additional contribution
amounts.--If both spouses referred to in
subparagraph (A) have attained age 55 before
the close of the taxable year, the limitation
referred to in subparagraph (A)(iii) which is
subject to division between the spouses shall
include the additional contribution amounts
determined under paragraph (3) for both
spouses. In any other case, any additional
contribution amount determined under paragraph
(3) shall not be taken into account under
subparagraph (A)(iii) and shall not be subject
to division between the spouses.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act (other than an entitlement to
benefits described in subsection (c)(1)(B)(iv)) and for
each month thereafter.
(8) Increase in limit for individuals becoming
eligible individuals after the beginning of the year.--
(A) In general.--For purposes of computing
the limitation under paragraph (1) for any
taxable year, an individual who is an eligible
individual during the last month of such
taxable year shall be treated--
(i) as having been an eligible
individual during each of the months in
such taxable year, and
(ii) as having been enrolled, during
each of the months such individual is
treated as an eligible individual
solely by reason of clause (i), in the
same high deductible health plan in
which the individual was enrolled for
the last month of such taxable year.
(B) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then--
(I) gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual is
increased by the aggregate
amount of all contributions to
the health savings account of
the individual which could not
have been made but for
subparagraph (A), and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount of such increase.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the last month of the
taxable year referred to in
subparagraph (A) and ending on the last
day of the 12th month following such
month.
(c) Definitions and special rules.--For purposes of this
section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(ii) coverage (whether through
insurance or otherwise) for accidents,
disability, dental care, vision care,
long-term care, or (in the case of
months or plan years to which paragraph
(2)(E) applies) telehealth and other
remote care, [and]
(iii) for taxable years beginning
after December 31, 2006, coverage under
a health flexible spending arrangement
during any period immediately following
the end of a plan year of such
arrangement during which unused
benefits or contributions remaining at
the end of such plan year may be paid
or reimbursed to plan participants for
qualified benefit expenses incurred
during such period if--
(I) the balance in such
arrangement at the end of such
plan year is zero, or
(II) the individual is making
a qualified HSA distribution
(as defined in section 106(e))
in an amount equal to the
remaining balance in such
arrangement as of the end of
such plan year, in accordance
with rules prescribed by the
Secretary[.], and
(iv) entitlement to hospital
insurance benefits under part A of
title XVIII of the Social Security Act
by reason of section 226(a) of such
Act.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs [for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code)].
(D) Special rule for individuals receiving
benefits subject to surprise billing
statutes.--An individual shall not fail to be
treated as an eligible individual for any
period merely because the individual receives
benefits for medical care subject to and in
accordance with section 9816 or 9817, section
2799A-1 or 2799A-2 of the Public Health Service
Act, or section 716 or 717 of the Employee
Retirement Income Security Act of 1974, or any
State law providing similar protections to such
individual.
(E) Special rule for individuals eligible for
assistance under indian health service
programs.--For purposes of subparagraph
(A)(ii), an individual shall not be treated as
covered under a health plan described in such
subparagraph merely because the individual
receives hospital care or medical services
under a medical care program of the Indian
Health Service or of a tribal organization.
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1861 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(E) Safe harbor for absence of deductible for
telehealth.--In the case of--
(i) months beginning after March 31,
2022, and before January 1, 2023, and
(ii) plan years beginning on or
before December 31, 2021, or after
December 31, 2022, and before January
1, 2025,
a plan shall not fail to be treated as a high
deductible health plan by reason of failing to
have a deductible for telehealth and other
remote care services.
(F) Special rule for surprise billing.--A
plan shall not fail to be treated as a high
deductible health plan by reason of providing
benefits for medical care in accordance with
section 9816 or 9817, section 2799A-1 or 2799A-
2 of the Public Health Service Act, or section
716 or 717 of the Employee Retirement Income
Security Act of 1974, or any State law
providing similar protections to individuals,
prior to the satisfaction of the deductible
under paragraph (2)(A)(i).
(G) Safe harbor for absence of deductible for
certain insulin products.--
(i) In general.--A plan shall not
fail to be treated as a high deductible
health plan by reason of failing to
have a deductible for selected insulin
products.
(ii) Selected insulin products.--For
purposes of this subparagraph--
(I) In general.--The term
``selected insulin products''
means any dosage form (such as
vial, pump, or inhaler dosage
forms) of any different type
(such as rapid-acting, short-
acting, intermediate-acting,
long-acting, ultra long-acting,
and premixed) of insulin.
(II) Insulin.--The term
``insulin'' means insulin that
is licensed under subsection
(a) or (k) of section 351 of
the Public Health Service Act
(42 U.S.C. 262) and continues
to be marketed under such
section, including any insulin
product that has been deemed to
be licensed under section
351(a) of such Act pursuant to
section 7002(e)(4) of the
Biologics Price Competition and
Innovation Act of 2009 (Public
Law 111-148) and continues to
be marketed pursuant to such
licensure.
(H) Bronze and catastrophic plans treated as
high deductible health plans.--The term ``high
deductible health plan'' shall include any plan
described in subsection (d)(1)(A) or (e) of
section 1302 of the Patient Protection and
Affordable Care Act.
(I) Safe harbor for absence of deductible for
mental health services.--A plan shall not fail
to be treated as a high deductible health plan
by reason of failing to have a deductible for
not more than the first $500 of any mental
health benefits (as defined in section
9812(e)(4)) specified by the plan for purposes
of this subparagraph.
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(d) Health savings account.--For purposes of this section--
(1) In general.--The term ``health savings account''
means a trust created or organized in the United States
as a health savings account exclusively for the purpose
of paying the qualified medical expenses of the account
beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover
contribution described in subsection (f)(5) or
section 220(f)(5), no contribution will be
accepted--
(i) unless it is in cash, or
(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year,
exceeds the sum of--
(I) the dollar amount in
effect under subsection
(b)(2)(B), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d))
for such individual, the spouse of such
individual, and any dependent (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of such individual, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term includes
amounts paid for qualified long-term care
services (as defined in section 7702B(c)). For
purposes of this subparagraph, amounts paid for
menstrual care products shall be treated as
paid for medical care.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act and who is not an eligible
individual, any health insurance other
than a medicare supplemental policy (as
defined in section 1882 of the Social
Security Act).
(D) Menstrual care product.--For purposes of
this paragraph, the term ``menstrual care
product'' means a tampon, pad, liner, cup,
sponge, or similar product used by individuals
with respect to menstruation or other genital-
tract secretions.
(E) Treatment of certain medical expenses
incurred before establishment of account.--If a
health savings account is established during
the 60-day period beginning on the date that
coverage of the account beneficiary under a
high deductible health plan begins, then,
solely for purposes of determining whether an
amount paid is used for a qualified medical
expense, such account shall be treated as
having been established on the date that such
coverage begins.
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax treatment of accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as
distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(f) Tax treatment of distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary shall not
be includible in gross income.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of a health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (to
the extent such distributions do not exceed the
aggregate excess contributions to all such
accounts of such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) nor deductible under this
section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 percent of the amount which is so
includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--[Subparagraph (A)]
Except in the case of an eligible individual,
subparagraph (A) shall not apply to any payment
or distribution after the date on which the
account beneficiary attains the age specified
in section 1811 of the Social Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings account if, at any time during the 1-
year period ending on the day of such receipt,
such individual received any other amount
described in subparagraph (A) from a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in clause (i) of section 121(d)(3)(C) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse acquires such beneficiary's interest in
a health savings account by reason of being the
designated beneficiary of such account at the
death of the account beneficiary, such health
savings account shall be treated as if the
spouse were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-of-living adjustment.--
(1) In general.--Each dollar amount in [subsections
(b)(2) and] subsection (c)(2)(A) shall be increased by
an amount equal to--
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such taxable year begins [determined by
substituting for ``calendar year 2016'' in
subparagraph (A)(ii) thereof--] determined by
substituting ``calendar year 2003'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
[(i) except as provided in clause
(ii), ``calendar year 1997'', and
[(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.]
In the case of adjustments made for any taxable year
beginning after 2007, section 1(f)(4) shall be applied
for purposes of this paragraph by substituting ``March
31'' for ``August 31'', and the Secretary shall publish
the adjusted amounts under [subsections (b)(2) and]
subsection (c)(2)(A) for taxable years beginning in any
calendar year no later than June 1 of the preceding
calendar year.
(2) Rounding.--If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded
to the nearest multiple of $50.
(h) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
VII. DISSENTING VIEWS
H.R. 5687 (Van Duyne, R-TX-24) includes a series of
provisions intended to incentivize use of health savings
accounts (HSAs), which are tax-preferred savings accounts that
are paired with high-deductible health plans (HDHPs). HDHPs, as
the name implies, are health plans that have high deductibles,
requiring Americans to pay thousands of dollars out-of-pocket
before insurance begins. More specifically, this bill expands
HSA contribution eligibility and categorizes Affordable Care
Act marketplace Bronze and Catastrophic plans as HDHPs for the
purposes of HSA eligibility. It also changes contribution
rules, allows individuals to disburse funds for expenses
incurred before establishing an HSA, allows for catch-up
contributions for individuals over 55, and increases the
maximum contribution limit to the qualifying deductible and
out-of-pocket maximum for an HDHP (for 2023, $7,500 for
individuals and $15,000 for families). According to the Joint
Committee on Taxation, this bill would cost American taxpayers
$58.34 billion over 10 years--and the provisions do not take
effect until 2026.
This legislation neither lowers out-of-pocket health care
costs nor improves insurance coverage. These provisions do
nothing to lower the cost of care or provide coverage to the
millions of underinsured or uninsured Americans. HSAs are not
health insurance but tax-preferred savings accounts:
Contributions are pretax, assets grow tax-free, and
distributions are not taxed for qualified medical expenses.\1\
The fundamental premise behind HSAs is that individuals should
be responsible for saving for their own health care needs,
which is a flawed approach because even paying for non-
catastrophic events is beyond the reach of most American
families. The American Hospital Association points to the
prevalence of HDHPs as one of the paramount drivers of medical
debt. Twenty percent of employers that offer HDHPs do not
contribute to an HSA for their employees, and most firms offer
a modest $400 to $799 for individual coverage.\2\ This trend
leaves employees at risk for all or most of the cost of the
deductible. Thus, individuals with incomes below $75,000 who
have HDHPs are likely to forgo needed medical care,
specifically low-cost primary care services.\3\ Unlike the
Republican approach to health care, the Democrats' Inflation
Reduction Act made key investments to lower prescription drug
prices, reduce patients' out-of-pocket health costs, reduce
insurance premiums, and enhance the tax credits that make
insurance coverage affordable for more than 13 million
Americans.\4\
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\1\Joseph Slife & Matt Bell, A Health Savings Account: The Other
``Retirement Account,'' SOUND MIND INVESTING (Jan. 27, 2023), https://
soundmindinvesting.com/articles/a-health-savings-account-the-other-
retirement-account.
\2\2022 employer health benefits survey--section 8: High-deductible
health plans with savings option. KFF. (2022, October 27). https://
www.kff.org/report-section/ehbs-2022-section-8-high-deductible-health-
plans-with-savings-option/#::text=ENROLLMENT%20IN%20HDHP%2FHRAS%
20AND%20HSA%2DQUALIFIED%20HDHPS&text=Enrollment%20in%20HDHP%2FSOs%
20has,HSA%2Dqualified%20HDHPs%20in%202022.
\3\Schnettler, T. (2022, July 19). Impact of high deductible health
plans on Health Care Utilization. Vital Record. https://
vitalrecord.tamhsc.edu/impact-of-high-deductible-health-plans-on-
health-care-utilization/.
\4\The Inflation Reduction Act Turns One: Millions of Americans Are
Saving On Health Care, With More To Come. PROTECT OUR CARE, (2023).
https://www.protectourcare.org/wp-content/uploads/2023/08/IRA-First-
Anniversary-Fact-Sheet.pdf.
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HSAs provide little benefit for the average American
family. While 75 percent of HSA account holders live in ZIP
codes with a median household income of less than $100,000 only
four percent of all HSA contributions come from households with
incomes $50,000 or below, demonstrating that most lower and
middle income Americans with an account do not actually
contribute to it.\5\ \6\ In contrast, 77 percent of
contributions to HSAs come from households with incomes over
$100,000 and 44 percent from households with incomes over
$200,000.\7\ People with incomes over $100,000 represent 78
percent of participants maxing out HSA contributions.\8\
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\5\2022 Devenir & HSA Council Demographic Survey. DEVENIR RESEARCH
(July, 13, 2023), https://www.devenir.com/wp-content/uploads/2022-
Devenir-and-HSA-Council-Demographic-Report.pdf.
\5\Gideon Lukens, House Bills Expanding HSAs Would Boost High-
Income Tax Breaks--Not Affordability of Care, CENTER ON BUDGET AND
POLICY PRIORITIES (Sep. 27, 2023), https://www.cbpp.org/blog/house-
bills-expanding-hsas-would-boost-high-income-tax-breaks-not-
affordability-of-
care#::text=Two%20bills%20due%20for%20House,costing%20over%20%
2470%20billion%20combined%2C.
\7\Gideon Lukens, House Bills Expanding HSAs Would Boost High-
Income Tax Breaks--Not Affordability of Care, CENTER ON BUDGET AND
POLICY PRIORITIES (Sep. 27, 2023), https://www.cbpp.org/blog/house-
bills-expanding-hsas-would-boost-high-income-tax-breaks-not-
affordability-of-
care#::text=Two%20bills%20due%20for%20House,costing%20over%20%2470%
20billion%20combined%2C.
\8\Gideon Lukens, Expanding Health Savings Accounts Would Boost Tax
Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY PRIORITIES
(June 22, 2023). https://www.cbpp.org/research/health/expanding-health-
savings-accounts-would-boost-tax-shelters-not-access-to-care.
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HSAs exacerbate health disparities. This legislation does
nothing to reduce health disparities or address the
generational wealth gaps and poorer health outcomes for people
of color. A typical White family in 2019 had eight times the
wealth of a typical Black family and five times the wealth of a
typical Latino family. The median wealth of White households
was $171,000, compared with $17,100 for Black households and
$20,600 for Latino households.\9\ Thus, people of color benefit
from the tax benefits of HSAs far less than White people, as
the preferential tax treatment accrues inequitably along income
lines and is disproportionately out of reach for many people of
color. Account balances, contributions, and distributions from
HSA accounts differ significantly by race, and HSA expansion
will only exacerbate the health equity and wealth gap.\10\
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\9\Dorothy Brown, The Whiteness of Wealth: How the Tax System
Impoverishes Black Americans--and How We Can Fix It 18 (2021).
\10\Spiegel, J. Examining HSAs through a DEI lens. EMPLOYEE BENEFIT
RESEARCH INSTITUTE, (2022, April 7).
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HSAs impact solvency of Medicare and Social Security Trust
Funds. HSAs have multiple tax advantages for accumulating
wealth. Contributions to HSAs are made with pretax dollars (in
most states), assets grow tax-free, and distributions are tax-
free if used to pay for qualified medical expenses or as
reimbursement for such expenses. These tax giveaways will cost
the federal government more than $180 billion over the next 10
years, disproportionately benefitting the wealthy--and H.R.
5688 would add another $12.95 billion to that total over the
next decade.\11\ Because employer contributions to HSAs are not
subject to the payroll tax imposed on either the employer or
the employee, expanding their use will inevitably reduce
contributions into the Medicare and Social Security Trust
Funds, harming America's seniors and people with disabilities.
Closing the Medicaid coverage gap or extending marketplace
premium tax credits for the next 10 years would cost about the
same as continuing to fund HSAs.\12\
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\11\Gideon Lukens, Expanding Health Savings Accounts Would Boost
Tax Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY
PRIORITIES (June 22, 2023). https://www.cbpp.org/research/health/
expanding-health-savings-accounts-would-boost-tax-shelters-not-access-
to-care.
\12\House GOP Health Care Bills Benefit the Wealthy and Diminish
Affordable Care Act Protections, PROTECT OUR CARE (June 7, 22023).
https://www.protectourcare.org/house-gop-health-care-bills-benefit-the-
wealthy-and-diminish-affordable-care-act-protections/.
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HSAs are a tax shelter for the wealthy. HSAs
disproportionately benefit wealthy Americans--and this
legislation seeks to make HSAs more attractive. People with
higher incomes receive the biggest tax benefit for each dollar
contributed to an HSA because the value of a tax deduction
rises with an individual's tax bracket.\13\ People with income
in the lowest tax brackets save up to 12 cents on the dollar in
federal income taxes for their HSA contributions.\14\ By
comparison, those earning over half a million dollars save 37
cents for each dollar in federal income taxes put into an
HSA.\15\ At age 65, withdrawals can be used for any purpose
with no penalty. This loophole means HSA funds can be used for
any non-medical expenses after age 65 without paying a penalty
for non-medical use. HSA funds can be used to cover day-to-day
expenses, pay for home renovations, or even finance a new
boat.\16\ \17\ Investment advisors see a lucrative opportunity
and are now marketing HSAs as retirement and wealth
accumulation products, not health care accounts.\18\ Democrats
offered an amendment to H.R. 5688 to close this tax loophole,
but the majority rejected the changes. Republicans would rather
exacerbate disparities by giving away billions to the wealthy.
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\13\Ryan Ermey, This savings account offers a `triple tax
benefit'--but 88% of users are missing out, CNBC (Feb. 9, 2023),
https://www.cnbc.com/2023/02/09/health-savings-accounts-how-to-save-
for-retirement.html.
\14\Gideon Lukens, Expanding Health Savings Accounts Would Boost
Tax Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY
PRIORITIES (June 22, 2023). https://www.cbpp.org/research/health/
expanding-health-savings-accounts-would-boost-tax-shelters-not-access-
to-care.
\15\Id.
\16\How to avoid penalties on an HSA withdrawal, BENEFIT RESOURCE
(Aug 4, 2022), https://www.benefitresource.com/blog/how-to-avoid-
penalties-on-an-hsa-withdrawal/.
\17\5 ways HSAs can help with your retirement, FIDELITY (Dec. 7,
2022), https://
www.fidelity.com/viewpoints/wealth-management/hsas-and-your-retirement.
\18\Id.
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Low- and middle-income Americans often cannot take
advantage of the tax benefits of HSAs in the same way wealthy
Americans do. Those with higher incomes can afford to take on
the risk of a high deductible and are more likely to establish
HSAs compared to low-income consumers. For those who have
little to contribute, given fees and extremely low interest
rates, these accounts may offer little value. Some account
holders could actually be losing money. Six of seven major
institutions require a minimum balance to invest their HSA
contributions, some up to $2,000. Some accounts offer paltry
returns of only 0.01 percent on money invested.\19\ Nearly half
of American families do not have enough money in the bank to
pay a $1,000 medical bill in the next 30 days, let alone fund
an account that might earn less interest than a checking
account.\20\
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\19\What is the standard interest rate for a Lively HSA? LIVELY
(Aug 21, 2023), https://support.livelyme.com/hc/en-us/articles/
4405466272667-What-is-the-standard-interest-rate-for-a-
Lively-HSA.
\20\Sara Collins, Lauren Haynes, & Relebohile Masitha, The State of
U.S. Health Insurance in 2022, THE COMMONWEALTH FUND (Sep. 29, 2022)
https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/
state-us-health-insurance-2022-biennial-survey.
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Sincerely,
Richard E. Neal,
Ranking Member.
[all]