Prospects for HSA Expansion Clouded as Obamacare Repeal Efforts Fail

Prospects for passage of health savings account (HSA) expansion legislation appears less likely after the Senate failed to repeal and replace the Patient Protection and Affordable Care Act (also known as Obamacare). However, Senators made a last-ditch attempt at Affordable Care Act (ACA) repeal on September 13 by introducing H.R. 1628, which would eliminate many of ACA’s mandates, provide block grants to states for health care, and alter the eligibility of certain health plans now used in conjunction with health savings accounts (HSAs). Earlier, the Senate rejected a limited Obamacare repeal bill by a vote of 49-51, despite an intense lobbying effort by President Trump and Vice President Mike Pence, who was on the Senate floor at the time of the vote.

The failure to repeal and replace Obamacare is a major defeat for President Trump who made it the centerpiece of his campaign, and for Republicans who have spent the last seven years attempting to repeal it. In the aftermath, Senate Majority Leader Mitch McConnell (R-KY) indicated that it’s time to move on and put the health care bill on hold, announcing that the Senate would move on to other legislation.

Obama Repeal and Replace Legislation

In the aftermath of the failure to repeal and replace Obamacare, passage of legislation to expand HSAs appears much less likely. Prospects for HSA expansion looked good early in the year after the House introduced the American Health Care Act (AHCA), its Obamacare repeal and replace legislation that included the following provisions to expand the use of HSAs.

  • Increase the annual HSA contribution limits to the limit on out-of-pocket expenses under qualified high deductible health plans (for 2017, $6,550 for self-only coverage and $13,100 for family coverage, indexed for inflation).
  • Permit spouses over age 55 to make catch-up contributions of up to $1,000 and choose which of the spouses HSA to make the contribution.
  • Expand the definition of “qualified medical expense” to include over-the-counter (nonprescription) medications.
  • Allow eligible medical expenses incurred up to 60 days prior to establishment of an HSA to be paid tax-free from the HSA.
  •  Reduce the additional tax on HSA distributions used for nonqualified medical expenses from the current 20 percent to 10 percent.

Not Enough Votes

Despite strong support for the HSA provisions, Speaker Paul Ryan (R-WI) pulled the AHCA from the House floor in March when House leadership realized that they lacked the votes to pass the bill. Even with a House majority, Republicans could lose the votes of only 22 members and still move the bill forward. A series of changes were made to the AHCA to garner the support of conservative and moderate members, and the House passed its repeal and replace legislation in May—by a narrow 217-213 vote—with 20 Republicans voting against the bill.

Senate’s Better Care Reconciliation Act

The Senate chose not to take up the House bill and instead worked on its own repeal and replace legislation, the Better Care Reconciliation Act (BCRA). But a number of key Senators had concerns about the bill, and with a 52-48 majority, Republicans could lose the votes of only two members and still advance the bill. Majority Leader McConnell delayed a vote on the bill until after the July 4 recess, to make changes to the bill to address the concerns of conservative and moderate members.

The Senate’s revised BCRA bill contained all of the HSA expansion provisions of the House bill, and also added a provision that would have allowed HSA distributions for the purchase of qualifying health insurance in the individual insurance market. The provision would not have extended to employer-provided qualifying health insurance, which covers more than 60 percent of the U.S. population, according to the Employee Benefits Research Institute.

Under current law, in addition to qualified medical expenses, HSA distributions are allowed only for payment of certain long‑term care and continuation-of-benefit (COBRA) premiums, and health insurance premiums while receiving unemployment benefits. For individuals over age 65, HSA distributions are allowed only for payment of Medicare Part A, Part B, and Medicare HMO premiums, as well as for the employee portion of employer-provided qualifying health insurance premiums.

Despite strong support for the HSA provisions, Majority Leader McConnell ultimately abandoned a vote on the BCRA after key Senators announced that they were not prepared to support it.

The Senate then voted 51-50 to begin debate on repealing Obamacare. The measure passed only after Vice President Mike Pence cast the tie-breaking vote. Debate began immediately after the vote, only to see votes on two of the three legislative options for replacement subsequently fail. The Senate then took up a third option, a limited Obamacare repeal bill that would have only repealed the Obamacare insurance mandates and the medical device tax, but it failed by a vote of 49-51, with Senator McCain joining Senators Susan Collins (R-ME) and Lisa Murkowski (R-AK) and all 48 Democrats to defeat the bill.

Less Chance for HSA Expansion

This most recent setback is even more stunning, considering that the House and Senate passed Obamacare repeal legislation in 2015, only to see it vetoed by then-President Obama. It also raises questions as to whether President Trump will be able to move his other major legislative priorities forward, including tax reform and an infrastructure bill. It also means that HSA expansion will be much more difficult to accomplish and is now less likely to occur. It could move forward as a stand-alone bill, but there are relatively few working days left on the current legislative calendar. Considering the need for Congress to reach a budget agreement and raise the debt ceiling, there will be little time to address any other legislative initiatives.

The HSA provisions, if enacted, would have been the first expansion of HSAs since passage of the Tax Relief and Health Care Act of 2006, which increased the annual contribution limits and provided limited Traditional IRA, health FSA and HRA-to-HSA rollovers.

These provisions would have been very beneficial to financial organizations offering HSAs, but even without them, double‑digit HSA growth is likely to continue. The market forces that have driven double-digit growth over the past 10 or more years—increasing health care costs, employer migration to high deductible health insurance plans, etc.—remain in place and are likely to continue driving HSA growth for the foreseeable future. Financial organizations that have HSA programs are in an excellent position to benefit from future HSA growth, regardless of whether legislation expanding HSAs is passed this year.

Latest Repeal Attempt With H.R. 1628

H.R. 1628 was introduced in the U.S. Senate by Sens. Lindsay Graham (R-SC), Bill Cassidy (R-LA), Dean Heller (R-NV), and Ron Johnson (R-WI) on September 13. The key provisions follow.

  • Repeal the ACA individual and employer mandates
  • Repeal the ACA medical device tax
  • Provide a mechanism for states to waive ACA regulations
  • Provide block grants to states that are not participating in the ACA Medicaid expansion program
  • Deny qualifying high-deductible health plan (HDHP) status to insurance plans that include abortion coverage (HDHP coverage is a requirement for HSA eligibility)

No timing for consideration of this bill in the Senate had been announced at the time of this writing.