Last Wednesday (7/25), the House of Representatives approved two health care bills that would be used to increase the tax-advantages for healthcare accounts including Health Savings Accounts , Health Reimbursement Arrangements, and Flexible Spending Accounts (HSA, HRA, and FSA respectively). The two health care bills approved by the House of Representatives are:
- H.R. 6199 — Restoring Access to Medication and Modernizing Health Savings Accounts Act of 2018
- H.R. 6311 — To amend the Internal Revenue Code of 1986 and the Patient Protection and Affordable Care Act to modify the definition of a qualified health plan for purposes of the health insurance premium tax credit and to allow individuals purchasing health insurance in the individual market to purchase a lower premium copper plan.
While these two health care bills have passed the House of Representatives, they will still need to pass the Senate as well as be signed by the President of the United States in the Executive Branch if it is ultimately approved.
With that said, let’s take a look at the differences between HSA, FSA and HRA. Then we’ll go over some of the highlights of what the two new bills would do to these health care accounts if they are passed as they are currently constructed.
HSA vs FSA vs HRA
What is an HSA?
An HSA is tax-deferred, private savings account constructed to pay for current and future medical, dental, vision, alternative and preventive costs with tax-free money. The money is yours and it rolls over year-after-year. This plan only works in tandem with a High Deductible Health Plan (HDHP).
What is an FSA?
An FSA works by setting money aside from your paycheck before taxes are taken out. You then are able to use your pre-tax FSA dollars to pay for eligible health care expense throughout the plan year. This money is “use it or lose it” after year’s end.
What is an HRA?
An HRA is an IRS-approved, employer-funded, tax-advantaged benefit plan that reimburses employees for out-of-pocket medical expenses and single health insurance premiums.
Health Care Highlights of Bills H.R. 6199 and H.R. 6311 for HSA, HRA, and FSA Plans
The following would become a reality for HSA, HRA, and FSA plans if the H.R. 6199 bill is passed as it stands currently:
- Permitting individuals with HSA-qualifying family coverage to contribute to an HSA if their spouse is enrolled in a medical flexible spending account(FSA), currently a disqualifying scenario.
- Purchasing menstrual care products as qualified medical expenses with all tax-advantaged health care accounts would be allowed. This is currently restricted by today’s laws.
- Reversing the Affordable Care Act’s (ACA’s) prohibition on using tax-favored health accounts would allow for the purchases of over-the-counter medical products.
- Treating certain sports and fitness expenses–including gym memberships and the participation costs–as qualified medical expenses up to a limit of $500 a year for a single person and $1,000 a year for a family.
- Without risking HSA eligibility, individuals will be able to use employer onsite medical clinics and other employment-related health services in a limited capacity.
- Protecting HSA-eligible individuals who participate in a direct primary care (DPC) arrangement from losing their HSA eligibility and allow DPC provider fees to be covered with HSAs (capped monthly at $150 per individual and $300 per family).
- Allowing high-deductible health plans (HDHPs) to cover up to $250 (individual) and $500 (family) annually for non-preventive services that currently may not be covered. This would let HDHPs cover outside the deductible, albeit on a limited basis, chronic-condition treatment and telehealth services, for example.
The following would become a reality for HSA, HRA, and FSA plans if the H.R. 6311 bill is passed as it stands currently:
- Allowing HSAs to pay for qualified medical expenses as of the start of HDHP coverage if the accounts are opened within 60-days after coverage under an HDHP begins.
- Granting health FSA balances to be carried over to the following plan year. This rollover could not exceed three times the annual FSA contribution limit.
- Raising HSA contributions to $6,650 for individuals and $13,300 for families, which is the combined annual limit on out-of-pocket and deductible expenses under an HSA-qualified insurance plan in 2018. Currently, for 2018, HSA contribution limits are $3,450 for individuals and $6,900 for those covered under family medical plans.
- Allowing working seniors to contribute to an HSA while they are participating in Medicare Part A and covered by a qualifying HDHP.
- At the discretion of the employers, allowing employees with an FSA or a health reimbursement arrangement (HRA) who enroll in a qualifying high-deductible health plan with an HSA to transfer balances from their FSA or HRA to said HSA. Transfers would be capped at $2,650 for individuals and $5,300 for families.
- Permitting spouses over the age of 55 to make an annual catch-up contribution (an extra $1,000) to an HSA that’s linked to a health plan providing family coverage. Currently, only the account holder can make an annual catch-up contribution.
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