Heads up: Two pieces of legislation would provide more health savings account (HSA) flexibility for employees, increasing the value of this benefit.
On September 28, 2023, the House Ways and Means Committee approved both bills.
Here are some highlights from each one:
Bipartisan HSA Improvement Act of 2023
Under the Bipartisan HSA Improvement Act of 2023 (H.R. 5688), employees whose spouses have health flexible savings accounts (FSAs) would be able to make HSA contributions. Under current law, if one spouse is enrolled in an FSA, the other spouse isn’t eligible for HSA participation.
H.R. 5688 contains other changes. For example, employees would have the opportunity to convert their own health FSA or health reimbursement arrangement funds into an HSA. This would be permitted if the employee enrolls in a high-deductible health plan (HDHP) HSA. There’d be a limit on the conversion amount – i.e., the annual health FSA contribution limit for individual coverage and twice that amount for family coverage.
HSA Modernization Act of 2023
The second piece of legislation, the HSA Modernization Act of 2023 (H.R. 5687), is welcome news if you have any employees who plan to work past retirement age or are already doing so. As the rules stand now, employees entitled to Part A of Medicare due to their age can’t contribute to HSAs. But the legislation lifts that restriction.
Next, employees may be more inclined to make catch-up contributions if H.R. 5687 becomes law. Right now, if both spouses are 55 or older and eligible to make catch-up contributions, both of them must make catch-up contributions to their own HSAs. But the legislation would allow married couples to contribute catch-up funds to the same HSA instead of having to set up separate accounts.
One final provision to highlight at this stage: The bill calls for flexibility when it comes to HSA contribution limits. The amounts would be increased to align with what someone might owe. Specifically, the limits would equal the amount of the annual deductible and out-of-pocket expenses permitted under an HDHP.
We’ll keep an eye on these bills for you.