New HSA Bill: More Savings, But OTC Meds Out and Medicare Users Excluded

Alright, let's talk about the Health Savings Account (HSA) Expansion Act. This bill is looking to shake up how we save and pay for healthcare, and it’s a bit of a mixed bag. On one hand, it's opening up HSAs to more folks and letting us stash away more cash. On the other, it's making some pretty big changes to who can use an HSA and what you can actually buy with that money.

Bigger Wallets for Your Health

First up, the good news for many: this bill wants to expand who can even get an HSA. Right now, you generally need a pretty high deductible health plan to qualify. But under this new proposal, if your health plan has a deductible of at least $1,500 for yourself or $3,000 for your family, you're in. That's a lower bar than before, meaning more people could jump into the HSA game. Plus, they’re boosting the maximum annual contribution limits to a hefty $5,000 for individuals and a cool $10,000 for families. And if you're 55 or older, you get an extra $1,000 'catch-up' contribution. These changes kick in for taxable years starting after December 31, 2025 (Section 1). Think of it as giving your healthcare savings account a serious upgrade, potentially helping you cover those unexpected medical bills without dipping into your regular savings.

The Catch: Who’s In and Who’s Out?

Now for the fine print that might sting a bit. While the bill expands who can qualify, it also draws some clearer, and frankly, stricter lines. If you’re covered by Medicare (Parts A, B, or C), Medicaid, or CHIP, you’re out of luck — you won’t be eligible to contribute to an HSA (Section 2). This is a big deal because it means certain populations, especially those relying on government-sponsored health programs, won't get the tax advantages of an HSA. So, while it opens doors for some, it closes them for others, particularly those who might need that financial flexibility the most. These eligibility changes would apply to taxable years beginning after December 31, 2026.

What You Can (and Can't) Buy with Your HSA Bucks

Here’s where things get interesting, and potentially a little frustrating for some. The bill expands what you can use your HSA for in some ways, but restricts it in others. You’ll be able to use HSA funds to pay for premiums for a high-deductible health plan, which is a new perk. It also expands the definition of “qualified medical expenses” to include periodic fees paid to doctors for a defined set of services or for the right to get care as needed, and amounts prepaid for wellness services (Section 4). This could be great for direct primary care models or preventative health programs. However, and this is a significant 'however,' starting in tax years after December 31, 2026, money spent on over-the-counter drugs will no longer qualify as a medical expense unless you have a prescription for them (Section 7). This means if you usually grab ibuprofen, allergy meds, or antacids off the shelf and pay with your HSA, you'll soon need a doctor's note for them to count. For many busy folks, this could mean an extra doctor's visit just to get a prescription for something they've always bought OTC, adding time and potential cost.

The HDHP Shuffle and Health Sharing Ministries

The bill also tweaks the definition of a High Deductible Health Plan (HDHP) itself. Currently, HDHPs need to have a minimum deductible amount. This bill removes that specific minimum deductible requirement (Section 3). While it might sound like it makes things simpler, it could also mean that some plans qualify as HDHPs with very low actual coverage, potentially leaving individuals underinsured despite having an HSA. Finally, the bill clarifies that health care sharing ministries are not considered health plans for tax purposes (Section 5) and allows membership fees, expense sharing, and administrative fees for these ministries to be treated as medical care expenses for tax purposes (Section 6). This provides some tax clarity for participants in these alternative healthcare arrangements.