Senate Finance Committee Cuts Massive HSA Changes from Tax Bill

The Senate Finance Committee on June 16 released its version of the House-passed budget reconciliation bill, leaving out major changes in the health savings account (HSA) section that were part of the original tax proposal by the House. Proponents and benefits experts are calling the cuts a mistake and are urging the Senate to preserve the HSA changes, saying the modifications that were originally part of the House bill would massively and “meaningfully expand the HSA footprint.”

The omissions in the Senate committee’s version included increased contribution levels for some employees and provisions that would allow more employees to use HSAs — reforms that SHRM said “could ease benefit administration, expand access to care, and strengthen the role of HSAs in long-term financial planning.”  

The omissions were largely the result of cost-cutting measures. Other committees in the Senate are working on portions of the tax and budget bill, and Republican leaders in Congress say they hope to complete work on the package and send it to President Donald Trump by July 4. While it’s possible the original HSA modifications could make it back into the final version, the fact that the Senate Finance Committee cut every HSA change makes this unlikely.

The HSA reforms originally proposed in the House bill are long overdue and would massively expand the footprint of the savings accounts, said Joseph Giordano, compliance manager for Dallas-based online retailer Health-E Commerce, the parent brand of FSA Store and HSA Store. Despite the continued growth of HSAs — which have grown by $64 billion in total assets from 2020 to 2024, according to HSA investment firm Devenir —  and “the widespread recognition of their value in helping Americans save for current and future health care costs, there have been few substantive changes to these accounts since their inception in 2003,” Giordano said.

Contribution levels, for instance, usually increase annually by a few percentage points and are largely a result of inflation. But the original House reconciliation bill would have doubled the contribution amounts allowed for certain employees.

Many industry experts tout HSAs as a smart way for employees to save for medical expenses, even in retirement, citing their triple tax benefits: Contributions are made pretax, the money in the accounts grows tax-free, and withdrawals for qualified medical expenses are also tax-free.  

Original HSA, ICHRA Changes

The House-passed version of the reconciliation bill included a number of changes that would drastically alter HSAs. Perhaps the biggest impact may have been a significant increase in HSA contribution limits for many individuals, couples, and families, based on income thresholds, said Jeffrey Scott, senior vice president of retirement in the South Jordan, Utah, office of NFP, a global benefits consultant and property and casualty insurance broker.

The House bill proposed that annual contribution limits for individuals and families would double from the 2025 limits for some people, increasing by $4,300 for individuals to $8,600 and by $8,550 for families to $17,100. The increases would phase out at certain income levels — $75,000 for individuals and $150,000 for joint filers with family coverage.

Increased HSA contribution limits alone “may dramatically change how many employees save for future health expenses and retirement, thus making HSAs America’s premier defined contribution savings plan, potentially at the expense of 401(k)s, for the average saver,” Scott said of the House proposal. 

The House-passed bill also would have allowed individuals who are eligible for Medicare A by reason of age, those participating in a direct primary care arrangement, people covered by bronze and catastrophic plans in the individual market, and individuals receiving care at onsite employee medical clinics to open and contribute to an HSA.  

“This could create an opportunity for millions of potential new HSA users who previously were not eligible to open an account,” Giordano said.

This House bill included a provision making certain sports and fitness expenses HSA-eligible, with annual funds from HSAs for these expenses capped at $500 for single taxpayers and $1,000 for joint filers. It also included a change allowing HSA contributions to be permitted if a spouse has a health flexible spending account (FSA); currently, that is not allowed.

The House-passed bill also proposed codifying and building on the Trump administration’s rule to establish individual coverage health reimbursement arrangements (ICHRAs).

Potential Help for Employees, Employers 

Proponents said the HSA changes contained in the House-passed version were positive for both employers and employees.  

For employees, the changes would open HSA participation to potentially millions of employees who are excluded by existing rules and “would empower more people to use HSAs as a practical tool for managing current and future health care expenses,” Giordano said. The expanded contribution limits and qualified expenses also would have given employees more flexibility and choice “than ever before.”

For employers, Giordano said, “These changes would result in a more inclusive and attractive HSA offering that supports recruitment, retention, and long-term financial wellness among employees.” For instance, by expanding eligibility to include certain sports and fitness expenses, employers could do more to encourage healthy lifestyles and prevention among their employees through the use of an HSA, which can improve long-term workforce health and reduce costs.  

There would have been financial benefits, too, as an increase in HSA contribution limits would allow employees to further reduce their taxable income and enable them to build a more substantial health care nest egg for retirement. Meanwhile, employers would realize greater tax savings as limits increase, Scott said.

AHIP, a Washington, D.C.-based health insurance organization, on June 17 said the Senate Finance Committee’s latest reconciliation proposal would jeopardize health care, pointing to the exclusion of “meaningful HSA reforms that would provide greater choice and flexibility to employers and workers.”