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American Health Care Bill: What does it mean for Pre-tax Benefit Accounts?

American Health Care Bill and Pre-tax Benefit Accounts

Almost eight years after the passage of the Affordable Care Act, Republicans put forth their plan to repeal and replace it in the form of the The American Health Care Bill. While there are many different perspectives and certainly pros and cons to the bill as a whole, we will focus on the impact the bill would have to pre-tax benefit account programs if it were to become law.

Key Proposed Attributes Impacting Pre-tax Benefit Account Programs, include:

  • Repeal of tax on over-the-counter medications: Eligible OTC drugs and medicines would be permitted to be paid from HSAs, Archer MSAs, Health FSAs and Health Reimbursement Accounts without the requirement of a prescription. BRI, along with industry advocates, has been pushing for this change since the restriction took affect in 2011.
  • Repeal of limit on contributions to FSAs: Contributions to an FSA would no longer be restricted through legislative limits (currently $2,600 annually). Employers would be free to set limits based on their employees’ needs and determinations of risk.
  • Increase HSA limits to match out-of-pocket maximums: HSA contribution limits would nearly double to mirror the maximum out-of-pocket limits for HSAs.
  • Allow both spouses to make a catch-up contribution to the same HSA: Spouses would no longer be required to set-up a separate HSA to take advantage of the $1,000 catch-up contribution for those ages 55 and older.
  • 60-day grace period for HSA Establishment: Currently, HSA participants are not eligible for reimbursement of expenses until their HSA is deemed established. This would provide a 60-day grace period between the date effective coverage was obtained and when the HSA was established to ensure all expenses were eligible for distribution from the HSA.
  • Excess health insurance credit payable to an Health Savings Account (HSA): Individuals eligible for a health insurance credit could opt for a lower premium plan and put any excess amounts into an HSA.
  • Repeal HSA distribution tax: Under the Affordable Care Act, the tax penalty for a non-qualified withdrawal from an HSA increased from 10% to 20%. The tax penalty would return to 10%.

While it is still very early in the legislative process, Republicans are expected to push the American Health Care Bill (or some form of it) forward. It is unclear if the bill has enough support to pass at this time or what concessions may occur in order to gain support. We will continue to monitor the developments and report on any resulting changes if applicable.