HR 548119th CongressIn Committee

HSA Modernization Act

Introduced: Jan 16, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The HSA Modernization Act updates the Internal Revenue Code to broaden and modernize Health Savings Accounts (HSAs). Key changes expand who can contribute to HSAs (including certain veterans, people entitled to Medicare Part A by age, and individuals eligible for Indian Health Service assistance), broaden the set of plans that qualify as High Deductible Health Plans (HDHPs) to include ACA Bronze and catastrophic plans, and make several adjustments to contribution rules, treatment of certain expenses, and timing issues. The bill also adds protections for mental health benefits, clarifies treatment of long-term care expenses, and allows both spouses to make catch-up contributions to the same HSA. Many provisions are slated to take effect for tax years or plan years beginning after December 31, 2025.

Key Points

1Expands who may contribute to HSAs
2- Individuals without a service-connected disability but eligible for certain veterans benefits can contribute.
3- People entitled to Medicare Part A by age can contribute.
4- Individuals eligible for Indian Health Service assistance are not disqualified merely because they use IHS for care.
5Broadens the HDHP definition and related rules
6- Bronze and catastrophic ACA plans are treated as HDHPs for HSA purposes.
7- Adds a safe harbor: plans aren’t disqualified as HDHPs if there is no deductible for the first $500 of mental health benefits.
8Addresses timing and treatment of expenses
9- Special rule allows certain medical expenses incurred before establishing an HSA to be treated as if incurred after coverage begins, for purposes of qualified medical expenses.
10- Clarifies treatment of long-term care services as qualified medical expenses.
11Increases flexibility and limits for contributions
12- Allows both spouses to make catch-up contributions to the same HSA under family coverage, with defined rules on how to allocate and treat those amounts.
13- Increases the HSA contribution limits to equal the applicable HDHP deductible and out-of-pocket limit amounts, with related conforming changes.
14Additional safety, coordination, and effective date details
15- Makes coordination adjustments related to penalties for non-qualified distributions.
16- Several provisions become effective for months/years beginning after December 31, 2025, with some earlier applicability for certain provisions (e.g., long-term care clarification).

Impact Areas

Primary group/area affected- HSA owners and potential contributors, including new groups (certain veterans benefits recipients, age-based Medicare Part A entitlement, and IHS-eligible individuals).- Families with HDHP coverage, especially those with multiple spouses sharing an HSA and those with Bronze or catastrophic plans.Secondary group/area affected- Medicare-age individuals who qualify for Part A, and individuals using Indian Health Service programs.- Mental health beneficiaries and providers, through the safe-harbor for zero-deductible mental health services.- Long-term care services users and providers, via clarified eligibility of LTC expenses as qualified medical expenses.Additional impacts- Alignment of HSA limits with HDHP deductibles and out-of-pocket maximums could increase allowable contributions for many high-deductible plan participants.- Potential effects on state and federal revenue/deficit would depend on changes in HSA participation and tax receipts.- Administrative and educational needs for taxpayers to understand new eligibility, plan classifications, and the updated coordination rules.

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