Many Americans use Health Savings Accounts (HSAs), which are beneficial instruments allowing individuals to save for medical costs. Above all, HSA offers significant tax benefits. Fortunately, a new government and the 119th Congress could bring about important changes.

The purpose of the bill, once passed, is to address the drawbacks of high-deductible health plans (HDHPs) and/or HSAs that prevent individuals from using them. Certain measures, if passed, would allow people to possess HSAs, make larger yearly contributions, and spend HSA funds on more goods and services.

This blog summarizes the proposed HSA policy changes and how they can help retired federal employees.

The purpose of HSAs was to provide substantial medical coverage. However, they are also a common instrument, especially among federal retirement advisors, and can be an outstanding way to boost your savings. If an individual has an authorized High-Deductible Health Plan (HDHP) without any unauthorized coverage, they are eligible to create and contribute to an HSA. However, the person might be qualified to make contributions to an HSA in particular months but not in others since their eligibility for an HDHP is assessed on the first of every month.

Moreover, individuals who are listed as dependent on someone else’s tax return are not eligible. However, the annual assessment of tax reliance might not be known until the end of the fiscal year. The good thing is, when an individual loses their eligibility, they can still maintain their HSA. Therefore, getting insurance with a small monthly payment or having reached the age of 65 does not deprive them of their HSA (or the ability to use it).

There are plans to expand the realm of HSA coverage. Allowing HSA account savings to cover things like direct primary care arrangements or fitness programs can be one of them. However, there are several other proposals that can be considered, such as

• Eligibility Extension for HSAs

At the moment, participation in strictly defined “high-deductible health plans” (HDHPs) is an essential requirement for making HSA payments. After the changes, individuals might be allowed to contribute to an HSA regardless of their health insurance plans. These proposed modifications can be useful for removing stringent qualifying rules and broadening the applications of HSAs. This can improve the flexibility, accessibility, and advantages of HSAs and revolutionize the way people receive health benefits from savings plans.

• Flexibility on coverage

There are plans to expand the range of HSA coverage. Enabling the use of HSA money for items such as direct primary care or fitness and exercise equipment is one of them. According to a federal retirement financial advisor, it is expected to cover mental health and chronic illnesses broadly.

•  Reflective reimbursement for medical expenses

The inability of HSAs to cover medical costs before account opening was a significant cause of concern. To provide account holders with further financial relief, lawmakers are considering the addition of a clause that will permit practical compensation for individuals for these costs.

• Increase of HSA-compatible health plans

The present law has fairly prescriptive standards for an HSA-compatible plan. It includes a minimum deductible, a maximum out-of-pocket, and the requirement that all preventive care be covered as a deductible plan. The HSA expansion bill would increase the number of options accessible to consumers by making all Basic and Critical plans HSA-compatible.

• Enhancement of mental health coverage

A significant number of individuals are either not receiving therapy at all or are receiving inadequate treatment for mental illnesses. It impairs their capacity to study, work, and carry out other essential daily functions. If the bill is successfully passed, individuals will be covered for mental health services. After the amendment, the advantages are clear for families coping with mental health issues.

Given the present political situation, experts predict HSA expansions to play a significant role in larger tax reform attempts later this year. According to proposed timeframe estimates, significant changes might be enacted as early as 2026. However, bilateral support could allow some initiatives to be adopted earlier. 

Above all, legislative priorities and procedures will determine the course for accomplishing the HSA expansions. One significant legislative tool in discussion is the procedure known as “budget reconciliation,” which permits Congress to pass budget-related legislation with a simple majority.

The proposed changes, which range from removing stringent qualifying rules to broadening the applications of HSAs, can improve the flexibility, accessibility, and advantages of HSAs. Moreover, it can revolutionize the way companies and individuals receive health benefits and savings plans. 

With Republicans now in charge of both chambers of Congress and the White House, the political landscape has drastically changed. HSAs are now at the centre of legislative debates for the first time since 2018. Therefore, important plans to expand HSA benefits are gaining momentum, generating interest among companies, legislators, and specialists in the healthcare sector. 

If the bill is passed into law, the following is an insight into its provisions that would come into effect on January 2, 2026:

• Increased Grant Limit

Up to $4,300 and $8,550, respectively, can be contributed by individuals as HSA savings in 2025. In addition, anyone 55 and older are eligible to contribute an extra $1,000. The annual contribution ceiling for HSAs would be doubled under the bill’s modifications, rising to $17,100 for family coverage and $8,600 for people with self-only coverage.  

The higher payment diminishes for individuals with adjusted gross incomes between $75,000 and $100,000 and for couples with family coverage between $150,000 and $200,000. 

• Both spouses can draw from the same HSA account

If an eligible individual or spouse is 55 years of age or older at the end of the fiscal year in question, the current legislation permits them to increase the individual contribution cap to $1,000. After the amendments in HSA, to contribute to one spouse’s HSA, both eligible partners can combine their basic and add-up contribution amounts.

• Flexibility on FSAs

Married couples’ usage of HSAs would be subject to rules and limitations. If both couples have a flexible spending account (FSA), it is eligible. However, a person may not be allowed to contribute to an HSA if their spouse has an FSA, according to the most recent HSA adjustment. 

• Additional years to contribute

Contributions to an individual HSA would be permitted for Medicare Part A subscribers 65 years of age or older. At present, a person might no longer make contributions to a health savings account when they turn 65, according to health savings account rules.

• Rollovers are allowed

It would be possible to roll over funds from an existing health FSA into an HSA if you were recently enrolled in an HDHP. Additionally, with some limitations, you can use annual HSA contribution limits to cover medical costs you incurred before the HSA’s creation.

The analysis of this legislative bill is to provide HSA account holders with a broad understanding of the state of their present health benefits. This study should not be interpreted as, nor is it meant to offer, legal advice. If you have any further questions, it is advisable to contact the service providers specializing in federal government employee retirement planning in Puerto Rico.

This measure will accomplish three significant goals. First, for HSA supporters, they are a flag in the ground that indicates their objectives for the current Congress. Second, those supporting it plan to pass the bill in its current form and make it law. Third, it offers vetted formulation for certain sections if the bill is approved by jurisdictional committees.