Fringe Benefits

How the Proposed American Health Care Act May Impact Flex/HSA Plans

Rachael Wilkinson
American Healthcare Act Impact on Flex/HSA
Reading time 3 Mins
Published on Mar 10

The primary Committees with jurisdiction over health care—Ways and Means and Energy and Commerce—have released the American Health Care Act, legislation that not only repeals the Affordable Care Act, but replaces it with reforms President Trump has laid out. This is proposed legislation which means it is not yet effective but we want to make you aware of the impact this may have on Flex/HSA plans if it does indeed become law. As summarized by the Ways and Means website, these are the sections that are applicable:

SECTION_08: REPEAL OF THE TAX ON OVER-THE-COUNTER MEDICATIONS Under current law, taxpayers may use several different types of tax-advantaged health savings accounts to help pay or be reimbursed for qualified medical expenses. The Affordable Care Act excluded over-the-counter medications from the definition of qualified medical expenses. This section effectively repeals the Affordable Care Act tax on over-the-counter medications. The effective date begins tax year 2018.

SECTION_09: REPEAL OF INCREASE OF TAX ON HEALTH SAVINGS ACCOUNTS Distributions from an HSA or Archer MSA that are used for qualified medical expenses are excludible from gross income. Distributions that are not used for qualified medical expenses are includible in income and are generally subject to an additional tax. The Affordable Care Act increased the percentage of the tax on distributions that are not used for qualified medical expenses to 20 percent. This section lowers the rate to pre-Obamacare percentages. This change is effective for distributions after December 31, 2017.

SECTION_10: REPEAL OF LIMITATIONS ON CONTRIBUTIONS TO FLEXIBLE SAVINGS ACCOUNTS the Affordable Care Act limits the amount an employer or individual may contribute to a health Flexible Spending Account (FSA) to $2,500, indexed for cost-of-living adjustments. This section repeals the limitation on health FSA contributions for taxable years beginning after December 31, 2017.

SECTION_16: MAXIMUM CONTRIBUTION LIMIT TO HEALTH SAVINGS ACCOUNT INCREASED TO AMOUNT OF DEDUCTIBLE AND OUT-OF-POCKET LIMITATION This section increases the basic limit on aggregate Health Savings Account contributions for a year to equal the maximum on the sum of the annual deductible and out-of-pocket expenses permitted under a high deductible health plan. Thus, the basic limit will be at least $6,550 in the case of self-only coverage and $13,100 in the case of family coverage beginning in 2018.

SECTION_17: ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS This section would effectively allow both spouses to make catch-up contributions to one HSA beginning in 2018.

SECTION_18: SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE ESTABLISHMENT OF HSA This section sets forth certain circumstances under which HSA withdrawals can be used to pay qualified medical expenses incurred before the HSA was established. Starting in 2018, if an HSA is established during the 60-day period beginning on the date that an individual’s coverage under a high deductible health plan begins, then the HSA is treated as having been established on the date coverage under the high deductible health plan begins for purposes of determining if an expense incurred is a qualified medical expense.

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