Expansions to Health Savings Accounts in House Budget Reconciliation: Unpacking the Provisions and Costs to Taxpayers 

The 2025 federal budget reconciliation bill passed by the House aims to promote the use of health savings accounts (HSA) through a variety of changes to the HSA provisions included in the 2003 law that created HSAs. While these changes could provide more incentives for individuals to use HSAs, they would cost the federal government almost $45 billion over 10 years, according to an estimate from the Congressional Budget Office. This Policy Watch provides an overview of HSAs and examines key HSA-related provisions in the House-passed budget reconciliation bill and their costs to the federal budget.

What Are HSAs?

HSAs are tax-advantaged spending accounts designed to help enrollees in high-deductible plans (HDHPs) pay out-of-pocket medical costs. Individuals can contribute amounts and later make withdrawals to pay for unreimbursed qualified medical expenses (e.g., deductibles, copays, coinsurance, services not covered by insurance). There are annual contribution limits for individuals (for 2025, the contribution limit is $4,300 for individual coverage, $8,550 for a family). Employers are also eligible to make contributions to their employees’ HSAs, as well as family members on behalf of an individual with an HSA. HSAs are owned by the individual, not the employer. These accounts are characterized as “portable,” meaning they can be carried to a new job or retained upon retirement or loss of work.

A key feature of these accounts is that an individual must be enrolled in an HSA-eligible HDHP with a deductible of at least $1,650 for an individual or $3,300 for a family in 2025. HSA enrollees must pay all medical costs out-of-pocket until they reach the deductible, except for specified preventive services and certain insulin products, which insurance can start paying for before the deductible is met.

Also, an individual cannot have other health coverage in addition to the HDHP to be eligible for an HSA. So, receipt of medical services outside of the HDHP may jeopardize eligibility for an HSA. Additionally, once an individual is enrolled in Medicare, they can no longer contribute to an HSA (although they can still access funds in an existing HSA).

Health savings accounts are unique in offering a “triple-tax advantage”: contributions are tax deductible, growth of funds via investment is tax-free and account balances roll over, and withdrawals are tax-free if they are used for qualified medical expenses (e.g., doctor visits, prescription drugs, medical equipment) incurred after the HSA is established.

How Have HSAs Been Used?

According to the KFF 2024 Employer Health Benefits Survey, 22% of firms offering health benefits offered a high-deductible health plan (HDHP) paired with an HSA to their employees. Larger firms offering health benefits are much more likely than smaller firms to offer an HSA-qualified HDHP (50% for offering firms with 200 or more workers compared to 21% for firms with 3-199 workers). In addition to the contributions that enrollees can make to their HSA, employers are also permitted to contribute to covered workers’ HSAs. Among firms that contribute, the average employer contribution is $842 for single coverage and $1,539 for family coverage.

HSA-qualified HDHPs are also offered on the Affordable Care Act (ACA) Marketplace; however, the share of total health plans offered on the Marketplace that are HSA-eligible HDHPs has decreased from 7% in 2017 to 3% in 2023, and total enrollment in these plans has fallen from 8% in 2017 to 5% in 2022. Even though the deductibles of most HDHPs offered on the ACA Marketplace well exceed the minimum deductible requirements for HSAs, some HDHPs sold on the Marketplace cover services before the deductible in addition to the specific health services that the IRS permits for HSA-eligible plans. The drop in HSA availability on the Marketplace could also be because the Centers for Medicare and Medicaid Services (CMS) limits insurers on the exchange to offering no more than two non-standardized plans for each standardized plan they offer in a metal level for a given product/network type (e.g., HMO, PPO).

There are disparities in HSA contributions and balances across race and income groups. Research has found that higher-income individuals are more likely than those with lower incomes to be enrolled in an HSA. One explanation for this difference could be that those with higher incomes have more means to pay for out-of-pocket expenses for medical care received pre-deductible. Additionally, the tax advantages of HSAs may be particularly attractive to higher-income individuals, who may have more disposable income to maximize contributions than individuals with lower-incomes, who may not be able to afford to contribute to an HSA. Because they are in a higher tax bracket, the reduction of taxable income by making HSA contributions is also of greater value to a higher-income family than to a family with a household income in a lower tax bracket (or that earns too little to file a federal tax return). For instance, a married couple with a household income of $600,000 saves 35 cents for every dollar they contribute to their HSA, while a married couple making a combined $80,000 saves 22 cents per dollar contributed to their HSA.

Research also finds that HSA enrollment is skewed more towards White HDHP enrollees than their Black and Hispanic counterparts, which might be exacerbating existing racial income disparities and financial barriers to health care. In an analysis conducted by the Employee Benefits Research Institute (EBRI) in 2022, accountholders living in disproportionately Black or Hispanic zip codes had, on average, lower HSA balances and lower contributions than accountholders living in disproportionately White zip codes.

Investing HSA balances provides a unique, untaxed wealth-building vehicle for those who are aware of this option and have the means to do so. Despite the appeal of the tax-free investment option though, only 9% of HSA holders in 2024 invested a portion of their funds, according to a Devenir report. However, investments made up a more substantial portion of HSA assets that same year, representing a little over two-fifths of total assets. Separately, EBRI found that disproportionately White and Asian zip codes, as well as zip codes with a higher median household income, had a higher propensity to invest HSA funds in 2022.

How Have Standards for HSAs Changed in Recent Years?

The first Trump administration was a proponent of expanding access to HSAs. In 2019, an Executive Order and subsequent guidance expanded the list of services allowed to be covered pre-deductible by HSA-qualified HDHPs to include preventive services that help maintain health status for those with certain chronic conditions. This definition was further expanded in IRS guidance from 2024. Congress in COVID-relief legislation permitted telehealth services to be covered by HDHPs pre-deductible up until the end of last year. In the Inflation Reduction Act, Congress changed the HSA law to allow individuals to access certain insulin products pre-deductible.

How Would the House-Passed Budget Reconciliation Bill Expand HSAs?

If passed by the Senate and signed into law, key changes to HSAs would include:

Making gym memberships a qualified medical expense that individuals can pay for with their HSA. The reconciliation bill would allow HSA distributions to pay for certain sports and fitness expenses, such as gym memberships and participation/instruction in physical activities. Annual HSA distributions for these expenses would be capped at $500 for single taxpayers and $1,000 for joint or head of household filers. This is the costliest provision in the budget reconciliation bill: $10.5 billion from 2025 to 2034.

Allowing individuals to qualify for an HSA even if they are covered by a direct primary care arrangement or an on-site employee clinic. Direct primary care (DPC) is a different model of primary care delivery in which patients pay a periodic fee to a practice that covers unlimited primary care services (e.g., vaccines, lab work, office visits, consultive services) without cost-sharing. DPC does not usually cover specialized and other services and is therefore not generally considered comprehensive coverage. Some HDHP enrollees and others choose to add DPC to meet their primary care needs. The budget reconciliation bill stipulates that DPCs that meet specific requirements will not be treated as a health plan. In addition, the legislation would also treat dollars used to pay DPC fees as an HSA-specific qualified medical expense. This would allow HSA holders to add it on as a complement to their HDHP and use their HSA funds to pay DPC membership fees, with the caveat that these fees cannot exceed $150 monthly ($1,800 annually) in order to not be considered a health plan. This provision is projected to cost about $2.8 billion from 2025 to 2034.

On-site employee sponsored health clinics are health care facilities on an employer’s premises (or facilities used primarily for the same employer) that provide free or reduced cost services to employees. Current law makes an individual ineligible to use an HSA if they have access to an on-site employee clinic that provides significant health benefits (i.e., providing care for all medical needs for free or waiving copays and deductibles) in addition to disregarded coverage and preventive services. The budget reconciliation bill proposes to not treat on-site employee clinics offering qualified items and services as health plans for purposes of determining HSA eligibility if the services provided at the clinic meet certain parameters. This provision is projected to cost about $2.4 billion from 2025 to 2034.

Increasing the amount certain individuals can contribute to their HSAs in a year and allowing contributions that the law currently restricts. For example:

• The annual contribution limit to a health savings account for an individual would increase by $4,300 for individuals with self-only coverage and by $8,550 for family coverage, which doubles the 2025 basic limits on annual contributions. This increase would phase out at certain income levels ($75,000 to $100,000 of adjusted gross income; for joint filers with family coverage, $150,000 to $200,000 of adjusted gross income). This provision is projected to cost about $8.4 billion from 2025 to 2034.
• Individuals who are age 65 or older and enrolled only in Medicare Part A (not Part B) would be allowed to still make HSA contributions. This provision is projected to cost about $7.4 billion from 2025 to 2034. Other tax code changes would also apply to these individuals.

Treating Marketplace bronze plans and catastrophic plans as a high-deductible plan that can be paired with an HSA. To increase accessibility of HSAs in the individual market, bronze plans and catastrophic plans would be treated as HDHPs. Bronze plans have the highest cost-sharing and lowest premiums among metal-tier plans, while catastrophic plans have lower premiums than bronze plans and deductibles are equal to the ACA annual limit on out-of-pocket costs ($9,200 for individual coverage in 2025 and $10,150 in 2026). This provision is projected to cost about $3.6 billion from 2025 to 2034.

How Much Would the HSA-related Provisions of the House Budget Reconciliation Bill Cost the Federal Government?

If passed by the Senate and signed into law, HSA tax deductions would cost the federal government almost $14.8 billion in lost revenue in fiscal year (FY) 2025, and if eligibility and regulations governing the accounts remained the same, they would cost an estimated $180.9 billion from 2025 to 2034. The House-passed budget reconciliation bill contains ten reforms that broaden the range of HSA-eligible qualified medical expenses, loosen restrictions on individual contributions, and increase access to HSAs. According to the Congressional Budget Office’s estimated revenue effects for this bill, these expansions would increase the total projected cost of HSAs by approximately $44.3 billion over the next ten years (Figure 1).

Looking Forward

Efforts to expand HSAs would mean new large government expenditures, at a time when proposed tax cuts and significant changes to Medicaid and ACA programs will leave more people without coverage. Congress arguably created HSAs in 2003 to be paired with HDHPs as a tool to pay for current health care costs and to incentivize price shopping for anticipated health services. Today, expansions to HSAs appear to focus less on cost-conscious shopping, as federal rules have added more pre-deductible coverage of certain items and services and expand the items that can be treated as medical services, but only for consumers with health savings accounts. Proposals aimed at promoting “choice and control” would allow more individuals to use funds in an HSA to pay directly for certain services. Although some pre-deductible items and services are aimed at managing specific chronic illnesses, these provisions do not reach all consumers who could benefit from other types of specialized items and services, which often come at a high cost, to manage and treat their chronic condition.