Overview
Title
To amend the Internal Revenue Code of 1986 to improve health savings accounts.
ELI5 AI
H.R. 5688 is a plan to make saving for healthcare easier by changing some rules, like making it clearer who can have special healthcare savings accounts and letting people move money from their flexible healthcare accounts to those savings accounts when they switch insurance.
Summary AI
The bill H.R. 5688 aims to improve health savings accounts (HSAs) by making several changes to the Internal Revenue Code. It provides that direct primary care service arrangements will not be classified as health plans, thus not affecting an individual's eligibility for an HSA. The bill also allows for contributions to an HSA even if a spouse has a health flexible spending arrangement under specific conditions, and it enables funds from a flexible spending arrangement or health reimbursement arrangement to be transferred to an HSA when an employee starts a high-deductible health plan. Additionally, the legislation details guidelines for on-site employee clinics and clarifies reporting requirements for these arrangements on W-2 forms. These amendments are set to take effect starting in 2026.
Published
Keywords AI
Sources
Bill Statistics
Size
Language
Complexity
AnalysisAI
General Summary of the Bill
This legislative bill, titled the “Bipartisan HSA Improvement Act of 2023,” seeks to amend the Internal Revenue Code of 1986 with the aim of enhancing the effectiveness of health savings accounts (HSAs). The bill contains several key amendments, including the management of direct primary care service arrangements, on-site employee clinics, and both flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs), enabling their conversion into HSAs. The changes aim to update the regulations surrounding health savings and spending while providing clarity in areas such as reporting and qualifications for certain medical arrangements and expenses.
Summary of Significant Issues
Several noteworthy issues arise in the examination of this bill. The most significant might be the delayed implementation dates, with many amendments not taking effect until after December 31, 2025. This postponement may delay any benefits or needed adjustments in healthcare spending and tax planning. Additionally, several definitions, such as "direct primary care service arrangement" and "qualified items and services" in employee on-site clinics, could lead to varying interpretations, causing potential confusion or inconsistent applications. Furthermore, the bill's use of IRS Notice 2019-45 to define "preventive care for chronic conditions" may be problematic if future changes to the notice alter what is considered covered care.
Public Impact
For the public, the bill could create both opportunities and challenges. On the one hand, encouraging the use of HSAs could foster greater control over personal healthcare expenses, incentivizing individuals to save for future medical costs. However, with effective dates so far in the future, immediate benefits are limited, and individuals who rely on now-excluded services may face difficulties. Additionally, the definitions and conditions applied to various changes might lead to misunderstandings for those not thoroughly versed in tax codes and healthcare policy, impacting financial planning and healthcare choices.
Impact on Specific Stakeholders
Positive Impacts
Employers: The provisions allowing employees to receive certain medical services at on-site clinics without affecting their health plans could lower healthcare costs and increase available services to employees. Employers who already have robust on-site clinics could potentially benefit the most.
Health Policy Planners: Policymakers focused on increasing the accessibility and use of HSAs may view these changes as advancements towards a more efficient healthcare financing model.
Negative Impacts
Small Businesses: Smaller businesses might be adversely impacted by these amendments, as they may lack the resources to set up on-site clinics, potentially putting them at a competitive disadvantage.
Individual Taxpayers: The technical language and complexity in the bill could be challenging for individual taxpayers to understand, potentially leading to errors in tax filings or mismanaged healthcare funds if they misunderstand their eligibility or the constraints of different savings plans.
Vulnerable Populations: Populations needing excluded services (like those involving anesthesia or certain lab services) might find themselves disadvantaged, with restricted access to necessary healthcare services.
Overall, while the bill seeks to improve the flexibility and usability of HSAs, significant attention to detail and guidance will be required to ensure consistent understanding and application, particularly for smaller businesses and individual taxpayers who might lack resources to navigate the complexities independently.
Financial Assessment
The bill H.R. 5688 looks to address several aspects of health savings accounts (HSAs), including how certain healthcare arrangements are treated under tax codes. In examining the bill, there are notable references to financial allocations and limitations, which may have implications for individuals and employers alike.
Section 2: Direct Primary Care Service Arrangements
A significant financial component of the bill is found in Section 2, which specifies the treatment of direct primary care service arrangements. The bill states that these arrangements should not be treated as health plans, affecting HSAs' eligibility and impacting potential tax savings for individuals. Crucially, the bill imposes a monetary limitation on these arrangements, specifying that their aggregate fees should not exceed $150 per month for an individual, or $300 per month if covering more than one person.
The cap on fees may have practical implications, especially considering the bill's exclusion of certain primary care services such as procedures requiring general anesthesia. This exclusion could financially disadvantage individuals needing these services, as they may still incur out-of-pocket costs despite the arrangement. The definition of a "fixed periodic fee" is not clearly outlined, potentially leading to ambiguity in how these financial limits are applied. This lack of clarity may result in inconsistencies across different providers, affecting financial planning and healthcare access for individuals.
Section 5: FSA and HRA Terminations or Conversions to Fund HSAs
Section 5 includes provisions for transitioning funds from health flexible spending arrangements (FSAs) or health reimbursement arrangements (HRAs) to HSAs. It introduces a dollar limitation based on a current law, stating that the distribution from these accounts, considered as a "qualified HSA distribution," should not surpass a certain amount. This amount corresponds to limits set under Section 125(i)(1), which effectively ties the distribution limits to existing standards for cafeteria plans.
The financial language in this section is complex, possibly leading to confusion about the scope and application of these limitations, especially for average employees or those without financial expertise. Moreover, the implications for taxpayers and businesses might be significant, particularly if not properly understood or disseminated by employers.
Broader Financial Context
The bill's financial provisions may inadvertently favor larger businesses. Section 2's monetary limit may be more easily navigated by larger healthcare providers with a broader service array, whereas smaller clinics might struggle to offer competitive packages under these constraints. Additionally, sections discussing on-site employee clinics and preventive care provisions could economically disadvantage smaller employers who cannot afford comprehensive on-site healthcare facilities, thus widening gaps in healthcare access and benefits between larger and smaller employers.
Finally, with the effective dates for these changes set for 2026, there remains a significant delay before these financial measures take effect. This lag could delay any potential positive economic and healthcare impacts, creating uncertainty for businesses planning their healthcare strategies and financial allocations in the interim.
In summary, while H.R. 5688 aims to improve the financial mechanisms of health savings accounts, the bill introduces several monetary conditions and limits that require careful consideration. The financial implications for both individuals and businesses are nuanced, necessitating detailed guidance and transparent implementation to prevent potential inequities or misunderstandings.
Issues
The effective dates for the amendments in Sections 2, 3, 4, and 5 are set far in the future (after December 31, 2025), which could delay potential benefits, implementation, and any related economic and healthcare impacts.
In Section 2, the 'direct primary care service arrangement' definition lacks clarity, particularly in defining what constitutes a 'fixed periodic fee' and its impact on individuals, especially those needing excluded services like procedures requiring general anesthesia or certain lab services.
Section 3's use of an appendix from IRS Notice 2019-45 to define 'preventive care for chronic conditions' could lead to future ambiguity, as changes in the notice may alter what is considered covered care.
The broad definition of 'qualified items and services' in Section 3 might lead to varying interpretations, causing confusion among employers and employees about what is covered in on-site clinics.
Section 5's technical language and complex conditions for what constitutes a 'qualified HSA distribution' may lead to confusion among the general public and employers about the practical implications of the proposed changes.
The possibility that the bill's provisions could favor larger manufacturers or employers, as mentioned in Sections 2 and 3, might create a disadvantage for smaller businesses or healthcare providers, impacting competition and accessibility.
The absence of detailed guidance on how changes in Sections 4 and 5 affect taxpayers and their tax liabilities could lead to misunderstandings or improper financial planning, affecting a significant number of individuals and families.
Potential exclusion of certain services from the term 'primary care services' in Section 2 could disadvantage individuals who require those services, which might have ethical implications and affect vulnerable populations.
Section 5's lack of clear connections to how these amendments might affect overall healthcare spending and the distribution of funds may lead to unexpected financial impacts on healthcare markets.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The text outlines that this legislative document is titled the “Bipartisan HSA Improvement Act of 2023.”
2. Treatment of direct primary care service arrangements Read Opens in new tab
Summary AI
The section revises the Internal Revenue Code to clarify that direct primary care service arrangements, where individuals pay a fixed fee for primary care services, are not considered health plans, and sets limits on monthly fees. It also requires these fees to be reported on employees' W-2 forms and treats them as medical expenses, with changes effective from 2026.
Money References
- “(II) LIMITATION.—With respect to any individual for any month, such term shall not include any arrangement if the aggregate fees for all direct primary care service arrangements (determined without regard to this subclause) with respect to such individual for such month exceed $150 (twice such dollar amount in the case of an individual with any direct primary care service arrangement (as so determined) that covers more than one individual).
- (b) Direct primary care service arrangement fees treated as medical expenses.—Section 223(d)(2)(C) of such Code is amended by striking “or” at the end of clause (iii), by striking the period at the end of clause (iv) and inserting “, or”, and by adding at the end the following new clause: “(v) any direct primary care service arrangement.”. (c) Inflation adjustment.—Section 223(g)(1) of such Code is amended— (1) by inserting “, (c)(1)(E)(ii)(II),” after “(b)(2)” each place it appears, and (2) in subparagraph (B), by inserting “and (iii)” after “clause (ii)” in clause (i), by striking “and” at the end of clause (i), by striking the period at the end of clause (ii) and inserting “, and”, and by inserting after clause (ii) the following new clause: “(iii) in the case of the dollar amount in subsection (c)(1)(E)(ii)(II) for taxable years beginning in calendar years after 2026, ‘calendar year 2025’.”. (d) Reporting of direct primary care service arrangement fees on W-2.—Section 6051(a) of such Code is amended by striking “and” at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting “, and”, and by inserting after paragraph (17) the following new paragraph: “(18) in the case of a direct primary care service arrangement (as defined in section 223(c)(1)(E)(ii)) which is provided in connection with employment, the aggregate fees for such arrangement for such employee.”. (e) Effective date.—The amendments made by this section shall apply to months beginning after December 31, 2025, in taxable years ending after such date. ---
3. On-site employee clinics Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to clarify that employees can receive certain medical services at their employer's on-site clinics without it affecting their health plan status. These services include physical exams, immunizations, and preventive care for chronic conditions, among others, and will apply from taxable years starting after December 31, 2025.
4. Contributions permitted if spouse has health flexible spending arrangement Read Opens in new tab
Summary AI
The proposed change allows people to contribute to a Health Savings Account (HSA) even if their spouse has a health flexible spending arrangement, as long as the reimbursements for the year do not exceed eligible expenses. This amendment will be effective for plan years starting after December 31, 2025.
5. FSA and HRA terminations or conversions to fund HSAs Read Opens in new tab
Summary AI
The section outlines changes to the Internal Revenue Code to allow employees to move funds from health flexible spending arrangements (FSAs) or health reimbursement arrangements (HRAs) to health savings accounts (HSAs) when they switch to high deductible health plans, with specific conditions and limits on the amount that can be transferred. It also requires that qualified HSA distributions be reported on W-2 forms, and these amendments will take effect for distributions made after December 31, 2025.
Money References
- “(B) DOLLAR LIMITATION.—The aggregate amount of distributions from health flexible spending arrangements and health reimbursement arrangements of any employee which may be treated as qualified HSA distributions in connection with an establishment of coverage described in subparagraph (A)(i) shall not exceed the dollar amount in effect under section 125(i)(1) (twice such amount in the case of coverage which is described in section 223(b)(2)(B)).”.