HSA and ICHRA Changes Proposed in Tax Bill

The House Ways & Means Committee has released its much-anticipated initial draft of the tax provisions in the reconciliation bill, which is now being referred to as “The One, Big, Beautiful Bill.”  The bill includes several significant proposed changes to health savings accounts (HSAs) and individual coverage HRAs (ICHRAs). 

HSA Proposals in Draft Bill 
The proposed changes to HSA rules include: 

• Allowing individuals who enroll in Medicare Part A to be HSA-eligible; 

• Restricting the ability to use HSAs for premium expenses upon reaching age 65 to only those who are not HSA-eligible; 

• Allowing individuals to be HSA-eligible if they have a direct primary care (DPC) membership of up to $150/month; 

• Adding the ability to use HSAs for direct primary care membership fees; 

• Allowing individuals to be HSA-eligible if they are enrolled in any Bronze or Catastrophic plan on the Exchange; 

• Allowing individuals with access to an on-site medical clinic providing certain limited services to be HSA-eligible; 

• Adding the ability to use an HSA for gym memberships and other similar physical exercise/activity costs of up to $500/year; 

• Allowing both spouses to make the $1,000 catch-up contribution (available at age 55+) to the same HSA; 

• Allowing amounts to be distributed into an HSA from a health FSA or HRA for employees newly enrolled in an HDHP, capped at twice the current-year health FSA salary reduction contribution limit; 

• Allowing individuals to use HSAs for expenses incurred in the 60-day period after enrollment in an HDHP as long as the HSA is established by the end of that 60-day period; 

• Allowing individuals to be HSA-eligible where their spouse is enrolled in a general purpose health FSA; and 

• Increasing the HSA contribution limit by an additional $4,300 individual/ $8,550 family coverage with phase-outs for incomes above $75,000 ($150,000 married), applicable only to employee contributions. 

These changes are proposed to take effect for tax years and plan years beginning after December 31, 2025.  

Current HSA Rules: The Basics 
Health Savings Account (HSA) eligibility is required for any individual to establish an account and make or receive HSA contributions.  Individuals must satisfy the following four requirements to be HSA-eligible: 

1. Be covered by a qualified high deductible health plan (HDHP); 

2. Have no other disqualifying health coverage; 

3. Not be enrolled in any part of Medicare; and 

4. Not be able to be claimed as a dependent on someone else’s current-year tax return. 

Employees can take a tax-free distribution from their HSA to pay or be reimbursed for IRC §213(d) qualified medical expenses that are incurred after establishing the account and are not reimbursed by another plan or arrangement. The IRS overview of what constitutes a §213(d) medical expense is IRS Publication 502.   

For more details: 

• The 2026 HSA Contribution Limits 

• The HSA Eligibility Requirements: Part I 

• The HSA Eligibility Requirements: Part II 

• The HSA Contribution Rules: Part I 

• The HSA Contribution Rules: Part II 

• The HSA Distribution Rules: Part I 

• The HSA Distribution Rules Part II 

• Newfront Go All the Way With HSA Guide 

ICHRA Proposals in Draft Bill 
The proposed changes to ICHRA rules include: 

• Rebranding ICHRAs to be known as “Custom Health Option and Individual Care Expense Arrangements,” or “CHOICE Arrangements”; 

• Codifying the current ICHRA regulations (with modifications) into statute; 

• Adding a new requirement to include the ICHRA amount available on the employee’s Form W-2; 

• Allowing employees to pay their share of the premium on a pre-tax basis through the Section 125 cafeteria plan even if it the policy is purchased on the Exchange; and 

• The creation of an employer tax credit for offering an ICHRA. 

These changes are proposed to take effect for tax years beginning after December 31, 2025.  

Current ICHRA Rules: The Basics 
ICHRAs became available as of 2020 as a way for employers to reimburse employees for the cost of individual policy premiums.  Employers can offer ICHRAs as an alternative to the traditional group health plan.  Currently, ICHRAs law has been established only through regulatory action.  

For more details: 

• Newfront ICHRA Guide for Employers 

• ICHRA: Top Three Changes Needed for Prime Time 

• ICHRA: The Health Plan 401(k) Has Arrived 

 Other Notable Employee-Benefit Related Provisions in Draft Bill 

• Making permanent the CARES Act tax-free $5,250 student loan repayment assistance option for employers (scheduled to expire at the end of 2025); 

• Indexing for inflation the $5,250 qualified educational assistance limit—including student loan repayment assistance—starting in 2026 (fixed at $5,250 since 1979); and 

• Making permanent the TCJA elimination of the tax-free $20 bicycle commuting reimbursement option for employers (scheduled to return as of 2026). 

 For more details: 

• Newfront Fringe Benefits for Employers Guide 

• Employer Tax-Free Student Loan Repayment Available Through 2025 

• Commuter Benefits Overview 

Reminder: Proposed Legislation May Change (or Never be Enacted) 
During the first term of President Trump, the ACA repeal/replace efforts (ultimately unsuccessful) also attempted to make significant changes to HSAs.  As we learned from the failed ACA repeal/replace efforts in 2017, any such efforts will face significant hurdles to reaching the President’s desk.  

While this “One, Big, Beautiful Bill” appears to have a greater likelihood of passage (at least in some form) given the need to avoid expiration of many of the TJCA’s main tax reductions, the bill will still face many changes prior to becoming law.  Even if these proposed HSA/ICHRA provisions survive the gauntlet of congressional horse trading and ultimately pass in their current form through the House, the Senate is likely to pass their own version of the bill that may be significantly different.  That would lead to a conference committee to reconcile the differences, whereby it is anybody’s guess which components of the differing versions survive to the final version for President Trump’s signature.  

Many of us in the industry spent considerable time and effort closely following the failed ACA repeal/replace efforts in 2017. Those of us who have been through that experience should have a better sense now that while it is interesting to follow developments as they arise, we should all harbor a skeptical “wait-and-see” approach and be careful not to assume any version will become law—unless and until it actually is enacted.  Stay tuned!   

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).