Restoring Access to Medication and Modernizing Health Savings Accounts Act - H.R.6199

The House passed H.R.6199 (277-142), would allow people with health savings accounts to count gym memberships, the purchase of certain sports equipment and certain over-the-counter medications as qualified medical expenses (up to a limit of $500 a year for an individual and $1,000 a year for a joint return). It would also give spouses more opportunity to contribute to their partner’s HSA (in situations where the spouse has a flexible spending account). 

Summary              

H.R. 6199 provides relief from the Affordable Care Act tax on over-the-counter medications and modernizes health savings accounts (HSAs). A section-by-section of the bill is below:

Sec 1. Short Title; Table of Contents

Sec. 2. First Dollar Coverage Flexibility for High Deductible Health Plans Health plans can provide coverage for services before the deductible is met up to $250 a year for an individual and $500 a year for family coverage. This change will allow insurers to provide coverage for and incentivize the use of high-value services that can reduce health care costs more broadly, such as primary care visits and telehealth services.

Sec. 3. Treatment of Direct Primary Care Service Arrangements Under this proposal, a Direct Primary Care (DPC) service arrangement would not be treated as a health plan that would disqualify an individual from contributing to an HSA. For this purpose, a DPC arrangement is an arrangement under which an individual is provided primary care services by primary care practitioners and the sole compensation for such care is a fixed periodic fee that does not exceed an aggregate of $150 a month for an individual and $300 a month for a family. In addition, the fees for the arrangement are treated as qualified medical expenses.

Sec. 4. Certain Employment Related Services Not Treated as Disqualifying Coverage For Purposes of Health Savings Accounts This section allows employers to offer free or discounted services at on-site or retail medical clinics without disqualifying an HDHP enrollee from contributing to an HSA so long as significant medical care benefits are not provided.

Sec. 5. Contributions Permitted If Spouse Has A Health Flexible Spending Account Under current law, Flexible Spending Accounts (FSAs) can be used to reimburse expenses for an individual and their spouses and dependents. This eligibility for FSA benefits disqualifies an otherwise eligible FSA enrollee’s spouse from contributing to an HSA, even when each spouse is covered under a separate health plan. This provision allows an otherwise eligible FSA enrollee’s spouse to maintain an HSA, so long as the aggregate expenses actually reimbursed from the FSA are limited exclusively to what the FSA enrollee would have been entitled to absent the spouse.

Sec. 6. FSA And HRA Terminations or Conversions to Fund HSAs Employees are able, at the employer’s discretion, to convert their FSA and Health Reimbursement Account (HRA) balances into an HSA contribution upon enrolling in a high deductible health plan with an HSA. The conversion amount is capped at $2,650 for an individual and twice that for family coverage. Any conversion taking place during the same year as the FSA or HRA contribution was made will count towards an enrollees’ HSA contribution for that taxable year.

Sec. 7. Inclusion of Certain Over-The-Counter Medical Products as Qualified Medical Expenses Removes Obamacare’s restriction on over-the-counter medicines for all tax-favored health accounts and adds “menstrual care products,” defined as a tampon, pad, liner, cup, sponge, or similar product used by women with respect to menstruation or other genital-tract secretions, as a qualified medical expense for the purposes of these accounts.

Sec. 8. Certain Amounts Paid for Physical Activity, Fitness, And Exercise Treated as Amounts Paid for Medical Care Qualified sports and fitness expenses are treated as qualified medical expenses up to a limit of $500 a year for an individual and $1,000 a year for a joint return. This includes amounts paid for membership at a fitness facility, participation or instruction in a program of physical exercise or physical activity, or safety equipment for use in a program of physical exercise or physical activity.

Background

An individual may establish a health savings account (“HSA”) only if the individual is covered under a plan that meets the requirements for a high deductible health plan. In general, HSAs provide tax-favored treatment for current medical expenses as well as the ability to save on a tax-favored basis for future medical expenses. In general, an HSA is a tax-exempt trust or custodial account created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents. Within limits, 2 contributions to an HSA made by or on behalf of an eligible individual are deductible by the individual. Contributions to an HSA are excludible from income and employment taxes if made by the employer. Earnings in HSAs are not taxable. Distributions from an HSA for qualified medical expenses are not includible in gross income. Distributions from an HSA that are not used for qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent. The 20-percent additional tax does not apply if the distribution is made after death, disability, or the individual attains the age of Medicare eligibility (age 65).

Qualified medical expenses generally are defined as under Code section 213(d) and include expenses for diagnosis, cure, mitigation, treatment, or prevention of disease, including prescription drugs, transportation primarily for and essential to such care, and qualified long term care expenses. Qualified medical expenses do not include expenses for insurance other than for (1) certain premiums paid for long-term care insurance, (2) premiums for health coverage during any period of continuation coverage required by Federal law, (3) premiums for health care coverage while an individual is receiving unemployment compensation under Federal or State law, and (4) premiums for individuals who have attained the age of Medicare eligibility, other than premiums for Medigap policies.

A high deductible health plan is a health plan that has an annual deductible which is not less than $1,350 (for 2018) for self-only coverage and twice this amount for family coverage, and for which the sum of the annual deductible and other annual out-of-pocket expenses (other than premiums) for covered benefits does not exceed $6,650 (for 2018) for self-only coverage and twice this amount for family coverage.

On-site employer-sponsored health clinics may provide a range of health services to employees for free or at a reduced cost. Under IRS guidance, an otherwise eligible individual who has access to free health care or health care at charges below fair market value from a clinic on an employer’s premises will not fail to be an eligible individual merely because of this free or reduced cost care as long as the clinic does not provide significant benefits in the nature of medical care in addition to disregarded coverage or preventive care.

In addition to offering health insurance, employers often agree to reimburse medical expenses of their employees (and their spouses and dependents). These arrangements are commonly used by employers to pay or reimburse employees for medical expenses that are not covered by health insurance. These arrangements include health flexible spending arrangements (“health FSAs”) and health reimbursement arrangements (“HRAs”). Health FSAs typically are funded on a salary reduction basis under a cafeteria plan, meaning that employees are given the option to reduce their current cash compensation and instead have the amount made available for use in reimbursing the employee for his or her medical expenses. If the health FSA meets certain requirements, the compensation that is foregone is not includible in gross income or wages for payroll tax purposes. Health FSAs that are funded on a salary reduction basis are subject to the requirements for cafeteria plans, including a requirement that amounts remaining in a health FSA at the end of a plan year must be forfeited by the employee (referred to as the “use-it-or-lose-it rule”). HRAs operate in a manner similar to health FSAs, in that they are employer-maintained arrangements that reimburse employees and their dependents11 for medical expenses. Some of the rules applicable to HRAs and health FSAs are similar (e.g., the amounts in the arrangements can only be used to reimburse medical expenses and not for other purposes), but the rules are not identical. In particular, HRAs cannot be funded on a salary reduction basis and the use-it-or-lose it rule does not apply. Thus, amounts remaining at the end of the year may be carried forward to be used to reimburse medical expenses in following years. Unlike a health FSA, an HRA is permitted to reimburse an employee for health insurance premiums.

For years beginning after December 31, 2010, the Affordable Care Act changed the definition of medical care for purposes of the exclusion for reimbursements for medical care under employer-provided accident and health plans and for distributions from HSAs and Archer MSAs used for qualified medical expenses to require that over-the-counter medicine (other than insulin) be prescribed by a physician in order for the medicine to be medical care for these purposes. Thus, under present law, a Health FSA or an HRA is only permitted to reimburse an employee for the cost of over-the-counter medicine if the medicine is prescribed by a physician and distributions from an HSA or an Archer MSA used to purchase over-the-counter medicine is not a qualified medical expense unless the medicine is prescribed by a physician.

Like an HSA, an Archer MSA is a tax-exempt trust or custodial account to which tax deductible contributions may be made by individuals with a high deductible health plan. Only self-employed individuals and employees of small employers are eligible to have an Archer MSA. Archer MSAs provide tax benefits similar to those provided by HSAs for individuals covered by high deductible health plans. Distributions from an Archer MSA for qualified medical expenses are excludible from gross income. Distributions from an Archer MSA that are not used for qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent. The 20-percent additional tax does not apply if the distribution is made after death or disability, or after the individual attains the age of Medicare eligibility (i.e., age 65).

Cost

A Congressional Budget Office (CBO) estimate is not currently available.