‘Big Beautiful’ Tax Bill Would Make Major Changes to HSAs, ICHRAs

The “Big Beautiful” tax bill being debated in Congress has several provisions that would make major changes to rules governing individual coverage health care reimbursement arrangements and tax-advantaged health savings accounts. Many of these changes would benefit both employees and employers.

The legislation has not yet been signed into law and could undergo significant changes in committees in the U.S. Senate. After the Senate makes changes to the bill, which has already passed the House, it may be completely different. However, the changes proposed for ICHRAs and HSAs seem to be noncontroversial, with no opposition reported.

Here’s a look at the proposed changes.

Making changes to HSAs

HSAs, which are tied to qualified high-deductible health plans (HDHPs), allow employees to sock away untaxed income for future medical and health-related expenses. Usually, a set amount is withdrawn from their paychecks before taxes are applied.

Account holders can invest the money in these accounts like they do with 401(k) plans; the accounts can be moved from one employer to the next and kept into retirement. Funds are withdrawn tax free to reimburse for qualified medical and health-related expenses.

The bill would:

• Allow working seniors who are 65 and older to continue contributing to an HSA, a change from current law that prohibits this.
• Expand HSA eligibility to people with ordinary bronze-level plans and catastrophic major medical coverage. Currently, only individuals in HDHPs have access to HSAs.
• Allow an HSA to reimburse for gym memberships and other fitness-related costs. The reimbursement limit would be $500 annually for individuals and $1,000 for families.
• Permit workers with access to an employer’s on-site clinic to contribute to HSAs. Under current law, access to an employer health clinic violates the rule that an HSA owner must have an HDHP.
• Allow married couples who file taxes jointly to make catch-up contributions to the same HSA. Currently, married couples can only make catch-up contributions to their own accounts. The maximum HSA contribution in 2025 is $4,300 for an individual and $8,550 for a family. Individuals over the age of 55 can make catch-up contributions of up to $1,000 each year.
• Allow HSA owners to pay dues for a “direct primary care practice,” a subscription service for primary care. It would limit the reimbursable dues to $150 for an individual and $300 for a family.
• Allow workers with health reimbursement or flexible spending arrangements that are terminating to roll some unused funds from those accounts into an HSA. The maximum amount that can be converted is linked to the FSA contribution limit, which is $3,300 in 2025.
• Would allow one spouse to contribute to an FSA and the other to an HSA. Under current law, if one spouse has an FSA, the other cannot contribute to an HSA.
• Would set the maximum HSA contribution based on earnings. For example, for employees making $75,000, the contribution limit would increase to $8,600 for an individual, compared to $4,300 today. For a couple making $150,000 annually, the amount would jump to $17,100 from the current $8,550.

Tweaking ICHRAs

The legislation would rebrand ICHRAs to individual care expense arrangements (CHOICE arrangements), which would be made available through a cafeteria plan.

This change would also address an issue that has plagued ICHRAs: funds in those accounts are not eligible for tax-free status if used to purchase individual coverage on Healthcare.gov or other Affordable Care Act exchange. By funding them through a cafeteria plan, workers with CHOICE arrangements would be able to pay for individual coverage on the exchange using tax-free dollars.

The bill would also allow employers to give workers the option of enrolling in a CHOICE arrangement or a traditional group health plan.

Further, it would provide employers a monthly tax credit of $100 per employee enrolled in a CHOICE plan when the plan includes major medical coverage that offers at least the same type of benefits that a bronze plan on the government exchange would. Typically, bronze plans cover about 60% of medical costs.

The takeaway

Much can change between now and when the tax bill is signed into law. If the above provisions make it into the final version, they could greatly expand the use of HSAs and ICHRAs. One analysis of the bill predicts it would expand the pool of people eligible for HSAs by 20 million.