Today, the Ways and Means Committee will mark up its legislative package, which includes significant health care reforms. The legislation expands health savings accounts (HSAs), codifies the Trump administration’s 2019 rule to create individual coverage health reimbursement arrangements (ICHRAs), tightens program integrity in the Affordable Care Act (ACA) exchange plans, and limits ACA premium subsidies to U.S. citizens and lawful residents.
The Committee’s HSA proposals empower patients to use their health care dollars on services they value and that are more likely to improve health outcomes. These reforms ultimately fund patients, not the system, and increase American health care freedom.
The Ways and Means Committee’s ACA proposals are projected to reduce federal deficits by $180 billion over the next decade while lowering premiums through a healthier risk pool and reducing gaming. Based on available impact data, we estimate annual premium savings of $100 for individual plans and $300 for family plans. When combined with the ACA reforms proposed by the Energy and Commerce Committee—which largely codifies key proposals of the Trump administration’s proposed Affordable Care Act Program Integrity and Affordability Rule— the deficit reduction increases to over $300 billion over a decade, with premiums decreasing by up to 5% or $400 annually for individual plans and $1,200 for family plans.
One notable omission from the reconciliation bills is an appropriation for the ACA cost-sharing reduction (CSR) program and Paragon’s proposed HSA option. We wrote about this important policy combination last week; for more detail, see our previous analysis here. In short, if Congress appropriates CSRs, silver plan premiums would decrease by 15%, overall ACA market subsidies would decline, and deficits would be reduced by tens of billions of dollars.
Congress should also permit lower-income ACA enrollees to take their CSR subsidy as a deposit in an HSA. The HSA amount would be around $2,000 a year and would give people more control over their health care. The HSA option would provide around $2,000 annually, giving enrollees more control over their health care and addressing a critical issue with ACA plans—their narrow provider networks and lack of out-of-network coverage.
HSA Reforms
HSAs are a crucial financial tool that gives consumers control over how to spend their health care dollars on services that best meet their needs. When consumers spend their own money, suppliers are forced to offer services that provide people with greater value, which helps discipline the supply side of the market.
The legislation eliminates barriers that prevented many people from accessing HSAs. The legislation permits HSA contributions by individuals who have a high-deductible health plan and are enrolled in direct primary care (DPC) arrangements. In a DPC arrangement, patients pay a single monthly fee that covers most or all their primary care expenses. Monthly HSA contributions cannot exceed $150 for individuals or $300 for families.
The legislation allows individuals with high-deductible health plans to contribute to HSAs while also accessing free or discounted health services at employer-sponsored on-site clinics. Both changes are excellent ways to increase the ability of Americans to choose how they want their care delivered outside of the corporate health care industrial complex.
The legislation permits individuals who are eligible for Medicare Part A to contribute to an HSA if they are enrolled in a high-deductible health plan. The legislation makes individuals who purchase any bronze or catastrophic health insurance plans on the exchange eligible for HSAs. The legislation also allows for gym memberships and other physical fitness activities to be paid for with HSAs, up to a limit of $500 per year for individuals and $1,000 per year for families.
In a major win for working-class and middle-income families that gives them more control over their health care spending, the legislation raises the contribution cap from $4,300 to $8,600 for individuals earning $75,000 or less and from $8,550 to $17,100 for families earning $150,000 or less. There is a phasedown for households earning more than $75,000 for individuals and $150,000 for families, with eligibility phasing out completely at $100,000 and $200,000, respectively.
Expanding ICHRAs
In 2019, the Trump administration finalized a rule to permit employers to provide employees with an ICHRA—a tax-free contribution for workers to purchase health insurance in the individual market. ICHRAs provide workers with greater health insurance options while simplifying the coverage process for employers and potentially reducing costs. The legislation codifies this important rule, renames ICHRAs as Custom Health Option and Individual Care Expense (CHOICE) arrangements, allows pre-tax income to be used for the employees’ share of the premium if they select an exchange plan, and creates a temporary two-year credit for small businesses with fewer than 50 employees who offer CHOICE arrangements for the first time.
ACA Program Integrity
The legislative package includes important measures to tighten eligibility verification for premium tax credits and reduce improper payments. One provision requires annual verification of income and enrollment information for individuals claiming premium tax credits, preventing passive re-enrollment without updated eligibility checks. Another provision bars individuals from receiving premium tax credits if they enroll through a special enrollment period based solely on income, targeting potential misuse of special enrollment periods.
The package also eliminates caps on repaying excess premium tax credits, requiring individuals who misreport income to fully reimburse the IRS for overpayments. Repayment caps incentivize income underreporting, as overpayments are only partially repaid. Unscrupulous brokers have exploited this by advising enrollees to underestimate income, pushing billions in extra costs onto taxpayers. In The Great Obamacare Enrollment Fraud, Paragon documented that limits on subsidy recapture have contributed to billions of dollars of improper spending each year.
Restricting Subsidies to U.S. Citizens & Legal Residents
The legislative package restricts eligibility for premium tax credits and Medicare to U.S. citizens and specific categories of lawful residents. Only Lawful Permanent Residents, certain Cuban immigrants, and individuals under a Compact of Free Association would remain eligible for these benefits, effectively excluding illegal immigrants.
The package also closes loopholes that currently allow asylum seekers, parolees, and those with Temporary Protected Status to receive premium tax credits even if their income is below the poverty line. By eliminating these exceptions, the package focuses federal health benefits on citizens and legal residents, reducing federal spending.
