New House Bill Could Create Roth-Like HSA Alternative

What You Need to Know

A HOPE account could be available to individuals with annual income up to $100,000 and couples with annual income up to $200,000.
The starting maximum contribution would be $4,000 for individuals and $8,000 for couples, and the account would not need to be tied to a high-deductible health plan.
Employer contributions and investment gains would not be subject to income tax.

A new bill could create a health savings option for middle-income clients who prefer not to use high-deductible health insurance plans.

H.R. 9394, the Health Out-of-Pocket Expense Act, would set the rules for an account that could be to HSAs roughly what Roth individual retirement accounts are to traditional IRAs.

HOPE account holders would get no federal income tax breaks when putting their own money into the account. Employer contributions would not be considered taxable income, nor would any investment gains in the account.

Unlike an HSA, an account holder could use the account together with low-deductible or no-deductible health coverage.

The bill was introduced by Rep. Blake Moore, R-Utah. Three Democrats and two Republicans have signed on as co-sponsors.

What It Means

Lawmakers are still trying to think of sequels to the HSA.

The HSA Backdrop

The HSA program was created by a provision in the Medicare Prescription Drug, Improvement and Modernization Act in 2003.

The owner of an HSA must use the account together with special high-deductible health insurance, with a deductible higher than a statutory minimum and an out-of-pocket spending maximum lower than a statutory maximum.

This year, the minimum deductible is $1,600 for self-only coverage and $3,200 for family coverage.

The maximum out-of-pocket spending limit is $8,050 for self-only coverage and $16,100 for family coverage.

A taxpayer under age 55 who is willing to use eligible coverage can use up to $4,150 in pretax income to pay for self-only coverage and up to $8,300 in pretax income to pay for family coverage. HSA owners ages 55 and older can contribute an addition $1,000 per year.

HSA assets grow free from federal taxes on the investment earnings.A taxpayer can use HSA cash to pay for eligible medical expenses without paying taxes on the withdrawals.

The HSA program is open to taxpayers at any income or asset level.

Many in Congress have tried to improve HSAs by eliminating or lowering the minimum deductible, or by requiring HSA-compatible coverage to offer pre-deductible coverage for certain types of health care services.

One obstacle is that, from the perspective of federal budget impact scoring teams, the HSA program is expensive.

The HSA program cost the federal government $12.8 billion in federal income tax revenue in 2023, according to Treasury Department analysts.